MUMBAI – Differences have been simmering for the last two years between theSA- Motor Co. Ltd. Alliance and its Indian partners & Mahindra Ltd., Bajaj Auto Ltd. and Ashok Leyland Ltd.
Remarks made byCEO Carlos Ghosn at the recent Tokyo auto show and here in India this week, where he attended an economic summit, have brought the conflicts into the open.
Ghosn is quoted as saying if things do not work out, Renault-has the option of severing its ties with some of its Indian partners and driving into the country with its own new products.
“Our intention is to continue with the three partners, but we need at least one partner in India because there are certain things that only an Indian company can do for us,” he says.
Of particular concern is the ultra-low-cost car program Renault-Nissan has committed to build with Bajaj, India’s second-largest motorcycle maker, in order to compete withMotors Ltd.’s Nano that’s billed as the world’s cheapest car.
“Each auto maker is to have its own car,” Ghosn said last May. “It can be the same car under different brands or the same car with a neutral brand sold by the three. It is not an issue. If you can do a car costing $2,500, it’s going to sell by itself.”
Ghosn tells reporters in Delhi this week the small-car project still is on track, and the first model will be introduced by 2012, albeit one year later than first planned.
Differences apparently have been resolved over design, specifications and positioning of the car.
Bajaj, which holds a 50% stake in the project and now has been tasked with designing, engineering and manufacturing the vehicle, favors the car’s image to be one of fuel-efficiency. Renault and Nissan, which are splitting the remaining 50% stake, want to emphasize price point.
Reports say the car, codenamed UCL, will be produced at a new plant to be constructed in Chakan, in western India near Bajaj’s existing 2-wheeler plant. Initial planned capacity will be 400,000 units annually, with India as the primary market and potential for export to other emerging markets.
Ghosn promises the new small car will cost less than any other in India today.
“We’ve a clear strategy now, and we’ve a clear definition of who does what,” he is quoted as saying. “From time to time, we will face challenges with our partners and this is normal.”
But problems still simmer.
Renault has had a 49%-51% JV withsince 2005. The Rs7 billion ($145 million) plant was set up on the Mahindra campus at Nashik with a capacity of 50,000 units annually. Mahindra Renault Ltd. produces the entry- level Logan sedan.
But after a promising beginning, Logan sales have dwindled. For the last fiscal year, the JV saw a loss of Rs4.9 billion ($102 million), with sales plunging 48.2%. First-half sales this year fell to 2,901 units from 9,217 year-ago. The plant currently is running at 25% capacity.
There are numerous problems. Among them, the Logan, selling well as a low-cost car in world markets, is considered expensive here, costing Rs75,000 ($1,560) more than the competition in India’s price-sensitive market.
Additionally, the Logan’s 14-ft. (4.3-m) length subjects it to a 20% excise duty, while smaller cars pay 8%. And the local content is much less than other domestically made cars.
Mahindra has been asking for a shorter platform for the Logan to qualify for the federal tax benefit, but Renault does not want to change the global platform.
Mahindra also believes the Logan venture has been sidelined by Renault-Nissan’s plans to set up its own Rs45 billion ($966 million) plant for 400,000 cars in Chennai by 2015.
The project has been stalled for more than a year waiting as the economy weakened, but Nissan now has decided to go ahead with its part of the operation.
Mahindra has been further upset with Renault-Nissan over the small-car alliance with Bajaj and with Ashok Leyland’s three JVs to produce light trucks and engines for the local and export markets.
But Mahindra so far is sticking with the Logan partnership, which comes up for renewal next year.
“From our side, nothing has changed, and we are in talks with Renault for future products and how to improve upon the sales of (the) Logan,” Mahindra President Pawan Goenka says.
Yet, while Ghosn reportedly held separate closed-door meetings with Ashok Leyland and Bajaj officials during his recent visit, there were no meetings scheduled with Mahindra.
There have been unconfirmed reports Renault has invited Bajaj to join the Logan operation in place of Mahindra. All the parties have denied knowledge of any such move.
Indeed, Renault issued a statement in India. “Renault would like to state that at this stage there is no decision, nor any plan to cease coordination with any of its current partners.”
No one is sure what will happen next.
As Ghosn recently stated, “We are on a learning curve in India.”