M&M, Renault throw down the gauntlet

The Logan has the potential to be a winner in the C-segment, says Sandeep Belagajee who was in Nashik for the rollout.

Autocar Pro News DeskBy Autocar Pro News Desk calendar 04 May 2007 Views icon2585 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
M&M, Renault throw down the gauntlet
The much-awaited Logan, which signals Mahindra & Mahindra’s comeback and Renault’s entry into the Indian passenger car segment rolled out with great ceremony – and a little pomp – from the Indian partner’s facility in Nashik on April 4. This was a little over two years after the two companies set up a joint venture to make and sell the car in India.

To say that the Logan is a significant project for the duo would be stating the obvious – and a bit of an understatement. Up until now, M&M has only been present in the SUV and tractor segments and is a market leader in both. Four years ago, it successfully launched the Scorpio, a product that helped establish a new brand identity to the company.

With the vehicle, M&M moved from being a manufacturer of reliable, robust if technologically dated SUVs to a company that produced and delivered a hip, happening, technologically-relevant product at a competitive price. Although it was smartly marketed as a ‘car’, it is still an SUV.

The Logan, however, is a different ballgame. It will be sold in the same dealerships as the Scorpio, and is a thoroughbred sedan. M&M does not have a history of making and selling passenger cars. The Escort was a CKD operation at Nashik and M&M really had no role in its marketing while insisting that the exercise was a great learning experience.

The initial campaign for the Logan was brand-specific, and stressed on the pedigree of the French partner. It would be fair to assume that the product campaign, which is yet to break, would continue on the same along with the USPs of the Logan like space, reliability, technology, value for money etc. So it has its work cut out in marketing this ‘real’ car.

And the initial signs are favourable. For starters, the launch price is attractive enough to act like a magnet in getting consumers to have a look at the car even if they have not heard of the Logan’s pedigree. More than 450,000 units have been sold in 51 countries around the world since its launch in 2004.

LOGAN ROLLOUT

In India, the Logan is available in both diesel and petrol versions. Prices for the 1.4 and 1.6 litre petrol versions range from Rs. 4.28 lakh to Rs. 5.69 lakh. The price for the diesel 1.5 version ranges from Rs 5.47 lakhs to Rs. 6.44 lakhs in Mumbai. The car is being rolled out in three phases starting Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Nashik, Chandigarh and Ludhiana, where deliveries will start in May. This will be followed by Phase 2 which will add another 15 cities to the retail network, and deliveries will start from June.

##### The national roll-out will be completed in six months, and the car will eventually be available in more than a 100 dealerships. This plan gives Mahindra-Renault the time to establish the brand. The other reason why the Logan could be a money-spinner for the joint venture is the fact that production kicked off one month ahead of schedule, and the investment cost was less than forecast. The total projected cost of the project by the two partners was Rs 700 crore split 51:49 between M&M and Renault.

The breakeven figures for the project are also astonishingly low, reflecting the ultra-competitive way in which it has been conceived and delivered. While M&M officials were not ready to giving out figures, Renault’s CEO, Carlos Ghosn, speaking to reporters in Nashik said that depending on model mix the project would breakeven between 33,000 and 35,000 units.

“It would be a miracle if we breakeven in the first year itself, we only have seven or eight months to sell the car. But I am optimistic of a profitable January-December 2008,” he said. More than mere numbers, the success of the Logan is vital to Renault’s future plans here. The company’s Commitment 2009 document outlines three important goals: sell three million units, take operating margins to six percent and position the next Laguna among the top models in its segment in terms of product and service.

Renault currently sells 2.2 million, and 50,000 of the additional 800,000 units required to reach the three million mark would come from the Logan. It has also committed to the creation of a greenfield production facility in Chennai by 2009 with partners M&M and Nissan, which will have an installed capacity of 400,000 vehicles per annum.

Some derivatives of the Logan, including the seven-seater Logan Steppe and a hatchback (model code B90) will be made here. This is likely to be followed by a crossover (code H79) and other models like the Clio and the Megane. Given this scenario, the success of the Logan would be the ideal platform from which Renault can begin its real assault on the Indian market and establish its own marquee. Ghosn was ambiguous on how things would span out.

He said that all options , including that of Renault going it alone with the other models it plans to make here, were possible. But for the moment it is the Logan that occupies centrestage. The factory in Nashik has already set new benchmarks for Renault facilities anywhere in the world, and one that Ghosn does not tire of citing as a model that can be replicated. “There is something unique about the frugality in engineering, completely professional management and deep commitment to continuous improvement that we can learn from,’’ he said.

##### COST SAVINGS

By commencing production a month ahead of schedule and at 15 percent lower than projected costs, the company has effectively saved Rs 100 crore of its Rs 700 crore planned investment. The Renault chief was especially appreciative of the cost-competitive engineering skills of Indian companies. “I am deeply impressed by their frugal engineering. We do not know how to manufacture a $5000 car in Western Europe. India companies like Mahindra, Tata Motors and Bajaj are doing a wonderful job. So why should we reinvent the wheel when we can simply learn from them.

“Bajaj sells three-wheelers for $2,000 and I would lose my shirt if I tried to do that. Only an Indian company can do that. I would rather partner an Indian company if I have to fight on cost. We hope to benefit from the high level of quality and competitiveness that exists here,” he said.

Ghosn, in fact, admitted that sourcing from Indian would be a good option provided infrastructure issues were taken care of. “Indian components are 30 percent cheaper than Europe or Japan, so why should we forgo that value? Indians are smart people, so I am sure they will take care of infrastructure as well,” he remarked.

All of this must have sounded like sweet music to M&M’s vice-chairman and managing director, Anand Mahindra. His definition of “frugal engineering” – a term Ghosn bought up repeatedly in conversations – was “low cost of innovation per unit”. “The capability of M&M to help develop ‘frugal’ products is not in doubt. This has been proved by our ability to adapt the Logan for Indian conditions in terms right-hand drive, better ride and air-conditioning. Whether Renault wants to take these changes to other relevant markets is entirely at the discretion of our alliance partner. I am optimistic that Carlos will drive the objective of extracting value from Mahindra,” he said.

There are no immediate plans to export the Logan because the alliance partners believe that present capacity is just about enough to cater to the domestic market. But the president of M&M’s automotive sector, Pawan Goenka, said that capacity could quickly be ramped up should the demand profile change.

“We can make 50,000 units on a double shift, so we can add a third shift and increase output by 20,000-25,000 units quite easily,” he said at the Logan in Mumbai. This could become a reality sooner than later given that the car has been launched at a great value price.
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