Premier bases it on the Rio

One of India’s oldest carmakers gears up for a new innings with its Rio SUV and plans to build another plant. SumantraBarooah on Premier Ltd's ‘born-again’ strategy.

April has been a busy month for Premier Ltd which has been conducting tests of its Rio compact SUV fitted with the 1.3-litre diesel Multijet engine sourced from Fiat. This variant will enable it to enter the diesel SUV space in the BS IV markets in India. It will also mark, in a sense, the real launch of the vehicle. But wasn’t the vehicle already launched in October 2009?

“We introduced the product then. The press used the word ‘launch’. From April-May 2012, we will go into production mode,” says Rakesh Mehta, head of Premier’s automotive division and a three-decade veteran. In the “pre-production” stage, over 2,000 Rios were sold.

Premier hopes to leverage an untapped segment with the compact SUV and is actually taking a leaf out of Tata Motors’ experience with the Nano which also targeted a virgin segment. Mehta says Tata could have emptied a stockyard of Nanos in no time if it had the cars ready on launch day. So, before it goes whole hog with the Rio, Premier is fine-tuning the SUV and putting together an efficient sales and service network.

New plant in the offing

As Premier ramps up the Rio’s business, it is also in talks to invest in completely knocked down (CKD) production of the vehicle. Importing the vehicle via the CKD route will also make it more price-competitive. The Rio is sourced from a Chinese manufacturer Zotye, which sells it as the Nomad, fitted with Mitsubishi engines in China. The Nomad was originally the Daihatsu Terios. Premier launched the Rio at a relatively small investment of Rs 250 crore.

Premier’s plan to increase capacity is needed in order to supply enough vehicles to its dealership network, most of whom are in Tier 2 and Tier 3 cities. It has 50 dealerships at present and plans to double the network by December 2012. The Rio’s growth potential coupled with future products will make it necessary to build a new plant. The current facility can roll out 15,000 vehicles annually. “We will go slowly to CKD and then local production. CKD will be after two years. It takes 18 months to set up a new plant,” says Mehta.

Premier is scouting for a location and its preference for now is Maharashtra. The company once had a facility in Kurla, Mumbai which was sold off. Mehta’s hopes for the Rio are based on the fact that he feels the segment could grow to 300,000-400,000 units per annum. “Once the big players come in, this market will explode,” says Mehta. One of those ‘major’ players is Mahindra & Mahindra, the others being Ford India, Hyundai and Maruti Suzuki. So wouldn’t it be difficult for a relatively small player like Premier to maintain the first-mover advantage once the biggies come in? Mehta disagrees: “My mission is not very high volume. The big players will open up the market. The fact that everyone is talking about compact SUVs after the Auto Expo is encouraging. We have changed our tagline from ‘India’s first compact SUV’ to ‘India’s first and only compact SUV’.

Niche model mantra

Premier’s Rio has five variants between the two fuel options. So is a one-model strategy viable?

“We will commence with the Rio and then go on filling the portfolio,” says Mehta. To build the portfolio, Premier will follow the same business model it has for the Rio which is to build and sell models sourced from other OEMs, unless any change in government policy offers it a more attractive option. Mehta says the future models in the portfolio will address niche segments. While Premier focuses on building the passenger vehicle business, its LCV business plan has taken a backseat. It has two LCVs – Roadstar (1.5-tonne truck) and Sigma (passenger van) – both produced on order. With an aim to have a clear focus at the showrooms, Premier will realign the dealerships which sell both the Rio as well as LCVs. Both segments will have dedicated dealerships.

Premier has completed its warm-up phase after a 10-year break from the passenger vehicle industy. It remains to be seen how it can leverage the trend towards compact SUVs.

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TALKING TO RAKESH MEHRA, HEAD – AUTOMOTIVE DIVISION, PREMIER LTD



Density in the showroom is important for a dealer. How often will you launch products?

No carmaker can do well with one model. We have plans in the pipeline. We are the ‘baby’ in the industry. We have to first establish the Rio. And yes, we will go on filling the portfolio. Premier has taken a conscious decision to remain in the automobile business after a 10-year break. We have given it enough thought before entering into this business. We have not run away for the last 60 years. There are no chances to run away now either.

How about introducing a 4x4 version of the Rio? If you look at Indian requirements, except for the military, 4x4 is not a significant market. We don’t use SUVs for the purpose the world uses them. There is a niche for a 4x4 but the numbers will not justify the investment required. But, if required, we can always do it in the future.

How do you see the LCV business doing? It is a very interesting segment if you take the example of the Ace which is capturing the requirement of the three-wheeler. There is a big gap between the Tata Ace and a truck. The Roadstar is a 1.5 tonner. There is a market between the Ace, which weighs 800kg, and the three-tonner trucks. It is again a niche segment. Yes, the Bolero is doing good business but its cargo space is little less than our vehicle.

For now, we are concentrating on consolidating our position with the Rio. The Roadstar business will continue. These are two different segments with different customer profiles. India has not reached a stage where a car buyer will feel comfortable standing in the same showroom which sells trucks. At this moment, we have dealerships in Tier 2 and Tier 3 markets; they sell both trucks and the Rio, but we will separate them.

Will you retain the existing Rio with the TUD5 engine after launching the Rio 1.3?

We will retain the TUD5-engined version for Tier 2 and Tier 3 cities where the need is for BS III vehicles.

Did you expect to face problems marketing the Rio, given its Chinese origins?

The market is maturing. If you look at the 1960s and the ’70s, even Japanese products were not accepted easily because of sub-standard quality. The Koreans came and they too had a tough time. The Chinese also came and they were also thrown out. The reason is the (business) model that Japan has followed (in the auto industry), and what Korea has followed, China is following the same model. We only have a perception issue.

Today, the Chinese market is around 15 million vehicles. You cannot sell 15 million vehicles if you do not have quality. This Rio is sold in 26 right-hand-drive countries. All the components are Euro certified. It was a pleasant surprise when I took the vehicle for homologation. All components got through in one shot by a great margin.

We have dealt with the Europeans as well as the Chinese. The Chinese are very proactive. A small problem here and they will send 10 technicians to address it even though we don’t have any technology agreement with them. They know if Premier sells, Premier will buy from them. If Premier doesn’t sell, Premier won’t buy. Premier can’t buy the Rio from anywhere else. And the Chinese don’t go by only what is written in the agreement. Europeans go strictly by the written word.

SUMANTRA BAROOAH