Renault, Nissan Becoming Major Players in India

MUMBAI – Just three years after arriving on the Indian automotive scene, Renault-Nissan India is one of the few bright spots in a mostly gloomy market.

The joint venture’s rapid growth is underpinned by ambitious investment plans, innovative strategies and the ability to overcome missteps.

Starting from scratch in 2010, Renault-Nissan’s light-vehicle sales in India skyrocketed 330.9% in 2012, compared with the prior year, to 80,396, according to WardsAuto data. Through the first six months of 2013, the JV was outselling Ford India, General Motors India and Honda Cars India.

Renault-Nissan has fully utilized initial plant capacity in Chennai over the past two years and doubled it to 400,000 this year. The addition of a third assembly line last month brings the auto makers’ total investment in the country to Rs45 billion ($820 million).

The JV was conceived as a 50-50 partnership at the outset, but Nissan’s stake now is 70% and it is not yet clear how future investments will be shared.

Says Renault-Nissan India CEO and Managing Director Toshihiko Sano, “Local content in our vehicles will soon be increased from 75% to 90%.”

More than 40 components suppliers have set up shop around the Renault-Nissan plant, shortening the production cycle and helping reduce costs. With a new casting and machining shop, the auto maker already has moved from engine assembly to local engine manufacturing.

Full utilization of the increased capacity is expected by 2015, as 15 to 17 new models are introduced. They include the first new-era Datsun model, the Datsun Go 5-door hatchback, which was unveiled this month in New Delhi. Sales launch early next year.

The emphasis on new-model development is a departure from Renault-Nissan India's initial strategy of badge engineering. Also called cross-badging, it involved dual use of platforms, components, engines and even interiors. It enabled the partners to share investment, productivity and best practices while reducing development time and manufacturing and management costs.

Examples of badge engineering are the Renault Pulse and Scala, clones of the Nissan Micra and Sunny, respectively. In return, the unexpected success of the Renault Duster prompted Nissan to consider a cross-badged Nissan SUV.

But the formula didn’t work for long. Nissan sold 1,855 Micra hatchbacks in January 2012, but after cross-badging, Micra and Pulse sales totaled just 1,028 in February. Similarly, Nissan delivered 2,757 Sunny entry-level sedans in August 2012 and Renault’s Scala launched the following month. By February, Sunny sales had dropped to 1,191 units, while Renault found only 620 Scala buyers.

The auto makers now are employing individual strategies: Nissan focuses on cars for the domestic and export markets, while Renault is developing SUVs and multipurpose vehicles for sale locally.

Nissan offers three high-volume models, the Micra, Sunny and Evalia compact MPV. Renault has the Micra-derived Pulse hatchback and successful Duster SUV, and is working on developing a car smaller than the Pulse.

WardsAuto does not track exports, but Society of Indian Automobile Manufacturers reports show that with 100,909 and 98,971 overseas shipments in the 2011-2012 and 2012-2013 fiscal years, respectively, Nissan has joined Hyundai India and Maruti Suzuki among India’s leading exporters.

For that reason, Nissan is considering another plant in Gujarat, which is developing port infrastructure for exports. The state aims to make India a cost-effective base for exports to more than 100 countries. A Renault plant in Chennai already supplies components to Nissan plants in the European Union, Japan, Thailand and Mexico.

It is becoming increasingly clear that neither Nissan nor Renault intends to remain only a niche player in India.

‟India has a very important and strategic role in Nissan's global strategy of Power 88,” says Nissan India Chief Operating Officer Toshiyuki Shiga. The aim of Power 88 is to increase both Nissan’s global market share and profit margin from 6% to 8% by 2016.

There have been bumps in the auto makers’ road to success in India.

The Micra is spacious, user-friendly and attractively priced, with low ownership cost, but Nissan failed to communicate those virtues effectively. The Sunny is as well-appointed as the next-higher higher class, but all Nissan cars are sold through a master franchisee called Hover Automotive India.

This gave dealers a mistaken impression that the intermediary takes a cut from their commission, and their unhappiness resulted in a boycott of the new Evalia MPV. They formed a Nissan Dealer Forum and started talking with Nissan management in Japan.

Nissan’s greater focus on exports compounded its problems with dealers. Its domestic LV sales in 2012 totaled 45,239 but slumped to just 8,941 units during the first four months of 2013. Dealers pointed out that their earnings mainly come not from commissions but from parts and service – which lay idle with local sales so scant.

The disputes escalated so quickly and widely Nissan was forced to make far-reaching changes in its Indian management. CEO and Managing Director Takayuki Ishida was replaced in April by Kenichiro Yomura, the fourth CEO in three years.

Nissan maintains the issues with the Dealer Forum have been settled, but a Forum spokesman denies that. Their relationship continues to simmer as the once-torrid sales pace cools down.