It was supposed to define French auto maker Renault?s path in India and open new avenues in terms of technology and segment for Mahindra & Mahindra (M&M), a tractor and utility vehicle manufacturer at heart. But Logan, the sole product on which the two makers were crossing their hearts, never took off in the market, leaving Renault more in loss than M&M. The boxy and straight design of Logan as against the sleek Japanese and Korean cars in the market was a challenge, while some basic issues of pricing, engineering and distribution ended Logan?s journey rather too soon.
A Dacia design, Logan hails from the eastern European market, where it was a successful low-cost car. It was after this success that Renault and M&M came together and launched the product in the Indian market. However, the inching up of excise duty (8% differential that widened the gap) a year before the car made its debut in the Indian market in 2007 was a factor against the car and gave almost no time to the two makers to improvise.
?Initial market response was rather good for Logan, with sales averaging close to 2,000 units through October 2008. However, this is when the global financial crisis hit, and availability of finance in India became more difficult and expensive. Sales dipped since November 2008 and have never recovered since. While volumes were strong at close to 20,000 units in 2008, Mahindra-Renault sold under 6,500 Logans in 2009 (calendar year). Apart from the lack of credit availability, Logan does not meet with India?s small car specifications and attracts a higher duty. Hence, the model is not priced competitively compared to fresher models in the market,? says Ammar Master, senior market analyst, India and Korea, JD Power and Associates.
Further, the car suffers from a drab and utilitarian styling that has not appealed to private buyers. ?It is fuel-efficient and has good boot space, but this has only led the Logan to be bought as a taxi,? Master explains.
Despite being aware of the challenges, the makers did not do much to revive sales. From few face-lifts and an unclear marketing campaign, Logan ended up with meagre sales numbers to settle at under 500 units per month. Last year (April 2009-March 2010), the total sales of Logan stood at 5,332 units against 13,423 units in the same period la year ago, a fall of 60%.
VG Ramakrishnan, director, automotive & transportation at Frost & Sullivan, says, ?The pricing was completely wrong in the segment and the dealers soon started finding it difficult to sell the product. They were asking for premium for an old model that was low on technology. It was retailed around Rs 5.5 lakh. The first year sales of Logan were not significant enough to undertake large expansion in the distribution network, also one of the reasons for low volumes.?
However, M&M begs to differ. According to the company, distribution network has not been an issue at all and it has around 130 dealers across India.
Now, the question arises whether the Logan will be accepted in any form by the Indian market. Will the renaming and dropping out of the Renault badge change things for Mahindra & Mahindra (M&M)? Probably, but M&M will really have to buck up in terms of resolving the above-mentioned issues.
The company has already taken one such step. Last week, it announced a significant price rationalisation of Logan. It reduced prices in the range of Rs 27,000 to Rs 80,000 for Bharat Stage III variant and Rs 24,000 to Rs 65,000 for Bharat Stage IV variant (both prices are ex showroom New Delhi) from April 26 in a bid to revive demand and make up for the lost customers due to premium pricing earlier. Before the price slash, Logan was selling at between Rs 5.13 and Rs 6.45 lakh (ex showroom New Delhi). The company said it managed on the back of cost saving arising out of the re-structuring of the JV. However, the market sees this as too late a decision. ?Consumers can choose far more stylish and upgraded models in the market instead of the Logan. We do not expect the Logan to achieve its record sales of 2008 any time soon,? says Master. JD Power forecasts the model to sell an average of 11,000 units between 2010 and 2017.
Another important area to be addressed is localisation. The car still has large import content, with localisation standing at 50%. Though the company does not plan to localise the power train that makes close to 25% of the cost, it says it will source from Renault?s Chennai plant once it commences operations. This also makes maintenance of the car high compared to others in the segment.
A senior official from M&M, on the condition of anonymity, told FE why Logan ran up the wall with losses mounting close to Rs 700 crore. He said, ?We should have been fast in making engineering changes on Logan. When we launched the product (Logan), there were seven to eight players in the market. Tata Indigo, one of the competitors, made quick changes in the product and got a compact sedan, the Indigo CS. That?s when the brand lost its momentum.? Further, he said the high cost of operation of the JV made it unviable to make ends meet when Logan sales were slipping month after month.
But now, better cost management and integration at various levels are the need of the hour.
M&M has pronounced its belief in the product as it bought out the 49% stake of Renault in the JV?Mahindra Renault Private Ltd?early this month, making it clear that M&M does not want to settle down just as a utility and tractor maker. The company has some serious plans to turn around Logan as a profit-making product. It will re-style the car over the next 18 months with a less than four metre-long Logan, planned to bring down excise costs. Currently, Logan attracts 22% excise duty, which will come down to 10% once it is made less than four metre-long, says Pawan Goenka, president, automotive & farm equipment sectors, M&M.
The company is also exploring the possibility to develop an all-new product on the Logan platform in India if Renault gives it the green signal and will rename the car and make it an M&M brand product starting 2011. However, Renault will continue to give technology support to M&M and the two are not denying future tie-ups on technology sharing. M&M will continue to pay royalty to Renault for the existing as well as any future product.
While the maker has satisfied its appetite for two-wheelers with Kinetic Motor acquisition, the company has had bad luck with sedans. Its partnership with the US-based Ford Motor Company to make passenger cars in late 1990s also failed because of the poor performance of the Escort, the debut product of the JV. Now, when M&M takes off on its own with back-end support from Renault, it will be a venture worth watching out for, as the homegrown tractor and utility maker looks to evolve as a global automobile major.
