Indian Auto Industry – Two New Alliances

France headquartered Renault, one among the top 10 carmakers in the world that rolls out over 2 million vehicles every year and Mumbai-based tractor and particularly popular ‘Scorpio’ utility vehicle manufacturer Mahindra & Mahindra (M&M) through their joint venture Mahindra Renault launched last week their first car model Logan in the Indian market within two years of forming their 51:49 alliance.

As it appears from the media, this alliance spearheaded by the legend of the global car industry, Renault’s CEO Carlos Ghosn and M&M’s charismatic managing director Anand Mahindra may well set the future for joint ventures in India’s fast growing automobile business. The auto industry may leave behind the history of many failed alliances of the first phase.

If the media can be believed, Ghosn who has worked in the world’s three largest car markets-US, Europe and Japan – was clearly in awe of Indian engineering, when he found the Indian counterpart managed to shave 15% off the Logan’s production costs over and above what Renault initially planned. Ghosn thought his company had done a pretty good job with it. So came his compliments when he was present in Nasik with Anand Mahindra to inaugurate the facility. ”But the Indian engineer innovate and create a product frugally. Engineers in other parts of the world always need more resources to do the same thing… They (global automobile companies) will have to show the humility to come into this country and learn. It isn’t possible to demonstrate such innovation when you work out of markets where resources are not at a premium… Sure, capital costs are huge issue in this business. But we are discovering through our partnership with M&M that the level of investment for a specific objective can be done frugally.” Mahindra and Renault will produce 50,000 Logans M&M’s facility in Nashik. The new venture has invested in setting up a stamping shop, a paint shop with pre-treatment facility and an assembly line dedicated to Logan. (Making of Logan in India)

Carlos, a global auto industry legend for reviving Nissan Motor of Japan, in which Renault is the single largest shareholder, appeared to be very much impressed with India’s expertise in frugal manufacturing. He further added candidly, “China is also a low-cost manufacturer. But there is something unique about India’s frugality of engineering and management. If I have to fight the battle on low cost, I am going to do it (with a base) in India. It will be difficult to develop a low-cost car of the future without involving India. The benchmark of low-cost manufacturing: If you want to be serious in India, you must not cross $3,000 in product cost. Ratan Tata’s Rs 1 lakh car: It is a very interesting project. We will be watching it closely.”

As reported, the joint venture Mahindra Renault has invested only Rs 700 crore in facilities and reengineering to roll out the Logan compared to the Rs 1,600 crore, Tata Motors spent on building the first version of Indica. However, the cost for Indica is no comparison as it was a totally new car, and for Logan, it is just adaptation for Indian market by developing the right hand version of the Logan.

Let me confess I heard the term ‘frugal manufacturing’ for the first time and more so as it came from a person as famous as Ghosn. Perhaps ‘frugal’ is a synonym of ‘lean’. Ghosn meant the lean manufacturing by frugal manufacturing. Am I correct? I stand to be corrected if I am wrong.

Another big news came from Pune. On April 02, 2007, the 50:50 joint venture between Fiat Auto India and Tata Motors – was formally inaugurated with an announcement of an investment of Rs 4,000 crore (660 million euro) at the Ranjangaon (60 km from Pune) plant over the next five years. The first stage of investment will be of around Rs 2,500 crore (470 million euro) out of which Rs 1,500 crore (250 million euro) will be for the car plant. The plant will start production of passenger cars, engines and powertrains around the middle of 2008. The company has planned to make 1,00,000 cars and 2,00,000 engines and powertrains.

With these two alliances, both the Indian automakers are aiming to extend its presence globally assisting each other mutually with its strength. With consolidation over the last few years, the Indian automakers are technically strong enough to move on as equal partners. Mahindra & Mahindra with its successful Scorpio and Tata Motors with its Indica platform and Ace have proven its strength as OEMs unlike the Chinese automakers still known more for piracy.

The two alliances are in line with the trends of business strategies all over the world.

———————-
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