Pune: Earlier this year, when Bajaj Auto Ltd announced a division of its various businesses into three separate units, Rajiv Bajaj, older son of group chairman Rahul Bajaj, was handed over the two-wheeler business, in which the firm ranks as the No. 2 player in India.
Rajiv Bajaj, managing director, is credited with turning around the fortunes of Bajaj Auto at the start of this decade with an indigenously designed two-wheeler called Pulsar, which is now the largest selling bike in its segment. In an interview with Mint at the company’s Pune headquarters, Rajiv Bajaj touched on a variety of topics, including his plans for a small car. Edited excepts:
In one of your previous interviews, you said Bajaj Auto will have proper positioning for four-wheelers. What does that mean?
Very simplistically, one day people will move in greater number from two-wheelers to four-wheelers. So, as a company, we have to be prepared. Similarly, people will move from three-wheelers to four-wheelers in terms of goods carriers. So, we have to be ready for that.
The company should have done it long back, but our hands were full as we were transferring from scooter to motorcycle and that was our priority. I am glad we did that. People (companies) who did not make that transition successfully are out; gone.
But we are late in certain areas and four-wheelers is one of them. When I said we must position ourself properly, I said (it) in that context. We are not trying to be a full-range automotive player. We don’t have such an aspiration at this time. We do not have such pretensions at this time. But we can take two things forward. One, the specific skills that we have in terms of two- and three-wheeler engineering, which are very relevant and very potent actually in the area of light four-wheeler. And second is the structure that we have across the supply chain from suppliers to dealers, (which) makes us competitive in the four-wheeler context. If we can take these strengths forward, perhaps we will carve a niche for ourselves in the four-wheeler space.
What is the product range you are looking at?
You do not start with a portfolio. You start with a platform—you start with one or two products. There is a goods carrier that we have been talking about for some time, starting production in 2009. Second should be in the passenger space. I hesitate to call it a car. That immediately conveys a certain image and function that it may or may not comply.
That is the area we will now explore jointly with Renault. We have been doing this by ourselves so far. We think that we have specific ideas in that context. They hinge on very new kind of technology that we are developing in-house. We are still not sure that technology is viable. It will take a few months to understand that. And if we find it viable then we intend to display this in the January Auto Expo in Delhi. And at the same time we are going to conduct a study with Renault and we have to see how that goes and make the right choice whether to go with our own idea or go with that.
What we are doing is very new, very futuristic. That is why we are not sure. We think it is a concept. The technology is not in any four-wheeler in the world today. It is completely new, forward looking. And we have done it before. We have done it with two-wheelers and three-wheelers also. So we know the downside.
When you say technology, is it engine that you are talking about?
Primarily, yes. Because the heart of the whole thing is the engine. The one-lakh car business is a very simple business. Maruti makes the Maruti 800. It is almost 630kg. There is a fair degree of connect between the weight of an automobile and the cost of an automobile. If a car has to be profitable at one lakh or 1.5 lakh (rupees) price tag, then it cannot be more than 550kg. It cannot be smaller than (the) 800. It has got to have reasonable features. How can you deliver acceptable and expected engine performance without having an engine that costs more than a Maruti engine?
So when you say you are looking at the engine, does that mean that Renault will make the exterior and look at other things?
Yes. I mean we would like them to do that. Although we have been trying to do it ourself, but to get a car door to shut like it must shut is not easy.
By when do you plan to take it to the market?
Well, if the engine, this technology, seems feasible, which we’ll know by early next year, typically, development programme is a three-year programme. So something like 2011 seams reasonable.
Will your vehicle be a proper car or will it be a people carrier?
Maybe it will be a ‘car’ car. I don’t know, I just want people to like it and the company to make money out of it. You can call it a car.
Why did Renault choose you?
Renault asked both Mahindra and us, I believe, whether we have some ideas. We honestly said this is our idea. They didn’t say to us that they chose us because of this. I am telling you from the Bajaj point of view.
There is no point in Bajaj thinking that it can make a conventional car. The world needs another car maker like a hole in the head.
It’s big money and a big game. We are small motorcycle makers, but if we have to do something, then we have to be smart. Scale is not on our side. That’s what we are saying. Because it is smart, it’s different. It can give us a unique position, which is always by virtue of providing value in terms of certain functions at a certain cost. And if we are able to do that we have made a unique space for ourselves.
Are you inflexible on the $3,000 pricing?
We are trying to do something discontinuous. Try technology that is inherently more cost-effective rather than compromising on certain things.
The $3,000 price tag is not very important, I think. Four-wheeler parts are very expensive and four-wheeler dealership workshop bays cost lots of money. And that’s simply the point. One must simply calculate the monthly cost of ownership. When somebody buys a 100cc motorcycle, the cost of ownership is Rs2,500 a month. If someone buys a Maruti 800, it’s Rs10,000 a month. So it’s not just a question of the price of the vehicle. And I don’t really put much by whether the car is one lakh or 1.5 lakh or two lakh, for that matter.
If a car is costing Rs2 lakh, you can still get it financed and if it does 60km to a litre, instead of a Maruti doing 15km a litre, that changes things completely. I am much more worried if a Maruti does 60km a litre... than if Tata makes a Rs1 lakh car. Because if the mileage is poor and maintenance is still high, the monthly cost of ownership turns out to be seven or eight thousand rupees a month, then I don’t think the motorcycle guys are moving nor the three-wheeler guys. So, for me, monthly cost of ownership is important.
And in a car, which is otherwise like a car in appearance or image—instead of Rs2,500 a month, if the monthly cost of ownership is Rs5,000—that’s what we’ll like to do; work on price, mileage and maintenance and make monthly cost of ownership cheaper.
Three-wheelers are a big source of income for you and previously you said you intended to design new models. What’s become of that?
It makes lots of money. But that’s living off the past. What I am saying is that in five years’ time, we want to make better products, we must develop four-wheel products which are far more stable, far safer, far more comfortable, are able to move with the traffic, better in every possible way.
You had also said previously that you want to position Bajaj in the international market. What’s your game plan?
We entered Indonesia last year. For me, qualitatively, there are four kinds of markets. One is the North America, Europe... This kind of market. Probably we don’t have products (for this kind of market). So we need a different strategy, maybe even an acquisition-led strategy. So that’s one kind.
Second is China—which is a market by itself—where we again need a different kind of strategy to get things right there. The China game plan we’ll talk about eventually and not today. We’ve really good ideas. But it’s sensitive from a competitive point of view.
The rest of the world buys the kind of products we make here. Whether it is South America, Africa or Asean. And some of these countries are, to put it simply, smaller ones where it is more of a distributor-led market and that’s where we are mostly—like Nigeria, Sri Lanka, Columbia, etc. We fortunately have good distributors and that’s why in most countries we are market leaders or very, very significant. Then there are bigger markets like Indonesia. For us, Indonesia is very significant and so we picked that one—and where you can never find a distributor big enough to establish your brand because all the biggies are there. You have to fight manufacturer to manufacturer. Honda is the market leader in Indonesia and the other three Japanese (firms) are also there. We need to be there on our own. So we entered the market last year.
And we always like to do things differently. So we have gone against conventional wisdom. We haven’t gone with the kind of products people want to buy but what we want to sell. We have gone in with a very different dealership development strategy and it’s working. We’ve made reasonable progress.
And once we have a successful model, we can got to other similar large markets. So our single-minded focus is now Indonesia.
So is that why you are looking at different bike makers as recent reports seem to suggest?
It’s something we are looking at. It takes a few months for us to make any announcements, if any at all. Ducati and Triumph were amongst brands we looked at, but not the only ones and I think that’s logical. (In the over 600cc segment) I don’t think I can get with the Bajaj brand the price I can get for a motorcycle with one of these brands.
So, even if we are capable of making big bikes tomorrow, as opposed to selling it at €10,000 (approximately Rs5.5 lakh), we sell it for €5,000 and that doesn’t do justice to our engineers. So brands are important there.
Ducati said that it hasn’t met anyone from Bajaj, and Triumph, too, denied the reports. Is it that you are looking at a hostile takeover?
No. I don’t think there is any difficulty in buying into one of those brands because we have met the managements of both those companies and everything is available at a price, so it’s a question of what fits our requirement.
Our biggest bike today is 220cc. Up to 600cc, there is no issue (for us to make a bike). And that itself is a lot of ground for us to cover. Sooner or later, we’ll be capable of making something bigger than that—let’s say arbitrarily in five years. Where’s the market for that? Not here. Basically, you’ll have to sell it there.
It’s not important that this (acquisition or market entry) happens tomorrow. It’s important that it happens in the near future. So that in five years’ time, we are ready to go to that market.
I think we are capable or we’ll have to be capable of designing a bike that is good as any from Ducati. We are not trying to overcome that. We can already do that. Every technology is available with us like fuel injection and so on. It’s not for technology or capacity, quality or any such engineering reason that we are looking. It’s purely as a brand. Because that’s what is going to decide the price tag.
So does this mean Bajaj is getting into premium segments and out of smaller segments?
Well, we said we are getting out of 100cc bikes. Bajaj will make big bikes and small cars.
And make money?
Of course. Ever since our turnaround with the Pulsar started in November 2001, we are the most profitable in terms of operating profit. That’s ultimately the only proof of financial health, so we are working smart enough.
But isn’t the 100cc segment the single largest for you in terms of sales?
The problem is some people are confusing customers and products. We said we are going to get out of 100cc motorcycles. We never said we were going to exit the 100cc customers.
Secondly, when we say we are going to exit 100cc motorcycles, I think it’s just a case of making a virtue out of a necessity. Since 100cc motorcycles is absolutely 100% Hero Honda mind space.
And the only people who make money out of 100cc bikes are Hero Honda. We want to develop a motorcycle that isn’t a 100cc, but it has got to appeal to the 100cc customers.
Finally, there are two things—price point and fuel economy. So obviously it’s got to deliver on those two and yet offer more than a Passion or a Splendor. And how to do that has been our nightmare for the past three years.
We’ve put everything in the last three years on the new bike that’ll launch in September. It will be a bigger success than the Pulsar, I think.
Sudha Menon also contributed to this story.