Utility vehicles will always be core of M&Ms automotive business

Written by Ronojoy Banerjee | Ronojoy Banerjee | Updated: Aug 8 2010, 03:22am hrs
For a man who junked a lucrative job at General Motors in the US just to be home in India, impulse has become the operative word for Mahindra & Mahindra automotive sector president Pawan Goenka. Having spent more than 15 years with the utility vehicle major, Goenka has been instrumental in creating the brand Mahindra and take it across the globe with its range of SUV products. In a freewheeling interview with Ronojoy Banerjee, Goenka discussed his professional journey and how the auto market in India has changed over the years. He also spoke about Mahindras erstwhile JV with French carmaker Renault and the differences in opinion that had arisen in the process. Excerpts:

M&M is strong in the SUV segment. But we are seeing the company making an attempt to enter the passenger car market with Logan. What is the companys strategy in this space

M&Ms strategy has always been very clear, which is that the core of the automotive business was, is and will remain the utility vehicles. In fact, you will see that in this space we have done no joint ventures because we have the expertise to develop our own products and bring in technologies and compete with the best in the world. That is why we are launching new products to be present in all the price points in this segment. Our aim is to become more global when it comes to SUVs and pick-ups. In addition to the core, we always explore for opportunities to leverage from them.

You signed a JV with US-based Navistar four years ago. What did you achieve from it

With Navistar we entered into medium and heavy trucks. The reason why we entered in this space was because we feel that the commercial segment in India has a significant potential to grow given the size of the country and the nature of infrastructure. Our strategy in the commercial and passenger car segments has been that whatever we do will not be independent, but with a partner which gives us the scale in product development and R&D, sourcing, manufacturing plants and distribution which helps us to grow.

Your presence in the passenger car market (excluding the SUVs) is still on the lower side. What are M&Ms plans to tap this fast growing segment

In the passenger car segment our interest is limited to Logan. As we take over the product (after buying out Renaults stake in the JV) we will be doing something to it to make it more attractive to the customers. Our plan is to stay with Logan, but that does not mean we will never look at other four-wheeler options. We might in the future, but not immediately.

Why is M&M so keen on retaining the brand Logan after its lukewarm response from the market How confident are you

I am very confident about Logan for two reasons. Whoever has brought the product is happy with it and people swear by the space, comfort and fuel efficiency that the car gives. Where we had failed was the pricing of the car and that was because of the excise duty and the high euro conversion rate. What we are doing now is bringing down these costs because of the lower overheads that M&M has and thereby bringing down the cost of the vehicle. We have already reduced the price of the car by Rs 50,000-60,000. Over the next 18 months, we are going to work on the styling of the car, because it has been seen as a plain product, which we will address. All the investments have already been made. The name Logan will continue for a while but once it becomes a complete Mahindra product, it will be renamed.

Any more price cuts for the car

Right now the price that we are offering for the product is the right one. We dont expect to see any price revision of the current model. What we can do is to make the product more attractive by making some stylish changes.

What lessons has M&M learnt following your differences with Renault

We have primarily learnt in two areas. Operationally we have had a lot of learning about sourcing and significant learning about quality from Renault. This has helped us to strengthen our internal processes. These are going to bring to us a lot of intangible benefits.

Will the episode alter the companys approach when you are entering future JVs

Whenever we enter into a future JV we have to ensure that the product is owned by the JV so that we can respond to the requirements of the local market. Its not about being critical of anybody, but we have to understand that when the JVs livelihood depends on a product or a set of products, then there will be a lot more responsible need of the local market. For example, if M&M is selling a product in a small country that sells only 100 units, then the company may not be able to give it as much attention as it gives to the larger markets. In that case, the JV will take the right decisions with respect to the product, no matter how big the sales volumes are.

So you are saying given a chance M&M would have liked to change the look of Logan

Since the JV did not own the product we could not do a lot of things (to the car), which we would have if the JV owned the car. Any changes to the product was the responsibility of Renault which the JV could not help, because Renault owns Logan. Other than that, there have been no problems and the two companies share very good relations.

What prompted M&M to enter the two-wheeler segment

For us it is a totally new independent business in a way that we are not even considering it to be an extension of the automotive business. India is the second-largest market for two-wheelers. Currently, there are two dominant players and three or four smaller players. We thought that we wanted a starting point for two-wheelers, but were not willing to enter into a JV. Also, because we did not have showrooms, we were not willing to sell two-wheelers in a four-wheeler showroom. That was the reason we bought out Kinetic. It had two good products and showrooms, which was going to give us a starting point. We can now grow the brand and maybe develop into a new vertical. We also have plans to get into motorcycles very soon.

As the SIAM president, take us through some of the challenges for the industry, how worried are you about the rising interest rates and inflation

Right now for the industry, interest rates and inflation are not a big concern. In the past six months, interest rates have neither dipped nor increased sharply. Inflation though continues to be a bit of a worry. RBI raising hikes may not have an immediate impact on retail rates in the showrooms. The primary worry is increasing prices of commodities. Rubber is a big concern. Even steel prices have become highly volatile, because of which companies are refraining from long-term contracts.