News: Logan doing the last laps before launch

(DNA 29/09/2006) Paris - Sylvain Blain remembers that day in mid-2004 well. A global survey on manufacturing abilities of countries was just handed over to him. One look at the contents, and the eyes of the chairman of Mahindra Renault popped: the report said India will be the top global manufacturing country in the world.

This month, Blain got affirmation. The $55 billion European auto giant just signed a deal to source two auto parts from India.

It’s a small beginning, but quite symptomatic of the way the French auto giant’s Logan car project has been going.

More than half of the parts of the sedan - 52% to be exact — to be launched in the first half of next year, will be local.

The engine will be imported from Romania, the sedan is doing the final rounds of testing on Indian roads, around 20 vehicles made at the joint venture’s Nashik plant have clocked 3,00,000 km on rough Indian terrain.

By the first year of the launch, the localisation would have increased to 58%, including engine parts.

“The first trials for the Logan in India started in May 2006 and we did 70,000 km, going through the rigours of summer and monsoon,” said Rajesh Jejurikar, managing director of the joint venture, Mahindra Renault.

“The engineering for the right-hand drive (Logan is sold as a left-hand drive elsewhere) is complete. Some work was also done in Romania using parts sent from India and the Logan is now ready for homologation,” said Jejurikar.

The company is also planning Logan variants and work is currently on on five derivatives.

Patrick Pelata, executive vice president, Renault, said the right-hand drive Logan would be steered into other right-hand drive markets across the globe.

Good quality parts and cheaper vendor sourcing means Mahindra Renault has already managed to bring down the costs. “Our expense data shows the project cost is down substantially,” he said.

The Logan project has an outlay of 125 million euros or about Rs 700 crore. “The quality of the parts is very good,” says Pelata.

So, will the Logan’s low-style-quotient work against the product - derived as it is from an East European milieu? Pelata says the car is based on the fundamental principle of “getting the basics right” - that of roominess, robustness and affordability.

Jejurikar says changes have been made to the Dacia Logan model sold in Romania to make it a more contemporary look and swisher styling, including interiors.

The pricing for the mid-sized sedan, analysts said, could come down following the high level of localisation. “It should be in the Rs 5-6 lakh range,” said an analyst with a foreign brokerage in Mumbai.

The Logan was launched in Romania in 2004 and sells in the $9,000-10,000 range. The joint venture will have the capacity to produce 50,000 cars a year.

“No C-segment car in India has that kind of sales at present. The highest seller in the segment, the Honda City, sells about 3,500 a month. So the production capacity can take care of the market needs now,” he said.

Will Renault, which has already started a beachhead in Mumbai for research, go alone some time down the line, considering the potential of the market?

Pelata says that’s no easy decision. “India is complex. There have been many who tried to go solo and did not succeed in the country. If you have a good partner, the value proposition just multiplies and the failure rate is drastically lower.”

Indeed, the auto major has operations beyond research and part-sourcing. The local entity also looks after CBU imports of the Renault range.

The auto parts promise interests Nissan, too

Renault’s sourcing from India is sparse now, just totting up to about 7 million euros. But Patrick Pelata, executive vice-president, Renault, believes this is just the beginning. This is because product development in India costs “much less”.

“We are asking for quotations for engine parts. We’re trying to send more of our managers to India for parts purchases,” Pelata said.

Pawan Goenka, president (automotive sector), Mahindra & Mahindra Ltd, said the development of outsourcing contracts take time. “They follow a one-and-a-half year cycle from product planning to validation.”

The outsourcing, though puny now, has elicited interest from even Nissan.

“Recently, some purchasing managers of Nissan asked us, ‘Hey, could we also share the parts made in India?” said Pelata. “This is good for all - for Mahindras, for Renault, and, of course, Nissan - to have a low-cost parts base.”