Tack­ling the world’s tough­est auto market

The prob­lems: tax­a­tion sys­tem favours smaller cars, ex­pat CEOS don’t al­ways un­der­stand busi­ness land­scape

Business Standard - - TAKE TWO - PA­VAN LALL Mum­bai, 6 Oc­to­ber

In re­cent weeks, cult mo­tor­cy­cle com­pany Harley-david­son made waves as it an­nounced its exit from the sub­con­ti­nent just seven months af­ter buzz that US Pres­i­dent Don­ald Trump would ac­tu­ally push for favourable trade terms on his visit here. The goal be­ing that Harley could up the ante in terms of its In­dian foot­print. In­stead, the com­pany that the 1969 Peter Fonda-star­rer Easy Rider made fa­mous, slammed the brakes hard on sales and manufactur­ing op­er­a­tions, tak­ing a $75 mil­lion hit be­cause it missed vol­umes and rev­enue tar­gets. Such fail­ure isn’t un­com­mon. Be­tween 2014 and 2015, Gen­eral Mo­tors CEO Mary Barra came to In­dia not once but three times. Even­tu­ally, its com­pany Chevro­let, which started here over two decades ago, threw in the towel and an­nounced in 2017 that it would pull out of the coun­try al­to­gether.

The other Amer­i­can au­to­mo­tive icon, Ford Mo­tor Co, which started in In­dia, fared marginally bet­ter. It first came here in 1995 with a joint ven­ture with Mahin­dra & Mahin­dra (M&M), which didn’t last long and then got some trac­tion with its first car, the Ikon, in 1999 that was truly made for In­dia. Its Fi­esta hatch­back and Ecos­port threw up suc­cess­ful num­bers but slowed down as the com­pany ran out of new cars to launch. In 2019, Ford an­nounced that it once again would part­ner with M&M, which had a che­quered his­tory around part­ner­ships: M&m-re­nault (2007), Mahin­dra-nav­is­tar (2005) and M&m-ford (1995), all strug­gled to hit pay dirt and ended un­suc­cess­fully.

In­dia is a vi­brant auto market and de­spite the down­turn, be­came the fifth-largest in 2019 with sales reach­ing 3.81 mil­lion units. It was the sev­enth­largest man­u­fac­turer of com­mer­cial ve­hi­cles in 2019. Which is why for­eign play­ers come here. But it wasn’t just the Amer­i­cans who had a rough ride. The Volk­swa­gen Group had a good thing go­ing with Skoda but then lost its way with the po­si­tion­ing of its VW badge and pric­ing strat­egy, some­thing it’s striv­ing to cor­rect; Ja­panese auto ma­jors Toy­ota and Honda, de­spite their engi­neer­ing pedi­gree, couldn’t drum up market share and vol­umes.

The only com­pany to have made strides are Korean player Hyundai and its sis­ter brand Kia, which has shown strong per­for­mance with 100,000 unit sales of Sel­tos in barely a year. Hyundai, mean­while, has clocked a 17 per cent market share, the sec­ond-largest slice of the pie af­ter Maruti Suzuki.

Ganesh Mani, di­rec­tor of pro­duc­tion, Hyundai Mo­tor In­dia, said the car busi­ness is a lot like Bol­ly­wood: “There are many he­roes and heroines in many films but on a new re­lease on Fri­day, what works is de­cided by cus­tomers.” The key, he added, is to take in­puts from them and plow those ideas back into the cars. Come what may, he said, Hyundai has to de­liver at least four new prod­ucts an­nu­ally.

In the past 18 months, Hyundai has launched the Nios, the Kona, the Venue, the Elantra, the new Verna, the new Creta, the new Tuc­son, and the Aura.

When a com­pany does that over a pe­riod of time, it does gen­er­ate best-sell­ers. The num­bers speak for them­selves. All cars, bar­ring the Kona Elec­tric, come in both petrol and diesel BS6 en­gines with mul­ti­ple op­tions for man­ual and au­to­matic trans­mis­sions. Hyundai Creta, launched in 2015, has sold over 500,000 units; Venue (2019) has sold over 100,000; and Aura (2020) sold over 19,000 units, a Hyundai spokesper­son said.

So why have other sea­soned multi­bil­lion-dol­lar global auto ma­jors been un­able to break into the In­dian auto market? Kaushik Mad­ha­van, vice pres­i­dent, mo­bil­ity prac­tice, Frost & Sul­li­van, ex­plained that Hyundai has launched cars with a fre­quency not seen in any player — In­dian or oth­er­wise. “The key rea­sons for Korean OEMS in In­dia gain­ing market share at the ex­pense of In­dian and Ja­panese OEMS over 2018-2020 are sus­tained prod­uct re­freshes and new launches,” he said. “Sim­i­lar to what VW Group and PSA Group have done in Europe, Hyundai and Kia in In­dia have pe­ri­od­i­cally in­tro­duced new mod­els and tar­geted high growth areas such as con­nected cars.”

There’s also a man­age­ment an­gle. Paris-based au­to­mo­tive au­thor Gau­tam Sen said there is a sim­i­lar­ity in the mis­takes au­tomak­ers make when they come in here: “They hire for­eign CEOS who al­most al­ways don’t un­der­stand the busi­ness land­scape. They come in with a sense that this market is go­ing to be like China or other emerg­ing mar­kets, which it never is, and they push prod­ucts that have worked else­where as­sum­ing they will here.”

Hyundai owes much of the early foun­da­tion and suc­cess of the Santro — a made-for-in­dia car — to its In­dian CEO BVR Subbu, who came from Tata Mo­tors, Sen pointed out. He added that it’s key to see the coun­try not just as a lo­cal sales market but also a base for manufactur­ing for ex­ports with an al­most 50-50 share for both.

Many auto-ma­jors come to In­dia with pre­sump­tions that fail. Su­raj Ghosh, prin­ci­pal an­a­lyst­pow­er­train Fore­casts, IHS Au­to­mo­tive, said: “For­eign play­ers see In­dia as a pre­dom­i­nantly cost-con­scious market, which has a nar­row range of prod­uct seg­ments”. And then the tax­a­tion sys­tem favours smaller cars, which doesn’t help for­eign play­ers who make larger bod­ies and pow­er­trains, he added. Cars less than four-me­tre long and with en­gines smaller than 1.2 litre for petrol and 1.5 litre for diesel get sub­sidised, but nowhere in the world is that seen as a ra­tio­nal def­i­ni­tion of a qual­ity au­to­mo­bile, he added. Re­cently, Toy­ota rolled back ex­pan­sion plans in In­dia cit­ing the asym­met­ric tax struc­ture as a rea­son.

If cul­ture eats strat­egy for break­fast, then tun­ing one’s busi­ness to In­dia would in­clude rop­ing in lo­cal lead­er­ship, cre­at­ing prod­ucts to con­sumer de­mand and not force-fit­ting them to a market be­cause of price con­straints. “A lot of car com­pa­nies make the mis­take of think­ing that In­di­ans don’t want to spend money on a car and only shop on a bud­get. The truth is they ex­pect value for their money,” Ghosh said. “It’s as sim­ple as that.”

If cul­ture eats strat­egy for break­fast, then tun­ing one’s busi­ness to In­dia would in­clude cre­at­ing prod­ucts to con­sumer de­mand and not force-fit­ting them to a market be­cause of price con­straints

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