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Monday, October 29, 2007

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In India, Nissan has a marginal presence; it sells 250 cars a year from the two high-end models it imports. Renault sells around 2,500 Logans a month from its joint venture with Mahindra. That may be a start, but it is a small one in a market of 1.4 million passenger vehicles a year and 192,000 light trucks and buses.

Rival Suzuki Motor Corp.?s local venture sells half the cars in the Indian market, which can?t seem to have have enough of the Japanese firm?s compact cars. That might be at the heart of matter for the Franco-Japanese alliance.

To truly make a dent in the Indian market, it might have to get its hands greasy with a small car venture. Ghosn [Nissan’s CEO] is negotiating with Bajaj Auto, India?s second largest two-wheeler maker, for a car that will sell for $3,000 (Rs1.19 lakh) and for which Bajaj will provide the engine.

“Although they have entered late in India, they want to dig deep,” said Rajat Dhawan, who tracks the automotive sector for consulting firm McKinsey & Co. “Ghosn is throwing the weight of Renault and Nissan behind the opportunity at the bottom of the pyramid.”

Nissan Motor Co. Ltd and Renault SA chief executive officer Carlos Ghosn arrives in India today to work on two different deals that may well decide the future of the two firms in the country, Asia?s third largest passenger vehicle market and one of the largest commercial vehicle markets in the world.

The deals?a light commercial (LCV) project with Ashok Leyland Ltd, India?s second largest commercial vehicle maker, and a still-in-the-works project for a small car with Bajaj Auto Ltd?come barely six months after Renault introduced a sedan, Logan, along with Mahindra & Mahindra Ltd (M&M), India?s largest utility vehicle maker, and Renault, Nissan and M&M agreed to collaborate and build a manufacturing facility in Chennai.

Ghosn, who revived Nissan from the brink of bankruptcy in the late 1990s, had to snip the firm?s earnings forecast last year and reduce salaries of top executives, including himself, to reach his ambitious targets.

Last week, Nissan reported its highest rise in operating profit in the past three years? a result of focusing on emerging markets such as Russia, China and West Asia. That has whetted Ghosn?s appetite for emerging markets. Sales in Nissan and Renault?s traditional markets aren?t exactly a showstopper?Japan and other developed markets such as the US and Europe are growing at less than 5% a year.While India?s the second fastest growing market among 15 nations in the world by vehicle production, says the International Organisation of Motor Vehicle Manufacturers, an industry body, China is the first.

In India, Nissan has a marginal presence; it sells 250 cars a year from the two high-end models it imports. Renault sells around 2,500 Logans a month from its joint venture with Mahindra. That may be a start, but it is a small one in a market of 1.4 million passenger vehicles a year and 192,000 light trucks and buses.

Rival Suzuki Motor Corp.?s local venture sells half the cars in the Indian market, which can?t seem to have have enough of the Japanese firm?s compact cars. That might be at the heart of matter for the Franco-Japanese alliance.

To truly make a dent in the Indian market, it might have to get its hands greasy with a small car venture. Ghosn [Nissan’s CEO] is negotiating with Bajaj Auto, India?s second largest two-wheeler maker, for a car that will sell for $3,000 (Rs1.19 lakh) and for which Bajaj will provide the engine.

“Although they have entered late in India, they want to dig deep,” said Rajat Dhawan, who tracks the automotive sector for consulting firm McKinsey & Co. “Ghosn is throwing the weight of Renault and Nissan behind the opportunity at the bottom of the pyramid.”

Despite short-term speedbreakers such as lending rates that are currently at a five-year high, India?s economy is expanding by more than 8% (it grew by 9.3% in 2006-07 and 9.4% in the first quarter of this year) and demand for automobiles is expected to rise steadily by most measures.

Demand for passenger vehicles is expected to rise to three million units a year in 2015 from 1.4 million now, says the Society of Indian Automobile Manufacturers, an industry body. LCV sales, too, are expected to grow at an average 10% a year through the next five years, on the back of better infrastructure and consumers moving to these from three-wheelers say analysts.

As crude prices go towards $100 a barrel, small, cheap and fuel-efficient cars find themselves at the forefront of research and development efforts of car makers. Added to this is the attraction of developing markets such as India, where only eight out of every 1,000 people have a car and first-time buyers look for low-cost cars. Auto research firm CSM Worldwide Inc. estimated that global demand for small cars will grow by 30% to 27 million vehicles a year by 2013.

Ghosn?s plans for India may not be late in coming, but they are not too early either. Tata Motors Ltd, India?s largest truck maker, is already working on a car priced at $2,500, which it plans to start selling next year. When this car hits the market, it will be the cheapest passenger vehicle on Indian roads.

Continue reading “Ghosn bets big on India; emerging markets pay off“