Ghosn broke into the ultra- conservative Japanese business leadership and stitched up an alliance with Renault that helped Nissan immensely. In three years, 1999-2002, he re-railed Nissan on a high growth phase and over the next three years built it as a top ranking auto producer with handsome growth in sales and profits. The Renault-Nissan alliance produced last year over 8 million vehicles and Ghosn heads the alliance rearing to excel further on its excellent record.
You can now understand the excitement and the great expectations on his flying into Chennai for a day-long visit to launch Renault’s small compact car Kwid. Over a hundred executives of the company and another couple of hundred media persons from Europe, several developing countries and from India were witness to the launch at the ITC Grand Chola. Articulate Ghosn explained with passion the several distinctive features of the Kwid. It was an electrifying presentation that commenced with a breath-taking dance by over a dozen artistes to Gayatri mantra.
Five years ago Renault-Nissan set up the Oragadam plant with great expectations. An investment of 800 million euros was made for producing 400,000 cars. But its progress suffered from two major issues: first was the global financial meltdown that triggered a steep slowdown in demand for automobiles; the second related to the selection of capacities and designs not quite tuned to the Indian market. In this, Renault-Nissan failed to understand the lessons of Ford Motors and Hyundai Motors. While the former arrived in 1996 with impressive plans for volume production, it could not make the expected progress by opting to start with a sedan. Hyundai, which set up shop later, raced ahead of Ford and succeeded in quick time to emerge profitable with its compact Santro. In fact, Hyundai with an annual production of around 600,000 cars, around two-thirds of leader Maruti Suzuki’s, has emerged a leading exporter with exports of over 200,000 cars.
For Renault-Nissan also exports have been way ahead of sales in the local market. In fact, Nissan just crossed the landmark of exporting its 500,000th car from Chennai.
Much more room at the entry level...
Ghosn pointed to the company realising the importance of the compact car segment, that still accounts for over 25 per cent of the total Indian market of around two million plus cars. The Renault design team diligently worked on a compact car. Ghosn referred to its evolution over the last three years with the combined efforts of specialists in France, Japan and India to design, test and launch the Kwid. The cost, of around Rs 3000 crore on this exercise, Arnaud Duboeuf, Vice President (Research) said is just about half of what it would have cost in developed countries.
Jugaad and frugal engineering, hallmarks of Indian genius, have been at the base of this. Ratan Tata had earlier utilised these in dreaming and launching the Nano car: fixing its cost at Rs 100,000, the Tatas worked hard with vendors across India, constantly innovating and pruning expenditure to produce the Nano within the cost targetted. Of course, other volume producers, of Maruti Suzuki, Hyundai and Ford Motors have been engaged in this cost-control exercise effectively for some two decades. This single factor has been the reason for India evolving a significant exporter of compact cars in just around ten years.
Duboeuf pointed to the extensive interactions with large number of component manufacturers and other vendors to persuade them to invest in capacity expansion and to economise costs.
The result is indeed gratifying: Ghosn pointed to the indigenous content in Kwid at a high 97-98 per cent right from the beginning. This is a record. Also the labour costs in India are a fraction of what they are in the US, Germany and France. While in our country it’s 2 per cent of sales; elsewhere it’s in double digits. Also 60 per cent of the components are to be procured from Tamil Nadu, which offers handsome tax incentives for purchases within the state.
Attractive, innovative, affordable...
The research team also focused on yet another new feature in Kwid, meeting consumer’s desire for a cross over feeling. The high ground clearance and a SUV look of spaciousness which helped expand the demand for utility vehicles, have been incorporated in Kwid. Ghosn explained the feature of Kwid as attractive, innovative and also affordable. Pricing it between Rs 3 lakh and Rs 4 lakh is bound to make Kwid competitive with the highly popular Maruti Alto and Hyundai Eon, both of which dominate the small car segment.
Of course, Indian consumers have been graduating into the higher value sedan and luxury segments resulting in a fall in the share of compact cars in total volumes. Ghosn pointed with confidence to more and more buyers getting into the entry level segment and where volumes would continue to grow.
To my question on Renault-Nissan not making money yet, Ghosn said that they are patient and will operate as a long term players. He pointed to the present share of Renault at just around 1.5 per cent of the Indian car market but expressed confidence over Renault and Nissan each winning a five per cent share in quick time. The alliance partner Nissan is also planning to build on this Common Manufacturing Facility-Alliance (CMF-A) platform, the Datsun RediGo next year.
Ghosn said the Kwid would be released to the market during the festival season from September. There are expectations of ramping up volumes to around 5000 cars a month. Of course, much depends on the growth of the economy and surplus cash in the hands of the buyers.
I also raised the question of the absence of airbags as standard fitment. Ghosn responded by stating that this will be made available as an optional equipment. Recently, Indian car manufacturers received flak for their lack of safety concerns. The British Global NCAP, which conducted safety tests on Indian cars, gave a poor safety rating. The entire compact car segment except VW’s Polo, does not have airbag as standard fitment. (Of course, the on-the-road price of Polo is around Rs 7 lakh). The Renault team has laboured hard on frugal engineering in offering Kwid several handsome features which are value for money. I still believe Ghosn and his team can exert a little more and try to offer airbags, at least for the driver and his companion in the front, as standard feature. Death on Indian roads is humongous hence an airbag is a dire necessity. A senior executive of Renault mentioned the cost of an airbag as around 70 euros or around Rs 5000. Incorporating this would vastly improve the USP of Kwid and also the image of the corporate as being more concerned with consumer safety. Ghosn has been ‘patient’ and not in a hurry to see high profits. I believe this auto wizard will see the immense image dividend of this single offer.