The Hindu Business Line : Renault-M&M: The rational romance

The Renault-M&M JV will turn out to be a very workable and advantageous alliance for both the partners. While Renault will be able to keep its procurement and manufacturing costs low, M&M can tap the technological leadership that Renault has n, prototyping and manufacturing processes.

Renault's strategy for the Indian market could hinge on the Logan MCV for drawing volumes away from the MPV segment.

European automobile manufacturers have been hesitant to enter the Indian market in the past. More so in the mass market segment, where the two that did make it here have not necessarily had a memorable experience.

While the passenger car market in India has also been in the initial stages of maturity, the other reason why European carmakers have not been eyeing the market here is because many of them didn't have a relevant product for the Indian car buyer. At least till now.

Fiat was one of the first European mass market car brands to have developed specific passenger car models that would be suitable for emerging economies such as Brazil and India.

While this Italian brand suffered due to its parent's financial woes, the other European brand, Peugeot's foray into the Indian market ran into trouble with its local partner rather prematurely.

But that unsuccessful French joint venture was during a different era and under different circumstances. After an interlude, during which French automobile companies avoided the Indian market due to the same reasons mentioned earlier in this article, came the new joint venture of Renault with Mahindra & Mahindra.

Renault has been planning its entry into India for a while now and by mid-next year it will launch the mid-size car Logan through its manufacturing alliance with M&M and marketing joint venture Mahindra Renault Pvt Ltd.

That joint venture was announced and signed last year and the Logan, set to be an economy-segment, entry-level sedan, will be produced at M&M's Nashik plant.

While that plan was known, what caused a stir earlier this month was the announcement of a new joint venture and fresh investments by both the partners for setting up a greenfield manufacturing facility that will roll out vehicles from both the brands' stables.

The new plant will eventually have a capacity to manufacture half a million vehicles by 2012. But since the production capacity is to be stepped up gradually, the facility will be able to roll out as many as three lakh vehicles by mid-2009.

Synergistic relationship

The new joint venture plant, an extension of the existing partnership between both the partners, will be a win-win for both M&M and Renault. With a flexible assembly line that is shared, for Mahindra, the plant will provide additional production capacity for manufacturing some of its new vehicles.

Further, with the possibility of the plant being located at a different location, there will be other synergies to be had for M&M. Further, Renault is also proposing to set up a new power-train manufacturing plant under a wholly-owned subsidiary right next to the new joint venture vehicle-assembly plant. The power-train plant, which may also be part owned by Nissan, will supply engines, gearboxes and other power-train components to be used for Renault vehicles to be manufactured at the new plant.

But the added advantage for M&M is that these critical components will also be available for use in its vehicles. The alliance with Renault will be an added advantage for M&M since the French carmaker's strengths in both the petrol and diesel engines are well known and could prove to be crucial for fitting Mahindra vehicles with more refined engines and gearboxes, including the possibility of using these components for its proposed MPV, currently called the Ingenio, which is scheduled to be launched in 2008.

Even as it offers its French partner the ability to keep procurement and manufacturing costs low, M&M will also be able to tap on the technological leadership that Renault has in design, prototyping and manufacturing processes.

Logan and the MCV

For Renault, the Logan will be the launch pad, but building volumes quickly in the Indian market will be a key goal for the company.

While the entry-level sedan segment can only bring its numbers up to a certain level and even as it grapples with the possibility of introducing one of its premium small cars for the extremely price-sensitive Indian market, Renault will be looking to the other variants of the Logan for keeping the assembly line at the new plant busy. Six derivatives of the Logan are currently being planned.

And the Logan derivative that Renault is most likely to bring to India first is the Logan MCV (Multi Convivial Vehicle). The Logan MCV is a seven-seater peoples carrier that is based on the same platform as the sedan.

The new vehicle, which was showcased as the Logan Steppe concept at this year's Paris Motor Show, seems to hold a lot of promise for emerging automobile markets such as India.

Built to offer a lot of interior seating variations and with versatility in the form of dual, vertical doors at the rear for easy loading and passenger entry, the Logan MCV could fill a gap in and expand the multi-purpose vehicles market in India.

Added to this, promise of high quality, aggressive pricing of this new vehicle could lead to a lot of unease amongst competitors such as the Chevy Tavera and the Toyota Innova.

The Renault-M&M JV will turn out to be a very workable and advantageous alliance for both the partners. As the heads of both the companies put it at the press conference held in Paris earlier this month to announce the new alliance, they have no imaginary expectations from the JV.

Paying tribute to Indian engineering, Mr Carlos Ghosn (rhymes with bone), President and CEO of Renault, said that the frugality of Indian engineering is a huge reason for his confidence about the Indian venture. He felt that Indian engineers could find a low-cost solution to most issues that may leave others stumped and that the French company hopes that M&M with its local expertise can offer these kinds of synergies.

Mr Ghosn also said that one of the performance targets for Renault, in addition to its much talked about 6 per cent operating profit margin, is the need to sell an additional 800,000 cars in 2009 as compared to 2005. He expects a big part of that to come from India.

Mr Anand Mahindra, Vice-Chairman and Managing Director of M&M, said that there is no irrational romance in the relationship between the two partners and that they are "not under the impression that they will go walking hand in hand into the horizon". "We have come together with the agenda of leveraging each other's strengths for gaining purchasing and joint manufacturing synergies," he said.

Clearly, the M&M-Renault joint venture is rooted in reality.