Last month Russian vehicle maker GAZ purchased UK delivery van maker LDV from private equity firm Sun Capital. Mark Bursa talks to Steve Young, new CEO of LDV and the man who developed the radical “reinvented” car company concept, Indego.
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[see Indego presentation here]
The appointment of industry heavyweight Martin Leach and well-known consultant Steve Young to run British van-maker LDV has caught a lot of industry-watchers by surprise.
But it could turn out to be a masterstroke for LDV’s new owner, Russia automaker GAZ, which bought the van maker for US$50 million. Not only does it signal a global ambition for GAZ – it gives Young and Leach a chance to put elements of their ambitious ‘Indego’ project into action.
Indego was conceived by Young while he was working for consultants AT Kearney. The concept attempts to reinvent the car company, outsourcing a lot of manufacturing and supply and focusing on long-term customer relationships – and with a staggering target profit margin of 21%. Young took ownership of the concept with him when he left Kearney, and teamed up with former Ford of Europe boss Leach with a view to reversing it into a suitable car company.
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By GlobalDataAttempts to become part of the Rover takeover team failed – and while Young says Indego is officially ‘in hibernation’, elements of the concept will be applied to the light commercial vehicle venture. Young is chief executive of LDV, while Leach becomes LDV chairman and also head of GAZ International, the newly-created holding company for LDV, but with a wider brief to expand the group.
GAZ International will be based in the UK and will focus on acquiring new technologies, entering into strategic alliances with foreign carmakers, recruiting high quality people and entering new export markets. It is already in talks about Italian diesel engine maker VM Motori, which supplies LDV and is jointly owned by American entrepreneur Roger Penske and DaimlerChrysler.
Young said implementing Indego wasn’t the prime motivation for getting involved with LDV, and not all elements of the concept apply to the van sector: “We haven’t done this to turn LDV into Indego – which is a ground-up rethink of a car company. The LCV market has different ownership cycles, but some elements are the same, so we’ll adapt Indego to the LCV market.”
He believes LDV already “ticks some of the boxes” of Indego. “It’s a very lean manufacturing concept with a lot of outsourced engineering. And the market operates mainly on leasing, which is a key element of Indego.”
However, implementing Indego principles at LDV’s Birmingham plant is lower priority than spearheading a global presence for the brand, and starting production of the LDV Maxus van range at GAZ’s Russian plant in Nizhny Novgorod. The plan is to double GAZ sales within five years.
Renewal of the GAZ car range is also on the cards – GAZ still builds the Communist-era Volga sedans beloved of Kremlin apparatchiks, as well as the upgraded versions of the car launched in the late 1990s. But GAZ has acquired the tooling for the obsolete Chrysler Sebring model, and will start building this car in Russia as a Volga next year. It will be positioned as a premium model, and will run in tandem with the existing, lower-priced Volga models.
Could GAZ cars be exported to the west? “I wouldn’t rule anything out,” said Young. “GAZ Group is expecting us to deliver, so if the opportunity works financially we’d look at it.”
Maxus production will start in Russia “in late 2007 or early ’08,” Young said. Maxus will not directly replace GAZ’s Gazel and Sobol van models – dubbed ‘Transitski’ due to their visual similarity to the Ford van. GAZ made 170,000 of these last year, though they are relatively unsophisticated body-on-chassis designs and will continue as cheaper alternatives to the Maxus.
New models are also to be added to the Maxus range – there are no chassis-cab or high-cube versions of the van at present. “It’s possible that some versions of Maxus will only be built in the UK and some in Russia, though we’re a long way from being able to implement an integrated production system,” he said.
The Maxus was engineered for LHD and RHD from the start, so no extra engineering work is necessary to produce it in Russia. The van has an interesting history – it was originally designed by Daewoo, and LDV reclaimed the design and tooling from the receivers of the collapsed Korean automaker – including reclaiming production equipment from a plant in Poland.
Young is confident the Maxus is competitive, even against new vans such as the new Ford Transit and the recently launched third-generation Fiat/PSA van family. “It doesn’t disgrace itself against the likes of the Mercedes Sprinter,” he said. “We lost a year or two in development, but some features of Maxus are best in class.” The van was recently voted ‘Fleet van of the year’ in the UK’s Motor Transport awards.
The Birmingham plant was improved when the Maxus tooling was installed, and Young believes only “a modest amount of money” needs to be spent there. Production levels are currently only 15,000 – the plant has a 50,000-unit capacity. The target for 2007 is 30,000 units.
There may be continued life in the old LDV Pilot and Convoy designs – vans that date back to the British Leyland era and were originally sold under the Sherpa name. Young said he was looking to sell these “dated but strong” designs to an emerging market, possibly as a joint venture with a local producer in an emerging market such as India or China. “The vans can cope with overloading, and we could do a low-cost makeover on the appearance and comfort of the cabs,” he said.
As for Indego, “its time will come,” Young said. A suitable “donor company” is needed. Rover would have been ideal – but that’s now not going to happen. But other opportunities exist elsewhere – in China, for example, and Young admits he’s looking at “one or two options” to implement the concept as part of the future GAZ International plans.
GAZ certainly has the resources – following restructuring last year, the company’s main shareholder is a Russian private equity fund called Basic Element, founded in 1997 by Russian oligarch Oleg Deripaska. Its combined asset value exceeds US$14 billion.
Mark Bursa
See also: UK: Leach and Young join LDV under new owner GAZ
UK: Sun sells van maker LDV to GAZ
