Venkatram Mamillapalle, Country CEO and Managing Director, Renault India operations, believes the stage is set for the French automaker to grow its India innings.
This follows the February announcement by Renault-Nissan to invest $600 million for new products in the coming years. The two have been global allies for over two decades now and the Chennai facility was the first of its kind to have the manufacturing alliance in place.
“It is a good tie-up that we have. We are on the right track and will hopefully get results as we move forward. We should be in a good place going forward,” Mamillapalle told Mobility Outlook in a telephone interview.
According to him, this investment also marks a litmus test for India and renewed faith in the country’s growth story. Beyond this is the Centre’s push to electric mobility and, overall, “there is a positive sign” about the market where two-thirds of the population is under 35 years of age.
Renault has been facing challenges in recent times with local competition in the form of Tata Motors and Mahindra & Mahindra turning on the heat, while the Korean duo of Hyundai and Kia is also going flat out along with market leader, Maruti Suzuki.
“I will admit that we had a gap for a couple of years for sure but still insist that we are not late. We will now come with full force with the teams working already on the new roadmap,” said Mamillapalle.
Never Too Late
He drove home the point that “we are not slow” since India represented an emerging and growing market. “No time is late and it is only a matter of how well you bring your products into the market and how well you take care of your customer,” he said.
Renault has had its share of successful products right from the Duster and Kwid to the Triber and Kiger. However, the volumes clearly need to come in even while the corporate brand has reasonably established a base for itself in both rural and urban markets.
There will be new products coming in but between now and then, the Kwid, Triber and Kiger “have to race in the market” with the sales and marketing teams needing to turn ultra aggressive in their retail efforts. “Industry volumes are increasing every month and we need to keep up with that pace while managing the supply chain issue,” said Mamillapalle.
The reference is to the shortage of semiconductors even while the situation has eased out considerably and it is only the occasional hiccups that pose a challenge. Beyond the BS6 Phase 2 norms that kicked in from this month, there will be other regulations coming in through the year for which carmakers will need time for product development. “We are on track with all this too,” he added.
Keeping An Eye On Costs
The Renault India chief said the focus on keeping costs in check would continue since “business is about volumes and competitiveness”. The success factor of any organisation lies in “how well you manage your costs and stay competitive”. From his point of view, the company was on the right path and it would only be a matter of time before it came out with all guns blazing.
The Renault-Nissan facility barely uses 50% of its sprawling capacity of 480,000 units annually, which only drives home the importance of economies of scale in order to get cost benefits. New regulations only drive up costs but these are “something which are mandatory for all OEMs” with the supply base largely common for these (regulatory) items.
According to Mamillapalle, there are a handful of specific suppliers who can generate the volumes to keep costs in check. Hence, any vehicle manufacturer derives the first advantage from the vendor when it comes to economies of scale.
Beyond this are the costs involved in design, development and engineering for the OEM concerned. Here is where Renault has its tech centre in India to take care of the costs. It would be a different ballgame had this been located in Europe or the US since the cost burden would then pass on to its vehicle range sold in India, and thus, keep it at a disadvantage.
“We have a local footprint in engineering, suppliers and economy of scale,” said Mamillapalle while stressing that he was referring to regulatory items like seat belt reminders, for instance, “where there are few suppliers who have economies of scale”.
Rebalancing Costs
By the end of the day, “how well you negotiate is the key” since the cost impact for all OEMs would more or less be the same. Beyond this, rebalancing costs for the final customer was up to each automaker and its individual competencies in cost management.
India still remains a challenging market in terms of price-sensitivity since individual affluence boils down to earning capabilities. Right now, this harsh reality is playing out in rural India where sales of entry-level cars and two-wheelers continue to face headwinds following the massive job losses in the aftermath of COVID.
Yet, the fact remains that vehicle costs have spiralled since the time of the Maruti 800 nearly four decades ago, which was retailed at around INR 54,000. Today, even a basic two-wheeler is way pricier – a reminder of the constant escalation in costs over the years.
However, the percentage of profitability for OEMs remains more or less the same and that, according to Mamillapalle, was the challenge in India which is characterised by huge cost-competitiveness coupled with a growing desire by customers for features and mandatory safety regulations.
“Customers demand more because of global exposure and it is only fair, which means OEMs should make these cars and give them top class quality at competitive and affordable costs. Profit is not a word that can be dismissed lightly in a business and that is the mantra of success,” said Mamillapalle.
Volatile World
The issue of costs has become even more difficult in recent years following geopolitical tensions where there is no indication when another war may break out on the lines of the Russian-Ukraine conflict, which is still continuing. If China were to turn aggressive towards Taiwan, the world will go through another upheaval which will only lead to more uncertainty and a spike in commodity costs.
In this new era of mobility disruption, carmakers are constantly on the lookout for fresh talent. This is where some new challenges have emerged where domain experts prefer to work from home, which could be both a benefit and drawback for their employers.
“Anyone from remote locations can help which is more than welcome and, yet, the inherent drawback is that a face-to-face discussion on product innovation, development, etc is not the same while sitting in a remote location. Being part of a group brings more mature thinking along with realistic and faster goals. All these challenges are part of business and we need to take this in our stride,” said Mamillapalle.
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