The alliance between French car maker Renault SA and Mahindra and Mahindra Ltd (M&M) has come to an end with the latter taking over 100% of their joint venture (JV). This, however, will not stop M&M from continuing production of the Logan, with Renault providing engineering expertise to refresh the product.
Renault will build its own dealership network and launch cars from a factory it has built with Nissan Motor Co. Ltd.
Marc Nassif, country general manager at Renault India, and Katsumi Nakamura, executive vice-president for Asia and Africa at Renault, comment on the joint venture and the French auto maker’s India plans. Edited excerpts:
We heard your joint venture partner say that the reason for the dismal sales of the Logan was that there was so much apprehension in the minds of Indian consumers about the future of this joint venture. What really was going on? Was there a difference of opinion? What has actually led to you and M&M parting ways?
Nassif: Obviously, we have been working in the past more intensively with Mahindra, to try to simplify and to take off all those tensions from the market, from the customers, and we have finally agreed on what we think makes sense, with the big driver of keeping customer satisfaction, taking care of our stakeholders and keeping (up) excitement on the market with that product.
Now for Renault it is about obviously supporting Mahindra with parts supplies, components, intellectual property and focussing now intensively on the new plan as we have announced launching new cars on the markets and on the new network by next year.
Let me talk about the Logan specifically because this was a car that was repositioned several times in the Indian market. But that did nothing in terms of sales, it was doing only about 300 vehicles a month. So was that really the reason for Renault giving up and saying we don’t really see light at the end of the tunnel as far as the Logan is concerned? What exactly was the rationale behind exiting this joint venture?
Nakamura: I think there are several reasons. But one of the biggest reasons coming from the outside or circumstances is that the government changed the excise tax schemes and then the under-4-metre cars can have a big benefit from the reduced excise taxes.
So as a result of that, Logan was initially focussed on the customers who like to have a car, but affordably priced car, and Logan is focussed on that. But this customer will shift to a smaller-sized car or 4-metre-sized hatchback or 4-metre-sized small sedans. So this is one of the biggest impacts for us.
Driving away: Renault’s Katsumi Nakamura says there is opportunity for good business in the small Logan. Bloomberg
The other one is Logan is basically...focusing on the developed Eastern and the Western European customers. The car is high quality and highly spacious and exhibits good performance. But in terms of attractive features such as good colours or shining goods and some good electric parts etc., such things are missing from the Indian customers’ viewpoint.
(The Logan, more than four metres long, attracts an excise duty that’s more than double the rate levied on cars that are shorter.)
We understand that Renault will be paying off some of the debt that Renault had in this joint venture before this transaction actually goes through. Pawan Goenka also said that valuations have been done in terms of the impaired value of the assets and that is because of the poor sales of the Logan. Take us through how the valuation has been arrived at and how much debt will you be actually paying off before this transaction gets done. (Goenka is president, automotive and farm equipment sectors, at M&M.)
Nassif: I won’t give you many figures. So far, we have jointly invested Rs700 crore between Mahindra and Renault in Mahindra Renault. Renault has 49% of that JV. Renault will pay and assume 49% of the debt, whichever way it is coming from, impairment or current debts of the company. Mahindra will assume the other 51%. So there is absolutely no discussion. We are discussing on final calculation and everybody will take a share of the company in terms of debt.
In terms of the licence agreement, I understand that this agreement stands for five years; there is a loyalty (amount) that Mahindra and Mahindra will be paying to Renault. We understand it will be on a per car basis. Can you share any more details on that and if it is indeed on a per car basis, what is the kind of calculation that you are now working with in terms of how many cars you hope to sell in India?
Nassif: We have tried to make some things very simple with Mahindra...the discussions are now on to finalize the intellectual property deal and finalize the valuation of how much Mahindra would give, depending on the components and what Renault would be supplying.
So I cannot give you much detail today. We are very close to an agreement and there is absolutely no tension on that.
I understand that this agreement stands for the Indian market as well as for South Africa. Will you look at extending this agreement and Mahindra really becoming a contract manufacturer for Renault for other car markets, other emerging markets?
Nassif: This agreement stands for India exclusively and Renault will continue buying. Renault was buying Logan through Mahindra Renault until now for South Africa. Renault will continue buying Logan through Mahindra for South African operations.
Are you looking at, are you optimistic, are you hopeful that there will be a Logan under four metres?
Nakamura: We’ve studied it, and there are some opportunities to make a good, profitable business in the small Logan. Goenka has already found some good solution in terms of the technical standards of theirs and not Renault’s. So there are suitable opportunities for development in line with customer expectations.
So you are saying the solution will be found by Mahindra and Mahindra and not by Renault, because I understand that the engineering expertise will continue to be provided by Renault. So this under-4-metres is going to be a Mahindra project or is it going to be a joint project?
Nassif: It will be clearly a Mahindra decision. Whatever technical support is needed from Renault, Renault will provide. But at the end of the day, the business will be driven by Mahindra. So it’s a business decision by Mahindra now.
So if Mahindra were to actually make on the Logan platform a car that is under four metres will Mahindra be able to sell that car across the Indian market, across other emerging markets freely or will it still fall under the licence agreement that the two of you have?
Nakamura: One point is the technology licence support and parts providing. Renault will continue technology support and if they require it we will support them. We will offer some technological document to them.
How can we do it in the 4-metre Logan business? This is, as Nassif said, purely a business decision. This business decision belongs to Mahindra and Mahindra and probably Goenka can decide whether it will go or not. So we are following their decisions and then we will support on the technical side. So this is the main concept and this business is only for India.
Will you allow Mahindra and Mahindra to use the Logan platform to develop other vehicles?
Nassif: This is obviously open (to) discussion allowed by this agreement and obviously the two partners will have to agree on what Mahindra can or cannot do and in what conditions. So the game is open. Is it a yes? It is a no today. Is it possible? Yes.
It is possible. My last question to you and I was asking Goenka this. You jointly went out and marketed this car under MRPL (Mahindra Renault Private Ltd). MRPL will now be merged into Mahindra and Mahindra. From a customer’s point of view, Mahindra and Mahindra is a company that stands for SUVs (sports utility vehicles), a company that stands for MUVs (multi-utility vehicles), it is not a company that stands for a sedan. It is not a company that stands for passenger cars. So how confident and optimistic are you that Logan sales will improve?
Nassif: Well, it’s obviously in the hands of Mahindra. Mahindra being a serious partner and a serious company, I am sure they have done all the strategical homework before deciding to go there. So we trust and will support them to succeed.