BackTraditional segmentation of auto industry will disappear: Pawan Goenka
Pawan Goenka, director and president of Mahindra & Mahindra's automotive and farm equipment division, talks about the company's plans for the year
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The year 2015-16 could be a make or break year for Mumbai-based automaker Mahindra & Mahindra Ltd. The company seeks to claw back market share that it has ceded in the last two years because it had no products in the compact sports utility vehicle (SUV) segment. Mahindra is predominantly a utility vehicle maker. In an interaction, Pawan Goenka, director and president (automotive and farm equipment division), Mahindra & Mahindra, talked about the company’s plans for the year. Edited excerpts:
This financial year will be big for you, isn’t it?
I think so. Launching nine products in a year is tremendous work. To the best of my knowledge, I have never seen so many products being launched by any other company, so we have been sort of bunching everything together. Each of them (the products) is important for us. We feel very positive that we will be on time for each of these products.
How much of the compact SUV segment’s potential has already been realised? How much is left for you?
It is not like something has been realised and, therefore, nothing is left because any new product that comes in will draw its volumes partly from existing products and partly from growth in the market. For example, if I take XUV 500, we would certainly think that volume will go up from where we are today and some of the (overall) volumes would come from somebody who is not considering XUV 500 and is buying a different product. The same thing will happen in the compact SUV segment. The volumes will come from hatchback, sedans and from the existing compact SUV segment. I would not say that the game has not been played. There is still tremendous potential there.
I think most people are predicting that the highest growth that India will see will be in the compact SUV segment and, therefore, that segment will become very crowded. You will see two noticeable changes. When a segment is very crowded, you will see frequent upgrades of products and the pace of segment growth will change. Customers will no more be happy with some superficial kind of change.
Does this also make business more expensive?
The cost of customer acquisition will go up. That includes marketing expenses in terms of advertisements that we put out and what we do in our showrooms, and sometimes the discounts that you will have to hand out to the customers. Therefore, the cost of doing business is certainly going up. The cost will have to be compensated by pricing, and making your operations more efficient. If we do not do those two things right, then we will come a cropper.
What’s happening on the passenger car front?
We are conscious of the fact that these products (Verito sedan and Vibe hatchback) are not doing well. But they are not going to be a drag on our business. It is just there. We have no plans to spruce it up. The e-Verito is something that we are very excited about. Therefore, the future of Verito is in the electric version and not so much in diesel and petrol. If we are able to create a good value proposition with e-Verito—and the government of India is pushing electric vehicles—then the Verito platform will sell more in the electric version than in petrol or diesel variants.
The vision about the utility vehicle segment is clear, but what about the strategy for the passenger car segment?
Traditional segmentation of cars, UVs, SUVs, sedans or compact SUVs is disappearing. If you look at the segmentation of products, they are traditionally defined by the auto industry, but a customer goes to buy with a certain requirement, and does not necessarily want to buy a car.
We have no plans to do anything in the car segment. We are trying to exploit the investments that we made. We are not investing anymore.
Does that mean you are not part of 65% of the market, which is the small car segment?
I am repeating that these distinctions are all in our minds. Customers do not differentiate between a hatchback, sedan or an SUV. When somebody is looking at a Rs4 lakh car, the customer will look at a sedan, hatchback or an SUV.
So will you offer a product at ₹ 4 lakh?
I won’t say Rs4 lakh but certainly the two products that we have talked about will certainly be in a price point which is lower than what we have today.
So are you saying that a Bolero customer will simultaneously look at a Swift as well?
Yes, of course. Just talk to 10 people who bought a Bolero and ask them what else did they consider before buying a Bolero. You will get your answer.
Where is the passenger car segment headed?
The passenger car segment is headed to a higher price range. If you look at the average price of a car, it is going up and not down. There have been efforts to come in the very low price category but not every low-priced vehicle necessarily succeeds. Success does not come at a low price.
Have you seen sales of electric vehicles pick up after the government introduced subsidies for them?
Slowly. It is not that there is a queue for electric vehicles in the showroom but certainly there is more interest. I must say that the government has not stopped at just giving subsidies. Right now we are in talks with several governments to supply one of the three products that we have—e-Maxximo, e-Verito and E2O. I would hope that we see traction but it may not happen immediately.
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