States could lever­age from Nis­san, TN face-off

Ad­ver­sity for one could trans­late into an op­por­tu­nity for oth­ers

The Hindu Business Line - - AUTO FOCUS - MU­RALI GOPALAN

Nis­san and the Tamil Nadu gov­ern­ment have been in the news lately over non-pay­ment of in­cen­tives, an is­sue that is now head­ing for in­ter­na­tional ar­bi­tra­tion. The first hear­ing is sched­uled in the mid­dle of this month and it re­mains to be seen what will even­tu­ally emerge even while some at­tempts at rap­proche­ment are re­port­edly un­der­way.

Detroit of Asia

What does this mean for Tamil Nadu’s im­age in the auto space? Its cap­i­tal, Chennai, has con­stantly been re­ferred to as the Detroit of Asia thanks to the fact that it has some of the world’s big­gest auto brands in its kitty. What be­gan with Ford and Hyundai in the mid-1990s soon grew to in­clude BMW, Daimler In­dia Com­mer­cial Vehicles, Re­nault-Nis­san, Yamaha, Royal En­field, PSA (for­merly Peu­geot Citroen) and many oth­ers.

Tamil Nadu’s emer­gence was par­tic­u­larly in­ter­est­ing con­sid­er­ing that tra­di­tional favourites such as Ma­ha­rash­tra lost out to some of these big names when the econ­omy opened its gates to in­vest­ments from auto MNCs. It then made up for lost time in suc­cess­fully woo­ing Volk­swa­gen, Tata Mo­tors is ex­per­i­ment­ing with young minds to de­sign its cars Tata-Fiat, Mahindra & Mahindra (at Chakan) and so on. Kar­nataka, mean­while, en­snared Toy­ota and Volvo. Yet, Tamil Nadu stood tall even against Haryana and Ut­tar Pradesh, which have been home for decades to Maruti Suzuki, Hero Mo­toCorp, Honda Cars, Honda Mo­tor­cy­cle & Scooter In­dia, Yamaha and Es­corts. Ut­tarak­hand and Hi­machal Pradesh, through gen­er­ous fis­cal sops, drew in big names such as Tata Mo­tors, Ba­jaj Auto, TVS Motor, Hero and M&M while Ra­jasthan bagged the Honda com­bine of mo­tor­cy­cles and cars.

Po­lit­i­cal game

It is no se­cret that States are now be­com­ing fiercely com­pet­i­tive in at­tract­ing in­vest­ments. The auto space be­comes par­tic­u­larly rel­e­vant in the con­text of cre­at­ing jobs (which be­comes a po­lit­i­cal brownie point) and the added glam­our of the State be­ing home to big global brands. This ex­plains why Gu­jarat and Andhra Pradesh have been go­ing flat out in re­cent years to lay down the red car­pet for com­pa­nies.

In this back­drop, it is rea­son­ably log­i­cal to as­sume that other States will be watch­ing the Nis­san-TN saga with great in­ter­est since ad­ver­sity in the case of one could spell into op­por­tu­nity for the other. Andhra Pradesh Chief Min­is­ter, Chan­drababu Naidu, has been quite suc­cess­ful in get­ting Kia Mo­tors, Isuzu and Hero to set up their plants in his State.

The next flush of po­ten­tial in­vestors could be from China where the likes of Changan Auto and Great Wall have been on the look­out for suitable lo­ca­tions over many months now. Apart from AP, Gu­jarat will also be keep­ing its eyes and ears open, es­pe­cially with one Chi­nese brand, SAIC, tak­ing charge at Halol fol­low­ing the exit of Gen­eral Mo­tors.

As in the re­cent Nis­san case, it was an au­tomaker’s con­flict with a State that was the spur for Gu­jarat’s au­to­mo­tive roadmap. West Ben­gal had in­vited Tata Mo­tors to set up its pres­ti­gious peo­ple’s car project in Sin­gur and the stage was set for a new era in man­u­fac­tur­ing. Till then, the State only had a solo res­i­dent in the form of Hin­dus­tan Mo­tors, which had been churn­ing out its Am­bas­sador for decades with the de­cline clearly ap­par­ent.

How­ever, there was stiff po­lit­i­cal op­po­si­tion to the Tata project and this was the time Gu­jarat scented an op­por­tu­nity to yank the Nano from Ben­gal to its own turf. It was get­ting in­creas­ingly clear that Sin­gur was not go­ing to work and Naren­dra Modi, then Chief Min­is­ter of Gu­jarat, reached out to the Tatas and in­vited them to Sanand. This was the be­gin­ning of a vir­tual flood of other big names in the business such as Ford, Maruti, Honda and PSA of France.

Gu­jarat got the big break thanks to the is­sues in Sin­gur, which ef­fec­tively stalled the Nano project. And to think that the West Ben­gal gov­ern­ment was go­ing all out to pro­mote the Nano but did not quite reckon with the fierce op­po­si­tion that fol­lowed.

PSA also made the news when it was scour­ing for fa­cil­i­ties in In­dia as part of its sec­ond in­nings fol­low­ing its abrupt exit in 1997. This was some­time in 2011 when a team had come vis­it­ing and there was a press re­lease from Tamil Nadu stat­ing that the French au­tomaker had pretty much de­cided to set up shop in State.

PSA re­futed this claim and sub­se­quently de­cided to com­mis­sion its new plant in Sanand, Gu­jarat. Clearly, it was a sense of com­pet­i­tive TN gov­ern­ment will now be hop­ing to sort out the is­sue soon with Nis­san since it can harm the State’s im­age as the ideal des­ti­na­tion for au­tomak­ers. A view of Re­nault Nis­san’s Chennai plant pres­sure that per­haps prompted Tamil Nadu to jump the gun and stake its claim. How­ever, a global slow­down caused PSA to shelve its In­dia plans, which meant Sanand was out of its radar too.

When it was back on its feet even­tu­ally, the com­pany an­nounced that Tamil Nadu would now be its new home! It ac­quired the Hin­dus­tan Mo­tors fa­cil­ity in Tiru­val­lur near Chennai and has now teamed up with the CK Birla group for a project sched­uled to kick off in 2020. To that ex­tent, Tamil Nadu has seen fluc­tu­at­ing for­tunes with PSA ex­cept that the story has ended on a happy note.

The State author­i­ties will now be hop­ing for an en­core with Nis­san too since any­thing to the con­trary could cre­ate some brand ero­sion to its care­fully cul­ti­vated im­age as the ideal des­ti­na­tion for au­tomak­ers. And this is not just a boast­ful claim but re­al­ity based on a ro­bust an­cil­lary sup­plier base, cere­bral en­gi­neer­ing re­sources, ac­cess to a port and so on.

Yet, it is also equally true that neigh­bor­ing States such as AP will be keen on repli­cat­ing the TN story, es­pe­cially with a Chief Min­is­ter who is pulling out all the stops. Naidu is head of a newly created State and has al­ready done enough in get­ting some big brands over. From his point of view, the jour­ney may have only be­gun and the fact that the TN po­lit­i­cal land­scape is rel­a­tively frag­ile now will only spur him on.

BLOOMBERG

PAUL NORONHA

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