Mumbai: It was when Pawan Goenka stepped into the first prototype of Mahindra and Mahindra Ltd’s (M&M) next-generation Scorpio 18 months ago that the idea seized him: Why not make the company’s next sports utility vehicle (SUV) more than just an upgrade of the Scorpio?

In fact, why not build a vehicle the company could even sell in overseas markets, thought Goenka, president of the automotive and farm equipment division at M&M, a $14.4 billion group with business interests in automobiles, information technology, banking and holiday resorts.

By then, M&M had already spent two-and-a-half years developing what was intended to be the next generation Scorpio, which cemented M&M’s place in the utility vehicle (UV) market after its introduction in 2002. The decision to build an entirely new product meant a hasty return to the drawing board.

The result was the XUV500, the first vehicle developed in India with an eye on international markets. It took 650 crore to develop the vehicle, which finally opened for bookings in India on 1 October.

Ten days and 9,000 purchases later, M&M had to stop taking customer orders because demand far outstripped supply.

Plans to sell the car overseas were put on hold until domestic demand is satiated, and M&M is in the process of doubling production capacity at its factory in Chakan, Pune, to 4,000 units a month.

To be sure, automobile industry experts aren’t reading too much into the XUV500’s initial success in the Indian market, where it has been pitted against the Toyota Fortuner, the Honda CR-V and the Tata Aria, among others, in assessing the international prospects of a product M&M wants to sell in more than 30 countries across the world.

What works in India may not work abroad because global standards are far higher, says Hormazd Sorabjee, editor of the industry magazine Autocar India.

Unlike in the mature markets, where sheer quality determines the success of an automobile, a product can achieve success in India, even if it isn’t the best of the lot, through price positioning and marketing, Sorabjee says.

UVs have until now been low on the radar of international auto makers who have set up factories in India, where hatchbacks and sedans make up 80% of the 2.5 million passenger cars sold in a year.

The UV market, in which sales expanded 19% last fiscal to 387,000 units, has largely been the preserve of domestic manufacturers such as M&M and Tata Motors Ltd. With the Scorpio, Bolero and Xylo, M&M sells two out of every three UVs purchased in India.

Competition heats up

The pace of sales growth has slackened this year as an economic slowdown took hold, yet almost every auto maker has plans to launch UVs in the course of the next year.

At the Auto Expo in January, auto makers will display almost a dozen models up for launch. They include the Maruti Eritga, Renault Duster, new Chevrolet Captiva, new Ford EcoSport and Tata Merlin.

Finishing touch: An XUV500 at M&M’s Chakan plant in Pune. M&M is in the process of doubling production capacity at the plant to 4,000 units a month.

The Scorpio had already taken the company, in a small way, to markets such as South Africa and Australia besides India’s immediate neighbourhood, and customer perceptions there about M&M had evolved.

A sense of urgency seized Mahindra to create a product that could match Japanese, South Korean and German quality benchmarks in terms of fit, finish, noise and vibration levels.

What the company was proposing was to develop an SUV of international quality, with features and applications contained in models priced at 20 lakh, that it would sell at a far cheaper price. The XUV500 eventually carried a starting price of 10.8 lakh (ex-showroom New Delhi) when it was launched.

The mission wasn’t going to be easy if not impossible. M&M got to work in earnest. Rajan Wadhera, chief executive of technology, product development and sourcing at M&M, didn’t take any chances.

He hired UK-based Lotus Engineering to tackle the ride and handling aspects. Engine development was done in close association with AVL of Austria. Getting on board global suppliers such as Visteon Corp., Bosch, and Lear Corp. also ensured the final fit, finish and overall quality were comparable with international standards.

Wadhera reviewed expenses every month for 36 months in a row to ensure economy, spearheading the project codenamed W201 with a team of 200 engineers across different time zones.

Getting the design right

For the first time, M&M adopted a monocoque body design—a form of vehicle construction in which the body and chassis form a single unit—against a ladder frame in which a separate body is mounted on a rigid frame.

It chose the monocoque because it was on par with the global SUV body design trend and helped in reducing the overall weight of the vehicle— a critical factor for fuel efficiency.

It also used several other techniques to reduce the weight—such as the use of plastic instead of metal for the fuel tank and fenders besides high tensile steels.

Wadhera often parked his Honda Accord on the shop-floor and asked the engineers to calibrate the XUV in several areas such as noise vibration harshness, touch and feel, to match Japanese standards.

“Excellence is a journey and not the destination," says Wadhera.

The last mile of the journey is the most difficult and requires extra effort, says Arun Jaura, vice-president of technology at Eaton Corp., who was the research and development head of the automotive sector and chief technology officer with Mahindra group until February 2009.

“Many OEMs (original equipment manufacturers) do a decent job in the initial stages and on gross aspects of the vehicle, but tend to veer and miss on finer details of aesthetics that are dictated by gaps and fit and finish, squeak and rattle, bumpers and seating, vehicle dynamics and handling and powertrain calibration."

The XUV500 was, accordingly, put through the rigours of testing and validation in several countries to ensure it meets the regulatory, climatic and topographical requirements in the countries of South America, Western Europe, South Africa and Australia where M&M plans to sell the vehicle.

But jitters prevailed until the last minute before the launch in India.

“We were nervous not about the price, but about whether we will be accepted in the premium segment," says Goenka.

Going global

Those fears proved to be unfounded in the light of the the initial response to the XUV500 that exceeded the company’s expectations.

“As a category creation, it’s difficult to project the sustainable demand," says Rajesh Jejurikar, chief executive of the automotive division at M&M, who has resigned from the company, but will stay with it until January.

The total size of the market for passenger vehicles costing 8 lakh plus is 22,000 units a month, he points out, adding: “When the product clicks, you are creating the desire to want to upgrade."

A well-crafted marketing communication strategy preceded the launch. Instead of using conventional mass media, the company chose to reach out to consumers through the digital media—bloggers, microbloggers, forum posters, and social networking participants.

Close to 500,000 people viewed the webcast of the launch and some 24,000 sought a test drive even before the model was launched.

Rakesh Batra, auto practice leader at Ernst and Young, stresses the importance of “getting it right in the first go". Unlike global auto makers, Toyota Motor Corp. for instance, that have succeeded in developing a new model in a mere 18 months, Indian manufacturers take three to four years to develop a new platform. The long gestation period makes it all the more critical to get it right the first time.

But is it a truly global product capable of catapulting M&M into the international league?

Although Tata Motors has tried selling its cars in multiple markets, no Indian auto maker has claimed to have developed a model that’s developed with an eye on global markets. In that sense, there aren’t any reference points for M&M.

“While the XUV500 is indeed a great effort by an Indian company, the model can’t be termed world class yet," Autocar India’s Sorabjee says. “Indian manufacturers still have a steep learning curve."

Puneet Gupta, an analyst at market research and sales forecasting firm IHS Automotive, says it’s premature to say if M&M will be successful with the XUV500 in global markets, and achieve the kind of sales needed to be recognized as an international competitor in the automobile industry.

Still, the product’s creation is a bold move for a company which, unlike its international peers, lacks the advantage of multi-locational facilities that can be used to test and develop a vehicle for the global market, Gupta says.