December 1, 2011: Marc Llistosella, MD and CEO, Daimler India Commercial Vehicles
The DICV chief in a freewheeling interview with Eliot Lobo
Now that you are within sight of launch, you must have interesting stories to tell. Could we hear some of them?
Tell me some stories too. Give and take. Why is Mahindra Navistar not selling? Their truck is good, we tested it. We test everything that’s in the market — you know that. We drive it, compare it, tear it down, just to make sure that we aren’t arrogant. And we’ve found that the Mahindra Navistar is a good truck. It’s not superb, but it is better than what you have from Tata or Ashok Leyland. And the price is perfect.
How did it compare to your heavy truck?
Our truck is better. But our truck is our truck. And Mahindra Navistar is currently the best choice. So why is it not selling?
For any new player, selling the proposition of “outperformance” is easier said than done. Tata’s been around for a long time and has an unrivalled understanding of the market. None of the others has been able to take advantage of the economic upturn to snatch market share, not even Ashok Leyland.
Yes, but that’s no wonder, is it? When we come in, Ashok Leyland should watch out. Tata, even with a 94 percent market share in the north of India, is already taking us very seriously.
And you don’t even have a truck in the market.
Tata takes us so seriously that they’ve warned their dealers against working with us. They call dealer meetings, and make no secret of their displeasure if any of those dealers or their relatives is awarded a dealership by Daimler. VE Commercial Vehicles has also warned its dealers against working with us.
How many dealers do you have anyway?
We’ve received 415 applications so far for 75 locations. Of these, 54 have already been appointed. These consist of roughly 17 dealer groups — some of them have more than three locations.
Is that something you are encouraging?
Yes. And the good thing is that these dealers are absolutely willing to invest in the business. All of them are financially strong, they are not on the edge. Some of them are the biggest Hyundai dealers in the country, some are the biggest Maruti Suzuki dealers, the biggest Tata dealers, the biggest Ashok Leyland dealers, the biggest Eicher dealers. And the problem is, when when we appoint our dealers, then this pressure from the others starts. And they really exert pressure on the families, and tell them, ‘If you do this, we ruin your life.’
How many points will you have eventually?
In the first wave we will have 75 locations – sales, service, spare parts – covering roughly 88 percent of the registration areas. We still haven’t advertised for dealers, so I must say the interest from hopefuls gives me the confidence that we are on the right track. Everybody agreed we German Indians could do a plant and develop products. Manage suppliers? Difficult, they thought, but do-able. Find a sales network? Impossible, they prophesied. But we’ve found it. For each location we now have a minimum of six parties to choose from.
How does your dealer selection process work?
Like a funnel. We first select a location, let’s say Hyderabad, where we have hopefuls who are dealers from the automotive – truck or passenger car – or other sectors, like power generation or construction equipment. We ask them to fill a form with up to 80 pages of data and 300 individual data points relating to their finances, corporate structure, management, track record in the automotive industry for the last 15 years, investment, returns, etc.Eighty percent of the dealer groups – we’ve really had groups approach us rather than individuals – actually made the application. Most of them were excellent in terms of the data they provided — 380 of the 415 gave all the information we required.Three-quarters of the applications cleared the first local compliance check for financials, business scope, and service capability. Three-quarters of these were sent to Germany for a deep-dive compliance check, where they were tested for the highest European levels of compliance.The German organisation checks everything from the last 10 years — every press release, tax problems or known relationships that seem to be not clean… Using data from the Internet, and from agencies in India. If Daimler in Germany needs more information, we have to collect it. If we find in the applicant’s background any incident of corruption, any incident of blackmail, any incident of untoward money payments, he is automatically disqualified.We were then left with roughly six candidates for each location. These were scored on a scale of 0 to 100, and every one that scored above 75 qualified. The whole process takes three months in the best case, and nine in the worst.
Have your dealers seen your trucks yet?
All these dealers have seen our trucks, and have driven them. They know what’s coming. In fact, we’ve already had our first dealer day, where all the dealers come together. There’s no amusement or entertainment. Just work. We want to work with them together to build. We discuss with them what exactly the customer profile is in their areas, what IT systems and tools they need, what kind of service they intend to provide. And then we offer assistance, training for their people, and so on.What makes us positive is the feedback they give us — they like our processes, the structured way we are approaching their business, and the fact that we really listen to them and take care of them. It’s not a one-way street.
How do you keep track of their progress?
We start tracking them as soon as the letter of intent is signed. We have a system of 12 gates through which each dealer has to pass. Does he have land? Statutory approvals? People? Pit? Civil? Standards? IT? Salespeople? Service people? Bom, bom, bom.There’s a timeline for each dealer which is tracked by our network department. And wherever someone is struggling, we bring the expert to the dealer. So if the dealer says he has a problem with the civil construction, we send in the civil guy. Because some of the dealers are not used to building up things, but we are — we have a civil department of our own here. If we struggle, we ask Germany to send us experts. Our German experts fly in, and clearly direct our dealers what they should or shouldn’t do, and how they should invest.
When will you have what in place?
By the second quarter of 2012 we will have some dealers already in place, with more in the third and fourth quarters. Where we start with customer trials, there we have to have dealers. In some locations we have lost a dealer because of pressure from our competitors. There we’ve been set back by six months.
Do you do anticipate that more may drop out?
Yes, that’s why we have six candidates for each location, and three top. This is also called second-sourcing. You must always have an alternative. If there’s no alternative, you’re done for.
You will launch in what will almost certainly be a depressed market. What value proposition will you offer that could give you an advantage?
We are not me-too. The thing is, the more the fuel price goes up, the better for us. We have a double-digit advantage to the competitors in fuel consumption — in every segment. So that means whatever happens to the subsidy on diesel widens the advantage of BharatBenz over the competition. Remember, fuel makes up 60 percent of the TCO (total cost of ownership) in India.Know also that this kind of subsidy will not last forever. It cannot. India can’t afford it. Right now we see prices between Rs 44 and 46 a litre. We anticipate prices between 48 and 52. Then our TCO advantage explodes. Our calculation was always done on 41. So even now, we already have a bigger advantage than we expected.
There’s much talk about an increase in the price of diesel fuelling inflation. But isn’t the real problem the way the transport market is organised? Remove all the layers of agents and middlemen, and transporters would have their own leverage.
This is artificial. And with the entry of international retail chains there will be more pressure. The newspapers report that a lot of people are very worried for small retail in India when the big retailers are allowed in. We see this everywhere. But what we’ve seen in China, in Brazil, and even in America and Europe, is a coexistence — between very specialised small shops, and the big chains. You will have this here too. Because there’s a certain form of need here.These big chains want just one thing — on time and in quality. If you mess around, you’re out. This means we will see a more structured, more professional customer. And the more structured the customer demand, the less power you have to mess around or do a little merchant business. Because they will say, ‘Listen, I need 150 refrigerated trucks for my cold chain, I need them in time. I don’t care what truck it is, all I want is that it keeps my cold chain intact.’ So the quality must be assured — and you have to be on time. No excuses allowed.The big retailers aren’t used to any struggle with logistics. Consequently you will see a lot more TCIs, very professional, extremely structured, absolutely competitive to DHL, to Nippon, and so on. And those, by the way, are coming too.
Will increasing urbanisation have an impact?
Very clearly it will. Currently India is only 29 percent urban. The world average, apart from our triad markets (Europe, the Americas, and Japan) is 50 percent. So for India to get to the world standard, 20 percent more will have to become urban in the next 10 years. That means 240–250 million people will move to cities.A second trend is the increase in the number of megacities beyond the metros. This means you will have more retail, bigger retail, more structured transport. These megacities need a totally different structure of supply. You see it every day in Mumbai and Delhi. This can only work if the supply chain for food and consumer products is professionalised. Otherwise there will be frictions and extreme losses as a result. So it’s very simple. It will happen, it will happen with us, we are interested in this, and this will change the country.
Could you paint a more detailed picture?
Currently people speak about five cities in India, in ten years they will speak about 25 cities. It’s the same as what happened in China. Ten years ago it was Beijing, Hong Kong, Shenzhen, Wuhan, and Shanghai. Now they have 25 cities with millions of people. These are all transport hubs. And developing these metropolitan hubs means building more infrastructure, and this is the second thing. Retail and construction together will drive the change.The hubs will also be production centres, and they will be linked with each other. I think the state will no longer be as relevant [as it is today]; the metropolitan areas will be more in focus. And from one metropolitan area to the others we envisage truck corridors, like the one that’s already been conceived from Mumbai to Delhi. The next corridors will be between Delhi and Kolkata, Kolkata and Chennai, Chennai and Bangalore, and Bangalore and Mumbai. They will need truck stations and other supporting infrastructure.
Towards enabling this transformation, is Daimler actively looking at transport efficiency beyond just the truck? In terms of helping a customer plan his transport operation?
Certainly. I have always advocated that our sales guys be trained to understand the business model of the customer. We have to know how he funds himself, what the freight rates are, what his margins are. We don’t compare our pricing with that of the competitor. We say the following: ‘If you have a Tata, what are your revenues? At what speeds do you operate and how many turnarounds do you do? What are your costs — initial cost, funding cost, insurance, service and maintenance, fuel, driver? Deduct.’Then we look at how much you would earn with our truck. We compare products only by profit. Of course, the economics are different from segment to segment — a cold chain operation is different from construction transport. But for each main industry sector we have the economics worked out. This enables us to compare the profit of a customer using a product currently in the market and what he would earn using ours. And for each, our target is that he should make a higher profit with our product.
Refrigerated trucks of the kind you have in mind don’t exist. I imagine that you will bring in a lot of applications that do not exist today. So what really is your basis of comparison?
We compare with what exists. It’s important for us that we are not arrogant — we could say the way they do it now is not professional, but the one question that really concerns us is, how do they transport ice-cream to Bangalore? Whether this is efficient or not, irrelevant. So we look at the existing means — whether they are nice for a European to see or not, irrelevant. How is ice-cream brought from A to B? Or Coca-Cola? Or meat? How does a McDonald’s restaurant somewhere in Hyderabad get its supplies? And the more we study the more we are confident of going to them and saying, ‘Listen, this is how you do it, but this is how you could do it more profitably. Our main selling proposition is, you will make a bigger profit with our product. Anything else I don’t discuss. I will not say ‘Our cab is nice, it looks totally different, your driver has a better seat…’ And mind you, this isn’t something we’ve neglected either.
Are there strategic benefits in giving the driver a better work environment?
Drivers are beginning to get scarce in India as they are already in Europe. Nobody wants to be a driver, and there are fewer and fewer good drivers. There’s a contradiction here — the country desperately needs qualified drivers to move growing volumes of goods, but the job holds no attraction for anybody. So we have to train drivers. A lot of people claim they do, but Daimler will make sure that drivers know by definition what a real truck is, so that, at the very least, they will not be at the mercy of the system.All along drivers have been just a cheap cost factor, but in the future they are going to be a scarce commodity. They will no longer be dispensable like they are today. The problem is, a low-cost driver is incompatible with a high-value load. If your load is ruined, it’s going to cost you a lot of money. So you are interested in better-qualified drivers, and want to make sure these drivers stay with you. For his part, the driver will ask for better seating. He will ask for better security. He will ask for active safety. He will ask for better air-conditioning. Lots of things. The obvious consequence is, when one logistics provider has more to offer, in terms of better trucks, he will get better drivers. And more of them.But we won’t only have a good product for drivers; we already have a cool brand for our dealers. And BharatBenz is a cool brand — worldwide. What encourages us is that, without a product to show, lots of dealers are coming to us. Now which is better? That I desperately plead for dealers to come, or that I have a cool brand that attracts them?
The styling sketch of the truck on your wall looks good, in my opinion even better than the Mercedes Axor. Will the final product look like that?
It will look even better. It will be more masculine than Mercedes. And you know, I am all for testosterone. I’m masculine, I like masculine things…But how good it looks is one thing. We know how good it is. Every BharatBenz truck is exhaustively tested. By the time we’ve launched the full portfolio, we will have tested our trucks for 9.5 million kilometres cumulatively. We plan to bring out 17 trucks between 7 and 49 tonnes over a space of 20 months, beginning in the third quarter of 2012. The tryouts will start from the beginning of next year.
Daimler’s approach to the truck business in India has been comprehensive. How big is the market opportunity for you really?
The backbone of each society for the last 50 years has been the truck business. And India has to grow. The GDP of India in 1750 was 16 percent of the gross world product (GWP). In 1910, when the Brits had the real rule, India’s participation in the GWP was 0.8 percent. By that time the UK had grown from 2 percent to 15 percent. Where is India now in the GWP? Far from 15. But 17 percent of the world’s population are Indians. So for India to achieve a GDP at par with its population, it would have to aim for 17 percent of the gross world product. This is the potential size of India. If your politicians don’t make big mistakes, you can reach this size. The only thing is, you have to get over this low-cost-low-quality mentality. Because low quality in the long run costs you more money than if you would invest in a little better quality.The GWP is currently $65 trillion. And the nominal GDP of India is $1.3–1.4 trillion, or 2–3 percent. How do you think you will reach 17 percent in the future? Only if this country develops commensurate with its (geographic) size. And India isn’t that big really — it’s half of Australia. Australia has 22 million people; India has 1.2 billion. So that means transportation and construction are the two main sectors, besides power of course. You might say IT, but IT doesn’t produce anything in terms of materialisation of daily food. You first need the daily necessities to be supplied, and that has to be done by very physical things like trucks. Only then will India grow.
You talked about distribution. But what about infrastructure?
I’m not finished. China has 1.35 billion people, and a market for roughly 1.2 million trucks above six tonnes. In Spain we have 48 million people and normal truck sales of 35,000–40,000 in good years, or 25,000 units in bad years. So there seems to be a correlation between the population – the consumers in a country – and truck sales. This shows the importance of trucks. You cannot establish this correlation with cars that easily.Now let’s take a test. How many million people does Italy have? Roughly 60. How big is the market for trucks in Italy? It should be 60,000 but it’s not, because Italy is not industrialised like Germany, for example. So you have a factor of not one-to-one, i.e. one million to one thousand, but 1:0.6–0.7. In China we have currently a factor which is 1:0.9. So where’s the growth? No growth. China’s grown already.How many million people does Germany have? 80. How many trucks sell in Germany in a normal year? 80,000. Sweden? 9 million people. How many trucks? 6–7,000. So you see a factor slightly below one.What’s the situation in India? 1.2 billion people, and how many trucks above 6 tonnes? 300,000. Do you see what I see? This is growth. The factor for India is 0.25, versus 0.5–0.6 for an average country. Just to reach this average you have a target of 600,000 units. Minimum. So that means it is coming. It’s coming like a tsunami.
Does that explain why [Daimler’s China partner] Foton also wants a piece of the action?
Of course. They all do, but none of them has understood. We took the last five years – you know that – to understand the market, so that we would not bring cheap trash onto the streets and say, ‘Take it and try it out and find out whether it is good or bad.’ This is why we spent 700 million euros.
Your operation here will be the least vertically integrated of Daimler facilities worldwide. Daimler hasn’t really done it this way anywhere else. What gives you the confidence you’re going to get it first time right?
My 1,000 people, and our tracking, which I’m pretty sure you have never seen before. We track even when you go to the toilet (!) Otherwise we have no chance. We have to bring precision. We have to evoke confidence in people that there is quality. And we have to bring home to the engineers here the clear understanding that with their creativity, and our processes, they can raise the bar not only in India but globally. We want to raise the bar in a lot of areas. For example, the cost planning here is tops. These people are ready to go wherever they are requested for by Daimler. The IT guys are not ready to go. They have to deliver for one more year.Then we can go global with them.Of course, I am confident in the product, we are really testing it. My confidence in our suppliers is not 100 percent, let me be honest with you. Some of the suppliers are excellent, some are just, let me say, pretentious? But now they have to deliver. I don’t listen to promises — each one has to demonstrate that they have a stable process.It helps that we have [vice-president (supply chain) Erich] Nesselhauf to secure the supply chain. Nobody can build a supply chain from scratch better than he — I have never in my life seen anyone better, neither in Europe, nor in India. If he were not in my company I would do everything to get him. The fact that our supply chain is so well structured and so precisely tracked I owe entirely to him. This is the precision I want from my top managers.But there’s something deeper. Normally, top managers [at truckmakers in India] cannot even drive trucks. Give me a key, I will drive any truck you ask me to. And race them too! This is something common to all the top management here. [Vice-president (product engineering) Aydogan] Çakmaz is a true-blue trucker too. He knows trucks in and out. You sit him in one and he can give you feedback about the finest points. This is expertise. It’s the only expertise we need.We have excellent Indians too. Amitava Sinha from supplier management can smell when a supplier has problems and knows exactly when and what. Our recruitment process is not very nice, you can imagine. Recruitment here means you have to bring something that will really add value. If you say you have a nice MBA, good for you. Millions have MBAs. You have to bring something more to the company. And if you’re not committed, no good. BharatBenz is not a job. It’s a mission. It’s a commitment. BharatBenz is something Indians can. We can. We can do it, and substantially better than everybody else. And we will do it. Not one of our competitors has understood this. They all thought, oh, they’re just making a cheap Mercedes.
For me, the Daimler India story is equally about the value you’re delivering to Daimler from India — uniquely. Could you tell us more about that?
You’re right. It’s not only about trucks. We are bringing in new thinking. Our target is to bring, to India and to Germany, the best of both worlds. And I don’t just say this, I mean it. Because there is exceptionally good quality in German engineering. They are never happy with anything. They always go deeper and deeper, they don’t compromise. They want always the best. Now combine this with the Indian flexibility, creativity, and cost structure, and we have the best products in the world. And then we can really do a lot. We will not be scared of any Japanese or Chinese. This is something I really believe we can do from India.The question is, is everybody prepared for this? When you are used to doing things [a certain way], you are sometimes not willing to listen…
We’ve not heard anyone speak this language, definitely not Daimler.
Let me ask you a question. Who is open and frank in this world? Nobody. The problem is, I am. And that is my faith. Who loves people who are open and honest? Nobody. Everybody hates them. So what is better? Simple, stupid, superficial blubbering? ‘You know, we have big plans…’ and then I proceed to give you ratios that are all over in the newspapers? Or the core story, which is much more than this or that statistic? The truth is, here we are building a culture, a foundation. We are building something that is the best of Daimler. And Daimler is an exceptionally good company.Who else has taken the approach we have? Nobody. You can say Daimler is very conservative, gives out information that everybody already knows, etc. But which other company ever allowed a team of absolute believers like Çakmaz and myself to do a project like this? Have you seen any new truck brand anywhere besides China? Who else is attempting anything of the kind we are?
Would a continuation of your association with Hero have allowed you to do it the way you have?
[Hero’s departure was a] blessing in disguise.
What specifically will you do in India that’s better than what anyone else can?
Engineering and testing — there we have to be the best. And of course there’s procurement, supply chain management, logistics, training, and quality. Our departments must be so good that the Germans say, ‘It comes from India? Perfect.’ Daimler India has to be a brand itself, like BharatBenz. You say you qualified where? In BharatBenz? Then you are best. Then I can take you on immediately at the next level. So, if you are at the level of team leader, you must be immediately general manager in another company. And, by the way, this is happening. Our people are recruited by Tata. Our people are targeted by our competitors. And they immediately give them higher positions. This is what I want — not to lose people, but to have people that are the most sought-after in the market, so that the market gives me respect for what we did.
Do your own people have mobility within Daimler? Will they be able to take what they have learnt here and apply it elsewhere in the group?
Good question. This is what we have to start. Right now I cannot give anyone anywhere. But in two years I expect this will happen. They are all highly qualified, they know this in and out, their English is English… So what’s the limit? They can go to America, they can go to Japan, they can go anywhere. That’s exactly what we want — to be the talent pool for Daimler. Of course, if we just say this all the time, they will say, ‘Boy, first deliver and then we’ll talk about the rest.’ So this is exactly what we are now doing. First we deliver. When we have delivered something that’s really outstanding, then we can go beyond.
So Daimler is really getting much more than it bargained for?
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