With annual volume now exceeding 200,000 units, the Mahindra Group has become a major force within India’s burgeoning auto industry. The light truck specialist has also partnered with Renault to make the Logan for the local market and is planning further expansion into overseas markets, including US market entry at the end of this year. just–auto editor Dave Leggett recently caught up with the head of the group’s automotive division, Dr. Pawan Goenka.
[Please note that this article first appeared in Lotus Engineering’s e-magazine proActive]
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DL: How’s business in India right now?
PG: In India we have had a remarkable recovery in recent months. October, November and December were very bad, but a turnaround began in January, with February and March seeing good recovery for most – but not all – companies. Recovery is in all segments except for heavy trucks. The passenger car and light commercial vehicle markets are doing very well – as are two–wheelers, also.
The feedback I am getting from the industry is that April is also fairly robust from a sales perspective. But right now no–one is willing to make a bet beyond one month…
A look at some Indian market fundamentals helps to explain where we are and what’s been going on in the Indian market. Three factors stand out.
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By GlobalDataOne is commodity prices. They peaked in September and forced price increases and a resultant slackening of demand. Second is financing and the availability of financing for vehicle buyers. Auto financing became very high in price and unaffordable. And third, for some segments of the market government duties have made vehicles even more expensive.
And to that could be added the overall adverse impact of economic slowdown on consumer sentiment.
The reason I feel good about the turnaround is that those negative factors have been taken care of by the government’s fiscal stimulus announced in December and January. Government duties have been reduced, finance availability has improved and interest rates have come down. Also, commodity price pressures have come down to December 2007 levels.
Therefore, the market turnaround is based on fundamentals and unless they reverse, I believe we should see some growth over the course of this fiscal year.
DL: What about your export business?
PG: For Mahindra it is down significantly and we don’t see a quick turnaround because demand is pretty subdued in the markets that we sell in.
DL: And Mahindra’s profitability on its automotive business?
PG: I cannot talk about the fourth quarter [the quarter ending March 31] at this point because we have yet to announce results, but the third quarter was a very bad quarter for us. The automotive business was only close to break–even, for the first time in many years, and that’s due to the twin effects of the commodity price increases that we could not pass on to the customer and volumes being 30–40% lower than what we’re used to. So, we had low volumes and high input costs to produce a poor result in Q3. But the second quarter was better and, as I say, we’re more optimistic about developments more recently.
DL: The Xylo is an interesting model – and an important one – that Mahindra recently launched in India. How’s it doing?
PG: That car is doing amazingly well. We launched the car in the middle of January – the peak of the slowdown – and many people questioned the wisdom of launching a brand new product at that time. But we wanted to get some excitement and get people into the showrooms, thinking about the new product. And, fortunately for us, that’s what happened.
We have taken more than 13,000 bookings on the car and sold more than 7,500 vehicles. There’s a two–month waiting list of over 6,000 for the car.
There has been a tremendous response to the car. The media response was very positive and we had a very aggressive and attractive price. It’s a product that is meeting customers’ desires.
We’re very pleased with the launch of the Xylo and how things are progressing.
DL: How are your plans for US market entry later this year going?
PG: In the US market we are getting ready to launch at the end of this year – December/January let’s say. We’ll be starting off with pick–up trucks – two versions: two–door and four–door. And there will be an SUV about a year after that.
Technical work is all completed. We are getting ready to submit the vehicles to the EPA and homologation – the last step in the process before market launch that takes four to five months typically. After that we can launch.
In the market itself we have a fairly extensive dealer network already set up – about 300 dealers – through our US distributor. There’s a lot of anticipation of the product in our dealer network as well as at the distributor.
We’ll have a diesel engine that meets the strictest emission rules and we’re very pleased to have achieved that.
DL: That’s a Mahindra-developed diesel engine?
PG: It’s a Mahindra-developed diesel engine, but in order to meet US emission requirements we have worked with some very well known consultants – from Europe.
DL: How about other overseas markets?
PG: We already have presence in several markets. The US is a late entry for us, but we have been expanding in global markets for about 40 years. Right now, our biggest continent is Africa – we have a good presence in South Africa and many other countries in Africa.
About a third of our export volume comes from Africa. Neighbouring countries – Nepal, Bhutan, Bangladesh and Sri Lanka – contribute 25–30%.
The remaining overseas sales come from Central and South America – we have an assembly plant in Brazil – and also Europe. In Europe, we have a presence in a number of countries, especially Italy and Spain.
DL: How’s the cooperation with Renault on the Logan going?
PG: About four years ago we agreed to introduce the Logan product in India and it was introduced about two years ago. The product has had very good reviews and acceptance from the customer.
However, because of a sudden change in the duty structure in India, the car has been penalised. Vehicles with a length under 4–metres attract 30–35% of the duty of those that are over 4–metres.
Logan is the wrong side of the break. As a consequence, Logan pricing has not been competitive and volumes have been modest.
DL: Could the related Sandero hatchback be introduced to India?
PG: We are working on a business case for Sandero. Given pricing and exchange rate considerations right now, we are finding it difficult to get the business case right, but we are working on it. If it happens, we will certainly assemble the vehicle locally at the joint venture manufacturing plant where the Logan is made. But we have not yet got to the point where the business case works.
DL: What is the localisation level on parts for the Logan?
PG: We are sourcing over 50% locally. Primarily it is the engine and transmission that is imported.
DL: Where are the main efforts being directed at Mahindra on the engineering side of operations?
PG: There are three main parts to this. Part one is new products to meet customer needs and our ambitions for global expansion. We currently have three new products in different segments on the drawing board which will be launched over the next two years. They include a truck that we are doing with our joint venture partner Navistar, a sub–1 tonne load carrier and a new SUV which will be a more premium SUV than the Scorpio.
The second part of the engineering effort going on is making sure that we meet all future emission standards on all products, not just in India but also in all the other major markets that we are in.
In India, from 1 April 2010 we will have emission levels changing from Euro 3 to Euro 4 in metro towns and from Euro 2 to Euro 3 in non–metro towns. So there is a lot of work going on right now to make sure that we meet that. At the same time, we know that in Europe we have to meet Euro 5 by the end of 2010, so there is work going on on that. And there is a big effort going on to meet US safety and emissions requirements ahead of US launch.
In the third bucket is advanced technologies, which includes things like hybrids, electric vehicles and hydrogen vehicles. We are looking at doing a hybrid within the next two to two-and-a-half years.
Also, we are working on electric vehicles. We have a small three–wheeler EV that we sell today and we are working on some otherelectric products that we hope to be able to launch in about a year’s time.
And we are also working on a hydrogen demonstration project with a partner.
DL: Do you think there could be a big market in India for electric vehicles?
PG: As of now the market is not big and it has to be developed. The market for electric vehicles will not develop unless there is a good partnership between government, industry and consumers. Right now the economics don’t work in terms of the cost of the vehicles and the costs of electricity versus petrol or diesel. That will continue to be the case unless the government puts in some kind of subsidy and provides battery charging infrastructure.
I see the best use of electricity in the future being in, for example, the three–wheelers that we have running in a radius of 10–15km alongside the correct battery charging infrastructure and government subsidies that make the option cost neutral for the consumer. Then it can work.
DL: What do you see as the main challenges ahead for Mahindra?
PG: The biggest challenge that we see right now is that we are in a growth cycle which means that we are spending a lot of money on new capacity and new product development. On the current four–year CAPEX cycle we have committed over US$1bn – a large sum for a company of our size. Our biggest challenge – even if there is a short–term downturn – is to keep that CAPEX intact and to generate funding to support it.
Another big challenge is that there is a lot happening on the environment and a lot of resources are going into things like meeting new emissions requirements.
And a third challenge is presented by a tremendous amount of uncertainty that is coming into the automotive business. While things don’t look too bad in India in the next four-five years, we are not so sure about international automotive markets.
DL: But the poor international business climate also creates some opportunities doesn’t it – perhaps on the acquisitions front?
PG: Of course there are a lot of things happening right now and several company assets are available at prices that appear very attractive. But at the same time, everybody is stretched.
We have to give priority to our billion-dollar investment programme and we have to be cautious about any acquisitions.
We wouldn’t want to close the doors completely on it, but it would have to be something that aligns with our strategy. We would have to be able to afford it and we would have to be able to see what we could do with the business that the current owners could not do.
But we are not going around looking for something to invest in.
DL: What gives you the greatest satisfaction in your role?
PG: What I find most rewarding is to see how a relatively unknown Indian car company – from a car industry that is relatively unknown on a global scale – can come up and be counted. As we move forward every year we see a lot more respect coming in for the Indian auto industry and also for Mahindra. And that’s what gives me the most satisfaction.
It’s coming from the way in which we are able to do new products, the cost and price of them, the quality improvements that we are making and so on.
And since I am vice president of SIAM [the Society of Indian Automotive Manufacturers], I also get the same sort of positive reinforcement by seeing the whole industry grow, not just my own company.
Please note that this article first appeared in Lotus Engineering’s e-magazine proActive.
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Dr. Pawan Goenka
Dr. Pawan Goenka joined the Mahindra Group in October 1993 as General Manager, Research & Developement, after 14 years with General Motors, US. His immediate task was to scale up the Auto Sector Research & Development, which was in a nascent stage, to a powerful product development organisation.
Under his leadership, Mahindra & Mahindra launched a slew of new products such as Pik–Up, Marshal, Armada 98, Bolero and Loadking. He is highly regarded for his leadership
of the Scorpio project, which brought laurels to Mahindra & Mahindra, both in India and abroad.
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He became Executive Vice President – Product Development in September 2001, and was promoted to Chief Operating Officer of the Automotive Sector in April 2003.
In his capacity as COO, Goenka has been responsible for day-to-day operations of the Automotive Sector. He has also played a key role in the formation of both the Renault and International Truck joint ventures.
Goenka took over as President of the Automotive Sector on 26 September 2005.
Goenka received the Distinguished Alumni Award from the Indian Institute of Technology, Kanpur, in 2004 and is a Fellow of the Society of Automotive Engineers (SAE) and of the Indian National Academy of Engineers. He has been honoured by General Motors through the Charles L. McCuen Achievement Award twice, and the Extraordinary Accomplishment Award. Goenka is a member of the SIAM Executive Council and Chairman of the Committee on Frontier Technologies.
He is President of SAE India and Chairman of the Management Board. He holds the position of Vice President of the ARAI Governing Council.
A Mechanical Engineer with a B.Tech from the Indian Institute of Technology, Kanpur, and a Ph.D. from Cornell University, US, Goenka has also done an Advanced Management Programme (AMP) at the Harvard Business School.
