The Hindu Business Line : A payload of promise

A lot of thought seems to have gone into engineering the Leyland-Nissan alliance. The structuring leaves no doubts on the roles of the partners even as it acknowledges their strengths and retains their identities.

Raghuvir Srinivasan

The Ashok Leyland-Nissan Motor collaboration announced last week is an example of convergence of mutual interests, as good as any you will come across. The would-be partners’ strategic plans for the light commercial vehicle (LCV) business dovetail well, even as they complement each other in their respective capabilities and expertise.

Importantly — and this distinguishes the partnership from several others that were forged in the industry in recent times — a lot of thought seems to have gone into stitching the alliance; the structuring leaves no doubts on the roles of the partners even as it acknowledges their strengths and retains their identities. In the end, this is probably what will ensure the continuity of the alliance as the partners feed off each other and grow.

What’s in it for Leyland?

The absence of light commercial vehicles (LCVs) is a glaring gap in Leyland’s portfolio and one that it has been trying to fill for long without success. The company missed the LCV opportunity in the mid-nineties when the Iveco range failed to charm the market. It missed the bus yet again when it failed to spot the opportunity at the lowest end of the payload spectrum — the sub-1-tonne category — which Tata Motors captured with the Ace. The choices before Leyland were either to embark on developing an LCV range of its own or buy technology (or products) off the shelf. By opting for the latter, Leyland has chosen not to reinvent the wheel, so to say. The proposed alliance with Nissan will shorten the “time to market” for Leyland’s LCV product and help it get state-of-the-art technology from Nissan, a world leader in light commercial vehicles.

Importantly, it will help Leyland to be well-positioned in a market that is maturing to a hub-and-spoke model with demand diverging to the two extremes — high capacity, large payload vehicles for inter-city movement of cargo to designated hubs, and small and ultra-low capacity vehicles for intra-city movement of cargo from the hubs to doorsteps of clients.

Given that the alliance is in the preliminary stage of discussion, crucial details such as the products that will be available to Leyland as also the powertrains, are not known. A study of Nissan’s LCV portfolio is revealing though. Nissan has at least five different models, including two in the sub-1-tonne category that Leyland could benefit from.

The Vanette, which looks similar to the Ace, has a payload capacity of 850 kg to one tonne, the same as the Ace, while the Clipper is an even smaller vehicle with a 350 kg payload capacity. Besides, there is the Atlas range of LCVs that start at 1.15 tonne payload capacity going up to 4 tonnes — the typical size that the Indian market would need. These are vehicles that are being sold in Japan by Nissan now.

Leyland will also be able to gain access to the latest in powertrains, especially engines that meet the stringent emission norms in India even as they retain their high quality performance. Developing such a range of engines would have been a time-consuming process.

What’s in it for Nissan?

The partnership with Leyland solves the jig-saw puzzle of the Indian market for Nissan. It is right now setting up a car manufacturing facility in partnership with its group company Renault of France, and Mahindra & Mahindra, near Chennai. Even as the company is said to be designing a high-volume, mass-market car for India, it is familiarising and establishing its brand through the X-Trail utility vehicle that it imports on a fully-built basis.

With a presence in utility vehicles and soon in passenger cars, the commercial vehicle market was the one missing from Nissan’s India bouquet. But setting up a manufacturing unit and a marketing network for that would have stretched the company and also diverted its attention from the more important car venture. Allying with a local, established player such as Leyland was another matter though. Such an alliance would help Nissan tap one of the fastest growing commercial vehicle markets in the world at the shortest possible time with optimal investment.

And Ashok Leyland is a player that commands respect, brand loyalty and recognition in the Indian market. The company’s long experience in the industry, its technological depth and established presence are big attractions for any potential joint venture partner. Besides, Leyland is as conservative as Nissan in its approach to business.

Also, for its passenger car business, Nissan will not be using M&M’s network to market its cars and plans to set up one on its own. Given the extensive marketing network of Leyland, there is always the possibility of extending the alliance to market Nissan’s cars that would be assembled at its Chennai plant.

Well-structured DEAL

The structuring of the Leyland-Nissan alliance is interesting and well-planned. There will be three companies — one for manufacturing the vehicles where Leyland will have majority stake, one for producing the powertrain where Nissan will be majority owner and an equal joint venture that will invest in developing a vehicle for the Indian market.

The structure clearly defines the roles of the partners even while making each necessary to the other in the long term. If one (Leyland) is responsible for assembling the vehicle and marketing it, the other (Nissan) will supply the critical engine technology. The fortunes are well and truly tied and the differing majority ownership of the partners in two of the three companies is an acknowledgement of their respective strengths.

The intention to use the production facilities for the domestic market as well as exports and the plan to develop an India-specific model that can also be exported to other emerging markets clearly shows the commitment of the partners-to-be to the venture.

The venture certainly appears well conceived but whether it succeeds in the Indian market will depend on the models that it introduces and their pricing. The Leyland-Nissan alliance will be up against a player (Tata Motors) that is not only well-established but can play the price game very well given its indigenously developed product line-up. The battle will certainly be an interesting one to watch.

Related Stories:
Nissan’s second attempt at Indian LCV market
Ashok Leyland, Nissan join hands to produce trucks

More Stories on : Insight | Alliances & Joint Ventures | In Focus | HCV/LCV/Tractors

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