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Old 2nd June 2011, 15:46   #1
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Question What is the way forward for new automobile companies?

Should they say 'Bonjour' India with premium segement cars or small cars?

On 23rd May, Renault Fluence was launched and while I was busy reading T-BHP review which was again 'The Perfect' one, a thought cropped up over the weekend.

Has Renault done a mistake in launching a C+/D segement car first after departing with M&M?
Small cars ( hatchbacks & entry level sedans) generate much larger sales figures then C+/D segement cars, so shouldn't, Renault have launched a hatchback first followed by much awaited RD (Renault Duster) which is an excellent mini-SUV and a potential threat, not only to Scorpio & Safari but also to other C- segement cars.

We have been debating strongly on prices of RF(Renault Fluence), what will Renault do if they do not meet their average monthly target?
Will they swap their 2012 launches with 2011 launches (more potential ones).
Was it a correct strategy by Renault? Will they able to make their presence felt strongly in Indian market with their current launch?

I do understand that VW, Skoda & few other companies followed a similar strategy, some years back, but, the time is changing now.
What should new car manufacturers like 'Pronto', 'Kia', 'Peugeot', 'Citroen' and others should do? Should they follow the same strategy or launch a small car first?

I am not an analyst nor I am doing any MBA course, but a normal individual who wish to know more, understand more by discussing it with my fellow members.
So please post your thoughts.
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Old 2nd June 2011, 16:09   #2
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Default Re: What is the way forward for new automobile companies?

Mobile phones can be sold in thousands with just one service center. Because once sold, they rarely come back to the manufacturer for servicing. Plus, import duties are quite low - so you can just import it without setting up a large manufacturing/assembling unit.

However, cars are not like mobile phones - you need to have a large number of dealers to service the cars you sell. Now, to roll out a large dealership network, it takes a lot of time. One needs to market the new brand to the dealer business community and select the best from the lot who evince interest. Then the dealership has to trained in various processes etc before they can handle large volumes.

Solution? Launch cars like Fluence (Renault), Jetta/Passat (VW) and X-trail/Teana (Nissan). Low volumes but decent visibility along with some brand building. While the thin dealership takes care of the low volumes and the small manufacturing unit handles the CBUs or CKDs, the car maker expands their manufacturing capacity to introduce high volume small cars (Polo by VW & Micra by Nissan) & sedans (Vento by VW) over 2 to 3 years.
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Old 2nd June 2011, 16:26   #3
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Default Re: What is the way forward for new automobile companies?

While what smartcat said is 'Strategy A' which is easier for companies to follow, I would still prefer companies taking the more risky 'Strategy B' which is going full steam and investing in a high volume manufacturing plant and launch a small car first. In this way, you are directly entering the heart of the Indian market - the highly-competitive but also highly-rewarding small car segment.

Yes, the stakes are obviously high. You have invested heavily, you have employed more people to get the job done, you have asked the dealers to invest along with you and so there is a very thin margin for error. If you err, its gone and bust! But, when companies get their feet to that level, they hardly get it wrong. In that way, you not only create a strong visibility for your brand, but you also become a high volume player in what is going to be one of the most important markets in the world in future. A shining example is Hyundai. They took the risk when noone else did and are reaping the benefits now. Rattles or not, the i20 is still the top-selling car in its segment apart from the Swift. And that's because of the visibility created by the Santro and i10.

So, IMO companies should take the risk and go full-fledged the very first time. They can then work on to overcome the 'small-car-maker' tag that Indians inevitably associate with any company that launches a small car first in India.

Especially, of the companies listed above, I would love Citroen and Kia to take that route as they make some stunning looking cars right now which I would love to see in India on a mass scale.

Last edited by arvi86 : 2nd June 2011 at 16:28.
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Old 2nd June 2011, 16:36   #4
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Default Re: What is the way forward for new automobile companies?

Hyundai took some huge risks and it did work out quite well for them. Before Hyundai, no other foreign manufacturer entered India on their own - they were looking for Indian partners who could share the risks.

- Ford & later Renault piggybacked on Mahindra
- Mercedes tied up with Tatas
- Fiat & Peugeot came in as a big pal of PAL.
- Toyota still has a partnership with the Kirloskars.
- Honda came in and still has a partnership with SIEL (Shriram group)
- Mitsubishi entered India with HM and is still stuck with it.

By the way, Koreans were and continue to be extremely aggressive when it comes to consumer products. Look at LG and Samsung - they have completely taken over Indian electrical goods market (TV, Refrigerator, ACs etc).

I don't think manufacturers from other countries have the guts of the Koreans.
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Old 2nd June 2011, 16:47   #5
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Default Re: What is the way forward for new automobile companies?

Well there could be many possibilities:

1. A new entrant launches a mass selling small car, which will get volumes for it. Then based on success of small car, company can launch products in mid or large car segments. But then there are challenges with mass selling product as this requires a good dealer network support from very beginning. Also image of small car maker get associated with brand (at least initially). E.g. Hyundai took this route.

2. new entrant launches a premium (or mid segment) sedan. For this, volume target will obviously be less, which can be achieved by initial smaller dealer network. This helps company in positioning itself as somewhat premium brand (at least initially). In a year or two company will sort out initial problems in sales/service/supply chain etc and have wider dealer network. Then they can launch mass market small car product. E.g Ford, GM, Nissan took this route.

However then there are companies like Toyota which followed completely different approach by starting off with products like with Qualis and still be successful.

Any strategy is fine provided it is executed properly i.e. product is equipped and priced properly wrt to competition. This should be supported with good marketing campaign and customer experience at POS.

Good example would be how a company like Skoda which had no brand recognition in India before its launch has been able to position it self as a premium brand, although it does not enjoy same status in its home market. While companies like Mitsubishi and Fiat which enjoyed a good brand value in India and respective home markets have failed to perform in India.
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Old 2nd June 2011, 17:09   #6
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Default Re: What is the way forward for new automobile companies?

Before Hyundai, Daewoo entered India. Their first car was to have been the Daewoo "Racer", which was an out going model at Korea. This model was displayed at some fairs in Delhi and drew the displeasure of the viewing public. So they changed the plans and introduced the "Ceilo" which was the replacement model for Racer in Korea.

But this model did not attract too many buyers either, so they planned to bring in the Matiz. Around this time (late 90's) Hyundai was also setting up their plant in Chennai, with plans to launch the "Accent" model. But when they saw the Ceilo bomb, changed plans mid-way to bring in the Santro (Atoz in Korea). This is how I remember the sequence of events, if there is any error feel free to correct me!

What I am stating from here on is purely according to the then grapevine! Maruti was planning to launch the tall boy Wagon-R around this time and the Koreans wanted to stall it till their clones Santro and Matiz hit the market. So a deal was struck at a suitable level in the then govt! This worthy played the patriotic card and insisted that Maruti should not import their gear boxes anymore and should manufacture them in India! This created a furore, and permission to launch new models was denied till Maruti complied. Maruti went to courts in India where the govt stand was upheld. They then went to the International Court of Arbitration at Paris.

This worthy and his group knew the case will be lost at Paris. But the entire process took 18 - 20 months, which was all the time needed for the Korean hatches to hit the market and establish themselves! Ironically, when ultimately the Wagon-R hit the roads, people said it was similar to Santro, it's copycat!

Last edited by Gansan : 2nd June 2011 at 17:17.
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Old 2nd June 2011, 17:20   #7
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Default Re: What is the way forward for new automobile companies?

Gansan, Cielo was not a failure at all. On the contrary, it was all the rage in those days and was a hot-selling sedan. Till the closure of Daewoo in 2002, Cielo was selling in good numbers.
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Old 2nd June 2011, 17:29   #8
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Default Re: What is the way forward for new automobile companies?

^^ That was later on, though I can't agree it was ever a rage! Hyundai switched plans to Santro from Accent during plant commissioning stage itself, due to the lukewarm reception of the Ceilo.
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Old 2nd June 2011, 17:52   #9
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Default Re: What is the way forward for new automobile companies?

Quote:
Originally Posted by smartcat View Post
Hyundai took some huge risks and it did work out quite well for them. Before Hyundai, no other foreign manufacturer entered India on their own - they were looking for Indian partners who could share the risks.
Quote:
Originally Posted by Gansan View Post
Before Hyundai, Daewoo entered India.
@Gansan - AFAIK Daewoo came to India in partership with DCM, as DCM Daewoo Motors.
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Old 2nd June 2011, 17:57   #10
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Default Re: What is the way forward for new automobile companies?

Since the Indian Car market has evolved quite a bit and can be termed fairly mature, a new OEM can try what Volvo is trying.

Launch a super model like the T60 with lots of fanfare. Create so much noise that it tickles the yearning of everybody (I think they had launched S80 or something before but how many remembers that)

Then launch cars one or two levels lower and continue more launches till mass segments are reached.

That way customers feel that they are buying a brand of high value.

This is what Skoda had tried. First they launched Octy, then Laura and Superb. Finally the Fabia. Customers felt that getting a Skoda product within 6-7 is a steal (what happened next is another story).

Buying a 18 lakh Maruti can generate a perception of a lower posh value than buying a 6 lakh big label. This is why I feel that Sonata continues to struggle even though it is a good package (I had the Embera V6 for two weeks) because it has the Hyundai stamp.

Last edited by dot : 2nd June 2011 at 17:59.
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Old 2nd June 2011, 17:58   #11
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Default Re: What is the way forward for new automobile companies?

Quote:
Originally Posted by jaguar.runs View Post
@Gansan - AFAIK Daewoo came to India in partership with DCM, as DCM Daewoo Motors.
That is correct. It was DCM-Daewoo India Ltd. Though I think an Indian partner was a must for those who entered before Hyundai.

Last edited by Gansan : 2nd June 2011 at 17:59.
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Old 2nd June 2011, 18:19   #12
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Default Re: What is the way forward for new automobile companies?

No doubt, it is better to launch expensive models and build a brand. Not only does this help in building the brand, it is also a logical way. Because if they go for high volume products, they might not have the sales and after sales systems to support it. These can be scaled only over a period of time. And if after sales is bad, the product will be a failure and so will the brand.

Renault already did a mistake of launching a cheapo first, hence not sure if the fluence would work for the brand even if the people like it. That said companies like kia, with its strength in small cars and not much of history and legacy, it may be better to start with small cars. But, scaling their sales and support will be a challenge.
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Old 2nd June 2011, 19:02   #13
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Default Re: What is the way forward for new automobile companies?

In case of renault I think they wanted to pull out a skoda (forgetting the logan) and enter in premium products establish their premiumness and then enter in the mass market with slightly overpriced product and still have the desirability in the public to own a renault.

But I m not really sure if they have really begun well indeed. First many would nt forget the Logan. Secondly how can u expect to sell a car for 13 odd lacs ex showroom (a segment which is in itself considered luxury in india to an extent) and have such a bare boned variant for it, which does nt hold a candle to the opposition either in terms of features or performance? Its like having grand plans and then messing up in the end and coming up with a stop gap measure.

Other than that I guess it makes more sense in todays market to build up the brand image by offering premium products and then move down the line to offer mass products. In the meanwhile upping your capabilities to match the increasing demand.
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Old 2nd June 2011, 22:27   #14
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Default Re: What is the way forward for new automobile companies?

Was feeling lazy so did not go through each and every post, so I apologize if I repeat views already expressed.

Automakers work in mysterious ways. Well atleast until their strategy is clearly visible to mere mortals.

My take on Renault's Fluence strategy is - manufacturing footprint. AFAIK, only the Nissan Micra is manufactured in India. All other Renault-Nissan cars are CBUs (completely built units) or SKDs (semi-knocked down units), and these cars are C+, SUV, Coupes (Teana, 370Z). Cutting short, Renault-Nissan essentially has the production line ready for small car platform (Micra) alone.

Now, Micra was the test mule and if I were Carlos, I would not consider the Micra a failure, but focus a lot on
  1. Dealer network and aftersales service
  2. Price point of the Micra - lower it a bit
  3. Maybe even plan on launching the Cube, Note, Tilda or the Twingo / Clio. But make sure its manufactured in India, with local sourcing of parts

In the meantime, Renault needs to get a pie of the bigger car market too, and hence we have the Teana and the Fluence. Not built here, but still a good enough gauge for the Indian market. And if some benchmarked volumes are met within a particular timeframe, bring the production line to India.

And voila! you have set up shop in India.
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Old 2nd June 2011, 23:01   #15
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Default Re: What is the way forward for new automobile companies?

well, I feel indian market is no more a typical emerging market anymore, already there is enough competation.

If a new car manufacturer has to survive here, they need to invest hella lot initially and launch 4 cars straight away(open doors with 4 cars) in top 10 cities on india with each city having atleast 2-3 dealerships.

lot of marketing, good pricing, 1VFM car, 1 Luxury car..(set up one assembly line plant and manufacture parts locally here in india)

if the brand doesnt click, doesnt matter, dont give up, keep trying hard and give MSIL a run for the cars, fight MSIL in all segments.

clearly a new player has to enter the market with a 15 yr horizon in mind, no giving up if Indian buyers dont like you initially, it is bound to happen.
(note : this is just my opinion i doubt the old tricks will work now in india )
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