The Curious Case of Mahindra Renault

An effort by:Sarthak Sagar

Mahindra & Mahindra

• Mahindra & Mahindra Automotive Division is the flagship company of the Mahindra conglomerate.

• Founded in 1945• Leading player in the farm equipment, commercial vehicles and utility

vehicles segment• Wide portfolio - two wheelers, light and heavy trucks, SUVs and school

buses. • Largest manufacturer of tractors in India.• Vehicles in India include Scorpio, Reva-i, Verito, Bolero,

Xylo, XUV500.

Renault

• Renault S.A. is a French automaker producing cars, vans, autorail vehicles, trucks, tractors, vans, tanks, and also buses/coaches. Its alliance with Nissan makes it the fourth-largest automotive group.

• France’s second largest car maker.• Leading electric car development among major car

companies, investing € 4 billion over the next 3-4 years.• Known for its role in motor sport, and its success over the

years in rallying and Formula 1.• Cars in India include Duster, Fluence, Pulse,

Koleos.

How the JV came into picture

• Renault designers visualized a robust, low-cost car, under €5000, which became a big hit in Europe.

• M&M thought of snatching the opportunity in India.• Renault - important expertise about design, engineering &

construction, innovative and safe vehicles worldwide.• M&M - wide cost-effective supplier base, brand name, experience.• Thus M&M entered into a JV with Renault in 2005 to take

advantage of each other’s strengths and capture the Indian market.• The JV, 51% owned by Mahindra & Mahindra and 49% by Renault,

then set up a state-of-the-art manufacturing plant in Nashik in Maharashtra, India to roll out their Logan in 2007.

Potential

• India - one of the fastest growing car markets in the world.• According to SIAM (Society of Indian Automobile

Manufacturers), the Indian passenger car market is expected to grow from the current 2.5 million to 4 million units by 2015 .

• Compound annual growth rate of 24.3% for 2005-09 and industry forecasts estimate the passenger car market to grow at 20.1% by 2014.

Did it work?

• Although the great industrial might of France along with innovative designs , French automobile giants like Renault have always had it very difficult here in India.

• When launched in April 2007 – target sales of 2,500 cars a month. Actual sales one-fifth of that, at just under 500 cars a month, Even the festive season was unable to turn their fortunes, with sales plunging 71 per cent year-on-year in September 2009.

• The result: A loss of Rs 490 crore in the year ending March 31, 2009. In 2010, Logan saw a 60.3%1 drop in sales compared to the previous year. The Rs 580 crore consolidated losses and impairment of assets had eroded equity value.

• The venture was dissolved in April 2010.

Reasons for Failure• The question - “Would people buy the new Logan when there was already a

readymade market for a sophisticated and reliable sedan at a low price – Swift Dzire?”

- Expectations rose compared to Indigo and Dzire.- No Real value for a Logan with its price tag.

• The economic situation – Logan was launched in 2007, just before the crisis of 2008. Like everywhere, India was also affected.. Maybe the Indian market never placed its love in the French car, especially after their wallets felt the pinch.

• Not enough Market Research - Aesthetic mismatch with Indians who have been pampered by Hyundai for quite some time now. Logan failed to account for modernity and luxury (something which was expected due to its French connection). Indians didn’t like the design of the Logan. They felt it looked old-fashioned. (originally designed for Eastern European markets).

• Dual Excise Duty measure - New measure in 2008, approx. 24% duty on vehicles over 4 m long. The Logan measures 4.25 m.

Caught in a fix-too expensive for low cost cars-too small to rival the higher standard cars.

• Marketing Failure - M&M’s image: tough, reliable, rugged and economical vehicles, but the company’s products are not perceived as modern or technologically advanced. Logan had great power, performance and space, but failed to communicate the message.

• Dent reputation - Strong demand only in the dial-a-taxi segment..• Priced higher than what should have been – localisation content (the

percentage of parts sourced locally) of the car, which is at 50 per cent, was much lower than competition and thereby has pushed up the final cost of the car (high import costs of engine and gearbox).

• Rated poorly in most dimensions. What is even more surprising is that even though Mahindra Logan highlights price and mileage, it has been rated poorly in these aspects too. This is clearly due to its ambiguous positioning.

• Another Marketing Flaw: The only point where Logan is perceived favourably i.e. spaciousness has a limited appeal to customers after some level. Ironically, the company has emphasized on spaciousness as one of the main factors.

• Culture Difference: Senior car analyst - “About declining sales, I think Renault thought that we are Third World, and they are the most ultimate humans that produce the best cars in the world. Placed the Logan badly in Indian market with relatively dull powertrains, so what they expected ? That Indians will lap up the Logan in that format ?IMHO, there is something wrong with Renault. Specially the attitude they carry around is responsible for low sales and not M & M."

• All in all, it seems that Logan was not ideally suited to the Indian market. Expecting to ride on its success in the emerging Eastern European markets was a risky decision which felt flat in Incredible India. Maybe, much more efforts in Indian-izing the car, its interiors as well as marketing is the need of the hour for all foreign companies.

Taking the positives• M&M now has the proficiency of building modern,

technologically-advanced cars, much better than Tata’s Indigo or Indica.

• Renault will continue to supply engines and transmissions to M&M.

• Now that M&M has full right to manufacture and alter the platform, it can loosen its engineering capability to come up with a better-looking Logan or even variants.

• As far as exports are concerned, Logan in right-hand-drive format can be exported to South Africa and this can be followed up with other nations later.

To sum it up…• M&M and Renault dissolved their JV in 2010 - poor response to the no-

frills Logan, failed to enthuse the market, saw the two partners blame each other for the dismal performance. Big losses suffered.

• M&M bought out Renault's 49% equity in MRPL, gaining full control over the company.

• M&M renamed the 'Logan' sedan as 'Verito', thus completely dropping the French automaker Renault's badge from the entry level sedan.

• Although Renault has quit the JV, it will continue to focus on the Indian market - set up its own independent sales and distribution network, new cars Fluence and Duster.

Bibliography

• http://www.carazoo.com/article/3004201001/Adieus-to-the-Indo-French-Mahindra-Renault-Joint-Venture

• http://news.in.msn.com/business/article.aspx?cp-documentid=3388874

• http://post.jagran.com/Year-after-breaking-joint-venture-with-French-automaker-Mahindra-drops-Renault-badge-1303722773

• http://www.financialexpress.com/news/mahindrarenault-jv-to-be-recast-soon/597262/2

• http://tejas-iimb.org/articles/95.php