Mumbai: Mahindra & Mahindra Ltd. expects to shift more of its utility vehicles at higher prices to maintain margins as costs rise, and played down talk of working with global carmakers to produce a $3,000 car.
Indian vehicle makers face pressure from volatile input prices and higher interest rates, which have squeezed demand, particularly for commercial vehicles.
“Softer demand means you have to give incentives, which affects profits,” Pawan Goenka, president of the company’s automotive unit, told on 6 July.
“But I see no reason for the Bolero, Scorpio or Logan to slow in the next quarter,” he said, referring to the popular utility and sport utility vehicle models.
Goenka said Mahindra has a joint venture with Renault to make the no-frills Logan sedan, and hopes to sell 4,000 cars a month by September.
The company said it would make 50,000 units a year, sold 2,389 Logans in June, beating cars in the sector from leaders Maruti Udyog, Hyundai Motor, Tata Motors and Ford Motor.
“If we can sustain the 4,000 level for 2-3 months, then we will consider raising output,” he said, speaking from his office in central Mumbai.
But Goenka played down mounting speculation Mahindra will partner Renault or Nissan Motor in making a $3,000 car.
Carlos Ghosn, who heads both Nissan and Renault, has said Mahindra would be a “natural partner” if they were to develop a cheap car for India and take on Tata Motors, which hopes to launch its “People’s Car” for under $2,500, next year.
“Too much has been read into Ghosn’s statement,” said Goenka .
“We have no confirmation they are serious about developing it, nor is there an official agreement to work with them on it,” said Goenka, who worked for General Motors for 14 years.
Goenka said the focus with regards to Renault and Nissan was a new plant and proposed cooperation on engineering, services and product development, which may include tapping Renault’s overseas manufacturing and distribution facilities.
The plant in Chennai will roll out up to 400,000 vehicles a year from mid-2009.
“Ghosn appreciates our frugal product development approach and if we can cooperate on that it would be very good for Mahindra,” he said, adding the agreement does not preclude an option for Mahindra to go it alone on a $3,000 car.
“But we’re not necessarily enamoured with a $3,000 car. We have our own product plans that we want to focus on.”
Mahindra has recently launched a pickup truck in Australia and has a deal to sell pickups and SUVs in the US. About 200 dealers have signed up.
Mahindra will start exporting at least 2,000 Scorpios a year to Brazil, Egypt and Turkey, to be assembled locally.
The Mumbai-based company expects to get about a fifth of its revenue from exports in the next few years, up from 5% now.
It will launch the Ingenio utility vehicle next year and then launch a mass market light truck and a new SUV, which will be made in the Chennai plant.
Mahindra is also setting up a new plant to make medium and heavy commercial vehicles with joint venture partner International Truck and Engine Corp. of Navistar.
The new launches will help reach an internal target to quadruple exports and double domestic sales by 2010, with four new platforms and 10 new product launches, while still achieving double-digit operating margins.
Mahinda, also India’s top tractor maker, sold 170,208 units at home in the year to end-March and exported 8,021 units. Its margins were just under 11%.
“The big worry is people resources, and managing the joint ventures, which take time,” said Goenka.
Shares in Mahindra, valued at $4.7 billion, trade at 18.5 times forecast earnings, against 14 times for Tata Motors, which is valued at $6.7 billion.
Mahindra shares have fallen 15% this year, underperforming a 12% drop on the auto index and an 8% gain on the benchmark stock index.