A decade ago, Hyundai Motor India Ltd. set up shop in India and is now in the process of sharply increasing capacity. While it is now second only to Maruti India Ltd in terms of marketshare, Hyundai has emerged as India’s largest exporter of cars. In a candid conversation, Heung Soo Lheem, managing director and chief executive officer of Hyundai Motor, says the Indian governemnt isn’t doing enough to help the auto industry despite saying that it wants to make India an export hub. Edited excerpts:
The rupee has appreciated in the last few months; it would have made your exports costlier. But, at the same time, it would have made your imports less costly. What’s the impact?
We import more than the exports. Almost balanced. But, still, I have always complained to the government. Even in the last year, honorable minister P. Chidambaram declared that he wanted to develop India as the export hub for small cars. Fiscally and practically, what’s has been support for the manufacturers from the Indian government? That is my question.
What support do you expect?
Huge support. We had some target-plus scheme. It means when we meet some targets, then the government gives us some incentive. This time, nothing. Actually, no support (has come) from government to manufacturers, especially automotive.
So you want to have target-specific support?
Yes. Similar ones. More practical support. Through some taxation. I compare two things. Indian government should provide support for exports plus another support for localisation. If we just produce the cars, similar to the others, what’s the benefit for the Indian automobile industry? Nothing. Only a small portion of labour cost and a small portion of some parts. When we talk about more local content, the Indian government should give more support, even for local parts supplier. And support for new investment and localisation.
I joined Hyundai in 1973; I am one of the oldest employees. We assembled cars 300 per month, imported CKD components from Ford UK. From that point, Hyundai has gone on to produce more than 60 million units a year. What was the major support?
Can you be specific what sort of fiscal support you seek from the government?
Tax and protection. A lot of incentives for the localization. Please focus on that. When the actual strategy of Indian government is to boost the automotive industry in India, they just simply invite many manufacturers to India. It does not help. Actually, exports is the only way to survive.
Has the recent interest rate hike affected your margins?
Absolutely. Because of high interest rate, the total industry demand looks like reduced
The launch of Rs 1 lakh car from Tata and talk of $3000 car from Renault-Nissan- Mahindra combine. You don’t have presence in the Rs1 lakh category...
(Before answering, Lheem goes and fetches the latest copy of Overdrive magazine, which has an artist rendition of what a Tata Rs1 lakh car might look like)
It’s a matter of time (before we ) see this car or design. But, frankly, I have very much doubts about that. I have worked for the automotive business for 30 years. But, to produce that car with Rs1 lakh is impossible. I imagined the design to be totally different from this one. It looks really nice. I feel it is impossible to produce this design at this price.
Given your experience, how much do you think it will cost to produce this car?
I don’t have a certain number in my mind...I have it but I don’t want to disclose it. But, Carlos Ghosn (CEO of Renault and Nissan) says he want to produce a $3000, may be more feasible. But, the Rs 1 lakh car looks difficult.
You do not have a presence in this segment (Rs 1 lakh) and also in the Maruti 800 price range. Do you have any plans to enter this segment?
We don’t have any plans to fight against this segment (Rs1 lakh car) .
What about cars priced below the Santro and the PA (the code name for new car being planned by Hyundai)?
Of course, we are now working on that. I cannot give you any details. But, we feel that when the Rs1 lakh car is developed, maybe a lot of two wheeler customer will transfer to Rs1 lakh (car). My point is that without the support of the government, the project is impossible.
What sort of support?
Two things. Regarding the safety and emission norms. We think the government should strictly apply regulations on the new product, both safety and emission norms. The European norms for emission. Soon, we should upgrade to Euro IV by 2010. Also, in safety norms, it should meet all the international safety standards.
The safety norms that are prescribed for other cars in India?
I very much question that. How do they meet those international norms regarding safety and emissions? I have no answer to that.
When you look at demand for new cars for Santro, a portion of demand is from people who are upgrading from two wheelers. So, that portion is likely to get affected when you have a car between you Santro and two-wheeler?
A little bit yes. Not so much.
How much impact?
I have no idea. Not so much.
Do you have any plans to develop a car between two wheeler and Santro?
No. We do not have any plans because you should know that in India (Hyundai operates) as a small car export hub, which means that our products should meet demand from local customers and overseas distributors. So, when we produce such a small car then we cannot say we meet the overseas market. Of course they can say exports, maybe to neighbouring countries like Bangladesh, Nepal and Sri Lanka. But, not in European countries. So, our focus is, we should provide same products all over the world. Currently, we are exporting to 65 countries. Our ambitious plan is to export to 100 countries.
There have been some reports that you are planning to set up a diesel engine facility in the second plant being built?
As you know, the demand for diesel engines is now growing. At this time we are importing all the diesel engine from Korea. I think when we have more than 50,000 demand from India. I think we should produce from India. Our engine shop (in the proposed second plant) has already considered that production.
What is the current volume of diesel cars sold by Hyundai India?
This time it is around 25,000 and up to 30,000.
With the growth target, it will reach 50,000 in two years time?
I hope so. I am sure the demand for diesel engine is growing. In our medium size car, the diesel sales are more than 70% because of the good performance of our diesel engines. I am sure that the portion of demand for diesel engines is growing.
Does the proposed second plant investment take into account the investment towards setting up diesel engine plant?
It is not included. Our total investment including the Phase2 capital expenditure plus engine shop, is around Rs6,000, but it does not include the diesel engine.
How much in your estimation would be the requirement for setting up a diesel engine facility?
I don’t have the number because it depends on the localization. As you know, we are not just a simple assembler, we are a manufacturer. My point is that we produce car for the domestic market as well as for the export market.
You are supposed to have introduced diesel variant of Getz?
In the coming second half of this year, we are planning to launch Getz diesel.
Will it share the engine with Santro?
At the beginning stages, it will share with Santro. Eventually, within a year, we will have a newly developed engine for the new car.