Saturday, November 3, 2007

Ghosn plays catch-up

S Kalyana Ramanathan / Chennai, November 04, 2007

Business imperatives have pitted the redoubtable manager against himself.
Chances are that Carlos Ghosn will have to write an update to Shift: Inside Nissan's Historic Revival, the book he published four years ago. Otherwise seminal, the book makes only a passing mention of India, dismissing it as an emerging, but fragile economy.
The chief executive of French mass car maker Renault, celebrated for turning around Japan’s Nissan, in which Renault owns majority equity, Ghosn seems to have seen the error of his thought.
Renault waited 14 years after India’s automotive sector was opened up to foreign investment to enter the country, about a decade behind General Motors, Ford and Daewoo. However, once in, Ghosn has moved quickly to sew up six ventures in India in a mere 33 months.
Renault first set foot in India in February 2005 through a venture with Mahindra & Mahindra to produce Logan followed by a three-way venture early this year involing Nissan, Renault and M&M to produce cars in Chennai. Each partner would put its own badge on its share of the produce.
Late last month, Ghosn was in Chennai to join hands with Ashok Leyland, the country’s second-largest commercial vehicles maker, to make light commercial vehicles – the partners would put their own separate badges – through three ventures. The same day, he flew to Pune to agree on an alliance with two-wheeler manufacturer Bajaj Auto for a car that would retail for $3,000. Renault is looking for a partner to make commercial vehicles.
Although India is widely perceived as a big market for small and cheap cars, none of Toyota, Honda, Ford and Skoda – all of which entered the country in the last decade – has one. General Motors has only now rolled out Spark, derived from the erstwhile Daewoo Matiz. Of the multinational passenger car makers, only Mercedes has entered commercial vehicles in India.
The method in this frenzy is what Ghosn did not tire of talking about on his visit to Nashik in April this year to roll out the first Logan from the Mahindra-Renault factory: the country’s uniquely frugal engineering and manufacturing.
“The (Indian) market is very attractive and the way Indians manage the cost has fascinated him (Ghosn),” says Kiho Ogha, chief executive officer, communications, at Nissan.
The Indian market, which is projected to grow to 3 million a year in five years from just above a million now, is the second-fastest growing among the major economies. On the other hand, the Japanese market, at the beginning of this year, witnessed falling sales for the 21st straight month. The news from Europe and North America is not comforting either. Growth in light vehicles – cars and light commercial vehicles – is coming mostly from emerging markets.
Last year, lower domestic demand forced Nissan to cut its earnings forecast, an event Ghosn called a crisis. Ten days ago, he told CNBC television that 2008 would be another challenging year for the car industry.
“The global automotive market is expected to swell by 14 million units by 2014. We expect the BRIC (Brazil, Russia, India and China) to contribute around 57 per cent of this, with India alone contributing 16 per cent and China another 25 per cent,” says Sudharshn Mhatre, manager at the PricewaterhouseCoopers’ Automotive Institute, Asia-Pacific.
Ultra cautious, Ghosn has taken care to put his eggs in different baskets. Mahindra is already an entrenched maker of four-wheelers and utility vehicles, but Ghosn went to Bajaj for the low-cost car and Ashok Leyland for commercial vehicles. The two separate ventures with Mahindra and three with Leyland underline this further.
“Having picked up the contenders for the number one position, he has managed to retain his negotiating powers and also ensured that there is not much left for any new entrant,” says the head of an automotive think-tank.
In essence, Ghosn is striving to dispel his own contention of four years ago. But if the eggs hatch well, he is unlikely to mind it too much.

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