A year after calling off its alliance with Mahindra & Mahindra, Renault is preparing for an all-out assault on the Indian car market. Will it be lucky this time?
Sometime in May or June this year, Renault will launch its Fluence sedan in the country, followed by the Koleos, a sports utility vehicle, in October. It is one of the last few global car badges not plying on the Indian roads. In that sense, it is a late entrant. But Renault thinks the party has just started. Carlos Ghosn, its chief executive officer, has predicted that the Indian car market will grow to 6 million by 2020 (it was 2.4 million in 2010), and there is therefore still a huge upside left in the market.
The fact is Renault’s entry got delayed by two years, thanks to the global meltdown that came like an avalanche in 2008. Renault had showcased its Formula One car for a full year in 2008 to create a buzz in the market place. But its plans got put paid to once the financial crisis set in. All car makers were hit hard by it, and Renault was no exception. No less than four launch plans were sent by India to Paris in 2009. Then, on December 17, 2009, two days before everybody in Europe went off for Christmas, the green signal came from Paris.
Renault is no stranger to India. For almost four years — July 2007 to April 2010 — it sold the Logan sedan with Mahindra & Mahindra. But the Logan failed to stir the market — it sold only 46,000 pieces. Then, in April 2010, Renault called off the alliance; the rights to produce the Logan were transferred to Mahindra & Mahindra. Renault SA Executive Vice-president Jerome Stoll, who heads sales and marketing for Renault worldwide, says that while the Logan gave good on-road performance, its styling was weak. What perhaps also sullied the car’s image was its purchase in large numbers by radio cab operators.
How has the Logan impacted Renault’s brand equity in India? Renault did a poll with the owners of the Logan, which showed they are not an unhappy lot, though there were some worries. Still, that’s a story Renault wants to put behind it: The Logan is not a part of the product plan for India. Some experts are hopeful that the Logan will not impact Renault in India. “The brand gets defined by the product. If Renault brings in models which cater to the requirements of consumers, the Logan’s low sales would not affect it,” says PricewaterhouseCoopers Leader (automotive practice) Abdul Majeed.
There are other issues as well. Research conducted by Renault showed that a large number of people were not aware of its French roots; some even thought it was Swedish or German! The recognition of its diamond logo was also small, though people recognised it when shown with the Renault name. That doesn’t bother Stoll too much. “Brand awareness is important but not enough. We can develop awareness at a cost. But the prime concern is to sell the car,” says he.
Still, an elaborate marketing plan has been readied by the Indian team led by Marc Nassif. Renault has hired an Indian advertising agency, Law & Kenneth, so that it can catch the pulse of the buyers. It will emphasise the French connection because it is associated with sophistication in India.
Technology will be communicated heavily. Renault is likely to come out with electric vehicles because that acts as a technology demonstrator in a market where environmental concerns are on the rise sharply. “We will focus on proximity,” says Stoll.
The car maker has followed a top-down approach to brand development — expensive cars will help it gain mind space initially, which will help it get into the mass category subsequently. “We have all the technology which is not completely known in the Indian market. We want to give an opportunity to Indian customers to experience technology that is latest in the world. Indian customers are expecting modern and not old cars,” Stoll adds.
The cars that Renault plans to launch therefore hold the key. The Fluence and Koleos will be imported as knocked-down kits and assembled at the Renault-Nissan plant in Chennai. The cars won’t be stripped of features for India and will be similar to what sells in Europe. The Koleos will thus continue to sport Bose music and the Fluence will have a navigation system. Some features like six airbags may be removed. Three more launches are planned over two years. Next in the queue is a hatch. Most car makers prefer to launch a sedan as well on a hatch platform: Maruti Suzuki Swift and DZire, Volkswagen Polo and Vento, Toyota Etios and Etios Liva, to name a few. Stoll says the possibility hasn’t escaped Renault.
Renault is known best for its sedans and SUVs. But India is a small car market — almost 80 per cent of the cars sold are small in size. In 2008, Renault and Bajaj Auto had signed an agreement to develop and sell as small car. Indeed, Bajaj Auto showed a prototype of the car in the 2010 Delhi Auto Expo. Will that be Renault’s launch pad into small cars? Stoll isn’t sure at the moment: “We have not seen the car being developed by Bajaj Auto. We will take a decision on whether to partner on branding and marketing the vehicle only when we see the final product. The product has to be a car for us to go ahead with the agreement. We are not a partner in the development of the car. If the product fits our strategy, then only we will sell it.” Bajaj Auto Managing Director Rajiv Bajaj refuses to comment, though the car is expected to be out by the end of 2012.
Independent of that, Renault’s technical centre is Chennai is working on an indigenous car with 85 per cent local components. Speculation is that it will be a small car but a tad expensive than the Bajaj Auto car. This, after all, is the route that all car makers have taken in India: Ford, General Motors, Volkswagen, Fiat and Toyota have small cars in their portfolio, while Honda is developing one just for India. Hyundai too is known to be working on a car smaller than the Santro. “Many global brands,” says an automotive analyst, “brought in products from their existing range and then realised that they would have to have products specifically for India with different pricing points. This can be done through localisation and development of products only for the Indian market like Toyota has done with the Etios and Ford with the Figo. This may not happen immediately but Renault has to consider these options later on.”
Stoll, on his part, feels the opportunity in the other segments is too huge to be missed. “This market is moving very fast. We are surprised to see competitors offering a car in a segment which did not exist and succeed. The evolution of the market here would make its future structure different from what it is today. The 80:20 ratio of small to big cars will continue to exist, but in terms of volume the 20 per cent would be much bigger than what it is at present,” says he.
What perhaps matters most for Indian customers is fuel efficiency, a factor Maruti Suzuki has played on in its latest series of commercials. How efficient will be Renault’s cars? In popular Indian perception, western cars are fuel guzzlers, while Japanese cars are economical to run. Renault is only too aware of it. The Fluence comes fitted with the same engine as the Logan, which was fairly fuel-efficient. And from day one, Renault will have petrol and diesel versions of every car — diesel variants now account for over a third of the market because the fuel is subsidised in the country.
And how aggressive will be the price tags? Stoll and Nassif do not divulge the details. But the intent is clear. “The cost of ownership includes the initial cost, fuel efficiency and service and maintenance expenses. We will address that by being close to the people,” says Stoll. “We would have a price for the value we offer. The customer does not expect the cheapest price but a good bargain. Our product will be 10 cm longer but offered at the same price as competition.”
But there’s more to it. Renault has identified India as a strategic market for the future. (The other two are Brazil and Russia; China is not on the priority list because Renault’s partner, Nissan, has a huge presence there.) This is a part of the car maker’s broader plan to hedge its risks by spreading out of Europe. In 2010, 37 per cent of its revenues came from outside Europe. In 2011, the car maker hopes the contribution to rise to 43 per cent. To get a foothold in a strategic market, corporations are known to gloss over losses in the short run. Toyota, for instance, took almost 10 years to break even in India. Renault’s is unlikely to wait that long. “In the first year of development, the company will not be profitable. We have an initial investment to do after which the company will be profitable. There is no reason why we cannot reach the same levels of profitability as other local players,” Stoll says and adds that many car makers have started to make money in India in less than 10 years.
Costs have been kept on a tight leash. Globally, Renault has started to share factories with Nissan in order to cut investments. In Brazil, Renault also makes Nissan cars; and in Russia, the two share the facility. In India, though the Chennai plant is equally owned by the two partners, it is operated by Nissan. The production lines are fully flexible and can switch from Renault cars to Nissan in no time. A co-ordination team drawn from the two partners has been put in place to draw up the production plan. Renault wants high levels of indigenisation which will help it to cut costs and make its cars more affordable. Renault and Nissan are jointly developing a vendor base in India. So far, 45 have been validated. Many of them are being encouraged to become global suppliers — higher volumes will result in lower prices for Renault. Of course, the Logan alliance with Mahindra & Mahindra has familiarised Renault with the component manufacturers of the country. All told, Ghosn has set a target of saving euro 1.5 billion in 2011 from synergies between Renault and Nissan.
The capacity of the factory could be a problem, though. Renault and Nissan’s plan was to invest Rs 4,500 crore in the Chennai factory that will be able to produce up to 4,00,000 cars in a year. In the first tranche, only half the money has been invested, which has created a capacity of 2,00,000 per annum. Almost 55 per cent of the capacity is booked for the Nissan Micra for the domestic market as well as exports. The remaining capacity of 90,000, even if it is taken fully by Renault, means low volumes and low market share. Renault’s Indian functionaries expect the green signal for the rest of the investment soon. The original target was to ramp up by 2015; it could happen sooner. Meanwhile, the company has set in motion plans to have 70 dealers across the country by 2013.
Cars may not be all. Renault, according to Stoll, is also keen on the Indian commercial vehicles market. “Renault is No.2 in Europe. We have a competitive line-up. We are trying to find a profitable business case for commercial vehicles here. We are seeing if it is possible to launch in India, though we are not in discussion with anybody in the country,” says he. The strategic intent is clear. Ghosn, after all, was the first to wax eloquent on the frugal engineering skills of Indians.