Early Sales Reckoner – November 2015

We start the day with Maruti-Suzuki numbers. The car market leader has had a good month statistically. MSIL has reported a 10.6% jump in dispatches. Looking deeper at the numbers, we realise that some of the segments had a sloppy month.

The Mini segment dispatches were down 4.7% perhaps due to the Renault Kwid. Compact segment has done well with a 19.5% jump in dispatches even though we were expecting better with the new Baleno adding up more volumes. It seems that a decent amount of cannibalisation is happening with the Baleno eating some of the Swift volumes.

In other segments, the DZire Tour records a healthy jump in dispatches while the Ciaz maintains its volumes. The Ertiga is still going steady and the Vans protect their turf.  However, the S-Cross is still below expectations.

Update 1: Mahindra’s numbers are in and have been helped by the TUV 300. Monthly dispatches are up nearly 36%, helped by the low base of the previous year as well. We feel that Mahindra’s monthly volumes have now bottomed out and new products would help the company to do better in 2016 than what it did this year.

Update 2: Honda and Hyundai numbers are in and first let’s look at the good ones. Hyundai sales were up 23% from previous year. At 43651 units, this was good performance from the Korean carmaker, helped by the success of the Creta SUV and the i20 Elite hatchback.

It wasn’t a great month for Honda as dispatches dipped 3.6% over previous year. Some of the individual numbers like that of the Brio and Mobilio looked p[lainright depressing but we will discuss them in detail in our Monthly Sales Analysis post.

Update 3: Most other brands have re;leased their numbers and its looking good overall. The overall market (Apart from Nissan+Datsun, Skoda and Chevrolet brands) is up 12.75% on dispatches. Renault and Ford had a good month – the French carmaker driven by the Kwid small car. Ford has the newly introduced Figo and Aspire compact cars in the market and they helped the brand register a 55% jump in dispatches.

Nov ESR.001

Monthly Sales Analysis – October 2015

September 2015 sales numbers have been released by SIAM and the team at EMMAAA has interpreted the numbers visually.

The below slider consists of 15 slides, closely examining the performance of each OEM in every segment over the last four years for the month of June.

To receive a PDF of the monthly sales presentations, kindly subscribe to IndiaAutoReport’s mailer service.

Early Sales Reckoner – Oct 2015

October 2015 is a blockbuster month whatever way you may look at it.

We have numbers from ten brands and the cumulative total is a 19% jump in dispatches on a year-on-year basis. Several factors helped last month, the most significant being a number of new models where inventory build up is happening right after the launch.

The Renault Kwid, Mahindra TUV 300, Maruti Baleno and the Ford Figo / Aspire are newly launched models where fresh dealer inventory creation has helped numbers. As a result, Renault dispatches were up 92%, MSIL up 24.7%, Mahindra up by 18.8%, and Ford dispatches were up by 49%.

We will analyse the numbers in detail in our detailed sales analysis around the 10th of the month.


Oct 2015 ESR .001

September 2015 – Monthly Vehicle Sales Analysis

September 2015 sales numbers have been released by SIAM and the team at EMMAAA has interpreted the numbers visually.

The below slider consists of 15 slides, closely examining the performance of each OEM in every segment over the last four years for the month of June.

To receive a PDF of the monthly sales presentations, kindly subscribe to IndiaAutoReport’s mailer service.

Early Sales Reckoner – September 2015

Data hides a lot of things and some times the devil is in the detail. On the surface everything looks calm for September sales and we have good news coming from most carmakers. However, scratch a little and there is ample pain in the market.

Starting with Maruti and the talking point is the S-Cross. MSIL release and media reports suggest that S-Cross dispatches were around 3600 units, not a fantastic opening for a crossover which is the entry of the carmaker into a premium segment.

Further, taking out the S-Cross’s 3600 units, the Ertiga seems to have dispatches of only 2700 units. That’s a spectacular crash for a model that was doing 5k+ every month without losing its breath. We hope its just an aberration for both the Ertiga and the S-Cross.

The other disappointment is Ford India. On the surface it had a 22% growth in dispatches. However, with three volume models and the EcoSport consistently doing about 3700 units every month, the Figo and Aspire dispatches seem to add up for only 4300 units. Again, we hope its just the starting hiccups in production.

Honda also had a 23% jump in dispatches but the Mobilio shows no signs of coming off ventilator support.

Tata managed to match its dispatches from previous year not a great act considering last year was already a dismal base.

Mahindra continued with the downtrend and saw a 7.5% drop in dispatches.

In the end, Hyundai India seems to be the only one nibbling market share away from everyone else, a fresh range seems to be doing the trick for the carmaker.



Sept 2015 ESR V1.0.001

The Question of Ethics

The Volkswagen fiasco has thrown open a big Pandora box and questions the very ethos of the global auto industry.

If a reputed German manufacturer could be doing something as decidedly stupid as fudging emissions data, can we trust the others?

One would expect Volkswagen to be the last company to do some hanky-panky with rules. This is the German symbol of uprightness and discipline, controlled pretty much by the state, and takes pride in making cars whose doors shut with a thunk.

Heck, inside Wolfsburg, they scoff at the Japanese carmakers for making cars out of cardboard and how only the Germans can make quality cars.


Not Just Volkswagen

However, this rant is not about Volkswagen. Heck, there are skeletons in every closet. Look at GM India with its ‘Tavera’gate, a scam that has an eerie similarity with the current VW mess.

GM also has its ongoing problems in the US where ex-employees blamed it for sweeping safety issues under the carpet.

Bordering the fine line between technical and ethical problems are the  issues, the Toyota unintended acceleration issues of 2010 and the Firestone-Ford Explorer exploding tyres from the start of the century.

A look at the past indicates that Volkswagen is not new to being investigated. The FT recently dug up the group’s history of scandals.

Other German carmakers like BMW have had their tryst with corruption. In 2008, three BMW executives were fired after it came to light that they had been bribed by some suppliers of interior components.

Even the Japanese carmakers are not prone to being dishonest at time. In 1993, American Honda, fresh from great success in the North American market and the successful launch of Acura, saw lawsuits and a full blown bribery and kickbacks scandal that eventually resulted in more than twenty indictments and jail terms.


India – Deceptively Clean

Ironically, the Indian passenger vehicle market, all three million plus units of it, appears surprisingly clean. This is not a small feat for a country which ranks 85 (out of 175) in the ranking of perceived honesty by Transparency International. Far from any scams, Indian carmakers didn’t even need ordinary recalls till about a couple of years back. The reason may be the complete absence of a body like the US National Highway Traffic Safety Administration (NHTSA) in India, which could monitor and investigate accidents triggered by technical failures. Sure we have bodies like NATRIP but they are in nascent stages and still finding their feet.

However, this does not mean that Indian carmakers don’t have problems. As GM India’s Tavera emission problems indicate, we have had our fair share of data fudging and test results doctoring going on. It’s just that Indian agencies are not yet adept at catching the offenders and/or we as a society are characteristically tuned to be more forgiving to dishonesty.

As an aside, considering that 1.6-litre and 2.0-litre, the two diesel engines whose data VW had fudged, are pretty much the ones most sold in India (across VW, Skoda and Audi), why hasn’t the Ministry of Heavy Industries not announced a probe yet?


The Deeper Problem – Ethics inside Companies

An automobile on the road is like a loaded weapon and the failure of a critical component can kill people both inside and outside the car.

We deviate here and ask you a question. What if someone replaced every part in your car / bike with a similarly part but only 99% as good? What if this similar looking part was now only 90% as good?

The extrapolated inference of the above is quite dangerous. Looking at things sequentially, you may be looking at a machine only 50% as good as the original.

Now that’s an interesting thought and we leave you with that for now and move on.

While researching Volkswagen’s issues and the likely reasons to that, we realised that ethics are an issue across the industry. Blunders like Volkswagen are not done overnight and there is a reason why the US government has ordered an enquiry under the Department of Justice, something reserved for the gravest fraud cases. Such issues crop up not because of the follies of one person but because sections of the industry have gone rotten.

Corruption is an inherent part of the industry and is amply evident when one takes a deep look at how departments inside an OEM carry out business with vendors. A carmaker is an assembly operation reliant on hundreds of vendors to manufacture and sell cars. These vendors are responsible for supplying components to providing various services to helping run the business run smoothly.


Them Purchasing Guys

One of the least highlighted issues and probably the dirty underbelly of the Indian automotive industry is the purchasing system. The purchasing departments are the most coveted jobs within the organisation and there seems to be good reasons for that. These are the guys who decide what components to buy and from which supplier. Most importantly, they also decide ‘in what quantity’ and ‘at what price’.

A typical passenger vehicle program has 130-200 Tier 1 suppliers, many times that number of Tier 2 suppliers and numerous Tier 3 and material suppliers. Often the OEMs (read, purchasing guys) decide not only the Tier 1s but also the Tier 2. The powers of the purchasing departments are huge considering the competition in the industry is not insignificant. Gone are the days when you had ‘default’ suppliers for everything. Nowadays, most mainstream components have 5-6 suppliers and plenty of fence sitters willing to jump in if there was business to be won.

Most major component supplier groups now have sizes of more than USD 500 million and are willing to enter new component areas where there are opportunities or where there can be a technology provider. This has widened the field in most component areas significantly.

In short there are plenty of suppliers willing to woo the purchasing guys if there was any opportunity.

In most cases, the purchasing department, also known as supply chain department or vendor relationship departments in many cases, is responsible for purchases worth billions every year. That’s a lot of money for a handful of people to control.

While we do not automatically assume that purchasing departments are corrupt, this huge money can be interpreted as a nice opportunity by those with a deviant mind.

Many of us, that is.


Tiers of Benefits

Depending on the organisation and the level of the executive within the pecking order, the benefits can be divided into tiers. At the lowest levels are low and mid-level executives. These are not yet decision makers but nonetheless important for smooth running of business for a supplier. These are also important because eventually some of them will become decision makers. The ‘unwritten’ benefits in these cases are expensive gifts like pens, watches etc. The beauty of the system is that even the participants do not think that it is unethical or corrupt to take gifts from the very people whose business depends on their decisions.

The next level is when you are someone important in the department, someone at least having the signing power for a certain set of components. Now it all boils down to your character. If you are street-level greedy and do not hide this character trait well, then Tier 1 and certain Tier 2 suppliers offer the opportunity of earning hard cash in lieu of your approvals. In certain cases, the hard cash may also be replaced by a small equity stake in a small company provided you can make the small company bigger by providing it business.

And then there is the top tier. You have risen through the ranks and now have ‘brother;y’ relations with most vendor promoters. You have also earned enough money that small level hard cash does not entice you. In most cases your reputation and name is too precious to be put at risk of being tarnished by a jealous colleague. At this level, the ‘rewards’ have to be higher than cash.


Retirement Benefits?

One just has to scan through the lists of erstwhile and present directors in publicly traded Tier 1 suppliers and some familiar names jump out of the pages. These have been senior executives in automotive purchasing departments and in some cases departments which required advanced participation of suppliers in vehicle programs. They no doubt bring value to a Tier 1 supplier because of their experience but we do question the ethics behind the appointment. How honest would be a person in dealing with a vendor if he is eyeing a seat on the board after retirement.

To us this is the equivalent of a bureaucrat joining a think-tank after retirement when all the while he had been taking decisions on government funding to think tanks. The same also draws parallels with a bureaucrat joining a company as a senior executive or Director post retirement when he was the one taking decisions directly affecting the fortunes of the said company.


Family Ties

Things become even murkier when OEMs have family ties with Tier 1 suppliers. This is very prevalent in the two-wheeler industry where Hero, TVS and Bajaj all have family or friendly ties with some of their leading Tier 1 suppliers. Here it is even difficult to say if the purchasing department has any say in the decision making and if quality (at the right price) is the sole deciding factor.


Lack of Transparency

Most OEMs do not have mechanisms to internally check the honesty of their individual departments. An audit, perhaps done across every organisation, can only certain that every transaction has had a pair trail. However, how honest was an executive in taking certain decisions is something that cannot be ascertained.

Maybe, a way out can be a compulsory rotation of executives through the purchase department. Suppliers would be more reluctant to entertain an executive if they know that he would be rotated out after a certain time.

Another way out can be to take a leaf out of the election commission books and have senior executives file annual reports on their assets and net worth every year. Serious deviations can be tracked by auditors and explanations sought.

However, there is no better alternative than firm laws. Honda’s 1993 bribery and kickbacks scandal in North America resulted in key executives serving jail. We event heard anything bad from American Honda since then.

Product Lifecycle (mis)Management

Launching multiple new products in quick succession may not essentially be a good thing

Yesterday, Ford launched the Figo hatchback in the Indian market. The launch of the much anticipated hatchback comes barely a month after the launch of the Figo Aspire, a sub-compact sedan based on the same architecture.

While this may be good news for the company’s dealers (who in recent weeks have been reduced to selling only the EcoSport), we at EMMAAA are of the opinion that the company should have staggered the two launches by 12-18 months.

The above is enough to get us kicked out of Ford India’s Christmas card list for a few years…


The Small Manufacturer Limitation

Once, Nalin Kapoor, when he was handling the sales for Ford India, lamented to this writer, “My counterparts in Maruti have a much easier job. Cars sell even if the guys are half asleep. (In contrast) The month when I am not on my toes, half my sales is likely lost.”

While this comment was made many summers back, the core of the statement is still very true. Nalin’s comment pretty much sums up the challenge that marginal players (read everyone except Maruti and Hyundai) face in a market like India. They just don’t have the depth.

A small player like Ford India has everything in limited quantity — limited dealerships, limited management bandwidth, limited dealer sales bandwidth, limited footfalls, and even limited media pull. The net result is that with two mass market products launched so close together, both end up cannibalising each other rather than eating up the competition.

To illustrate our point, we don’t have to go farther than the EcoSport. When the mini-SUV was launched in June 2013, the last generation Figo was still going strong. However, the hatchback sales crashed spectacularly once the SUV entered the showrooms. The EcoSport pulled away most of the heat from the Figo and the result was a sharp decline in sales. We estimate that as much as 30%-40% of the Figo’s potential sales after the launch of the EcoSport were lost due to cannibalisation.

In simple terms, when you are spread thin, as a relatively small player like Ford India is, every new product needs your 100-percent effort. Spreading yourself across two is likely to give you 1.5x returns and not 2x as you would logically expect.

One finds many such examples in recent history where manufacturers have launched multiple new products in a short span of time only to see some of them fail. Mind you these products were not bad, they were not destined to fail. Had sufficient attention been given to them, they would have been money spinners.

Look at Honda, it launched the Amaze, New City, Mobilio and Jazz in quick succession. Only the City is a qualified success with the Amaze’s run been patchy off-late, the Mobilio falling through the crack and the Jazz too-early-to-judge. Even much bigger players like Hyundai have the problem of managing many hot new launches at the same time. Between the successes of the i10 Grand and i20 Elite, there is always an Xcent which disappoints.


Learn from other industries

Quick, how many Samsung S series models do you remember? Which S are we currently at? Do you remember the shape and the distinguishing features of any S? Do you really care about an asS?

Now compare this to the Apple iPhone. There is a reason why Apple gaps any new variants of the iPhone by about a year. They stay longer in the public memory, the fanboys get enough time to identify with them (and save money for them) and (most importantly) Apple’s marketing and media machine can work solely on one product.

Have you ever noticed that a shotgun blast has a much greater impact than an AK-47 burst?


The Gross Sales Fairy Tale

Every company, especially the smaller ones, looks closely at their gross sales numbers. This is a hogwash that the management paints for itself, those above the ladder, and the media. What is critical and more important is the sales per model and to measure increment in sales with the introduction of a new generation. Even big companies falter on this – the i10 Grand sells slower than the i10. However, Hyundai is happy because the gross sales numbers are much higher.


The Dealership Footfall Equation

Sales are directly related to footfalls in your dealerships. Gaining footfalls in a dealership is not an overnight thing even if you have cheerleaders on the lawns everyday. Often the gains are incremental and not exponential in nature even when you have new car models attracting more people into the showrooms. So every new model pulls in (say) 20% more customers into the showrooms. Launch two of them together and the gains in footfalls would not be 40%. They are more likely to be 30% and may actually be closer to 20%.

The result is obvious.


If not now, then when?

The question is obvious and is something we answered right at the beginning. The new Figo should have happened a year back. Considering that the last generation limped for six quarters, launching a new one last year would have been the right step. Anyways, the previous generation was based on an already older platform, it did not deserve the 66 month lifecycle that it eventually received.

Ford 2015.001

August 2015 – Monthly Vehicle Sales Analysis

August 2015 sales numbers have been released by SIAM and the team at EMMAAA has interpreted the numbers visually.

The below slider consists of 15 slides, closely examining the performance of each OEM in every segment over the last four years for the month of June.

To request a PDF of the presentation, mail us at quickfire (at) emmaaa (dot) com



Early Sales Reckoner – August 2015

Its never a good start to the month when the market leader barely limps home.

MSIL had one of the worst months in recent times as Compact segment dispatches slumped by 11.3%. We doubt if the Celerio is meeting expectations and already the supplier community is hinting that Maruti Suzuki may not be able to meet RFQ volumes on the program. Even adding a diesel variant has done little.

However, MSIL salvaged the situation with the new S-Cross which joins the sales tally this month. Also helping maters was the Ciaz which is still going strong.

Unlike MSIL, Hyundai had a terrific month. The Creta has started off with a bang and the i20 Elite is still pulling in very strong numbers.

Ford had good numbers to show after many months as the Figo Aspire joined the sales tally. The new launch helped Ford notch up a 22.5% jump in dispatches.

Tata, Toyota and Volkswagen were all in the positive zone, all barely.

A surprising disappointment was Honda which saw a 6.6% dip in dispatches. The situation may have been worse if not for the new Jazz. The City did okay as well but the Mobilio is fast turning out a failure. This would be the second disappointment for Honda on the Brio platform and the brand will have to be careful with the packaging of the BR-V small SUV, also on the Brio platform.

With numbers from eight carmakers now in, domestic passenger vehicle dispatches are now up by 7.61%.

Aug 2015 early sales reckoner

Exports – The Who, Why & When

In school, chapters on basic trade taught us that if you produce something cheaper than others, you have an advantage.

It is likely that the others may decide to buy the thing from you than producing it themselves. At times, the ’cheap’ may be replaced by ‘unique’ and the advantage becoming even stronger. This is how world trade moves — the Middle-East produces oil cheaper than everyone else and so they export it. Ditto for coal and iron ore from Australia. On the other hand, heavy machines from Germany and fighter planes from a select few countries are examples of unique. To a certain extent, that is.

In a nutshell, commodity exports are governed by cheap, while product exports are governed by unique. However, the unique starts losing its edge when it starts moving towards being a commodity. So if fighter planes are being produced by France, US, Russia, UK and Germany, a country like India starts looking at them as being a commodity to a certain extent. If all of them tick the required boxes, it is the price that becomes the deciding factor. So the ‘cheap’ becomes more relevant and the product has moved towards becoming a commodity.

However, things would be different if India was in the market for a more advanced Generation – V fighter plane with stealth capability. This would eliminate everyone except US, which has the F-22 Raptor (random assumption that they are offering it in the market) and then the product consideration for trade again shifts towards ‘unique’. In such a case, US certainly would export the Raptor and cannot be beaten by another country.


Cars – moving towards a commodity

Cars are a different ballgame. We assume that they are unique products. However, look deeper and they are a product fast moving towards the commodity side of the curve. Sure, they need to be manufactured, which means that they are a product. However, a country’s strategic advantage in producing cars has diminished to such an extent that most of the time, one cannot think of exporting vehicles based on some unique aspects of the products. Or just by geo-tagging.


Geo Tagging

Geo tagging as a concept works the best for food products as it imparts a uniqueness that consumers can associate with it — Scotch has to come from Scotland and cannot be bottled in Dharavi; wines come from various places and they are labeled on the bottles; and Champagne can come from only a certain region in France, the others have to invent new names for fizzy white wines.

As an extension, when food products become a commodity then it is again cost arbitrage which decides if a country would be exporting the same. So Maggi noodles are exported to many developed countries from India because Nestle can produce the damn noodles the cheapest here.

The car business is one of the most global businesses. There are Japanese manufacturers, German car companies and there are American and Korean manufacturers. Then there are also oddballs like Italian, French, Chinese and Indian manufacturers.

However, look deeper and this differentiation has just been reduced to rhetoric – German carmakers produce in Austria, South Africa and India, Japanese manufacturers produce in Thailand, India and UK, Indian manufacturers produce in Thailand and dream beyond, and so on.

One can argue that geo-tagging of hi-tech products (like cars, computers and smartphones) should not be done on the basis of the location of the manufacturing facility but more by the location of the development centre. So an iPhone can be produced in China, it still proudly proclaims, ‘Designed in California’.

Similarly, a BMW ought to be designed in Germany. However, things start losing their black-and-white texture as we come down the uniqueness scale. Beyond the prestige brands like Apple and BMW, the rest are losing their geo-tagging edge rapidly. So Suzukis are being designed in India, Fords in Australia, Toyotas in South Africa and so on.

Arguably, the situation would dilute even more as cars, much like computers and smartphones, are an amalgamation of components. Manufacturers are essentially system integrators and suppliers the real technology developers. A car manufacturer integrates technology from global components suppliers, providing an exoskeleton of character defined by chassis and engine development. Arguably, it is this exoskeleton that defines the car’s characteristics and its edge over others.


So how does one export?

Which brings us to the critical question — if cars are not a commodity and have lost their edge as a product, how does one export them? Is the case as simple as manufacturing it the cheapest? If that is the case, why isn’t Bangladesh exporting cars to everyone?

For that matter, why isn’t Bangladesh exporting boats to everyone?

Arguably, it is the fluid situation for the car — hanging between a commodity and a product. That also defines the export dynamics. Car manufacturing is not just all about labour costs. There are numerous other costs involved, including material, development, logistics, corporate costs, promotion & communication, dealer margins, and amortisation. Cheap labour is not as important as it is made out to be even though it does define the extent of automation and robotisation in a car plant.

Labour costs in a developed country often comprise of more than 20% of the car’s final cost. Considering the wage difference on the manufacturing side between India and the developed world is huge, there is an inherent advantage for India. For an average of USD 48 / hour for a worker in Germany, Indian companies only pay USD 2 / hour for a plant worker. However, this gain in labour costs is often offset by a huge loss on account of logistics costs.


Exports – Looking Beyond Simple Cost Mathematics

However, the car industry has to look beyond just simple mathematical equations as there are many other elements that complicate matters.

The first amongst them is taxation. As trade between countries increased, some started fortifying themselves against a trade invasion by creating tariff and non-tariff barriers. Others got together and realising their similar objectives and often similar geographical locations, started forming trade blocs where members enjoyed zero or very low taxation on intra-member-countries’ trades. This effectively meant that imports from non member countries would be automatically more expensive.

And then someone invented the Free Trade Agreement (FTA), an agreement that imparted zero or very low duties on goods imported from countries that had come together to sign the FTA. While the signing countries may not be part of a formal trade bloc, the FTA was essentially creating similar conditions.

For passenger vehicle exports, this meant that some countries were more kosher than others.


Exports – Further Complications

But if it was just about the cost arbitrage including the tax implications, all carmakers would have behaved in the same way. So if a Hyundai or Nissan is exporting a hundred thousand cars every year from India to Europe, so should a Ford or GM or Toyota or Volkswagen.

Except they don’t.

Beyond all the mathematics, all the calculations, there are other aspects of the business that have an impact on the export status of a country. Let’s examine some of them in details:

1. Prior Commitments: If you are a global carmaker with a widespread manufacturing footprint, you already have multiple manufacturing locations across the world. Considering that the global economy had tanked just a few years back, it is highly likely that some of your plants may be running under capacity. In that case, is it prudent to invest in even more capacity in India just to export cars?
2. Prior Favours: As an extension to the above, it is likely that while setting up some of your previous manufacturing plants, you took favours from the local governments. These may include cheap land, tax breaks and trade benefits. Exporting from India to these markets may mean doing a turnaround on some of these prior commitments, an arguably pissing scenario for other governments.
3. Employment, Unions & Global Politics: As a further extension to the above, employees don’t like the idea that the next generation of the cheap hatchback they have been manufacturing over the years would now be sourced from India. They revolt, protest and make such a move very messy. Considering that some of the carmakers like Fiat and Volkswagen are also politically charged, such moves have to be done very carefully. At times, they are avoided altogether. However, if the product is something unique like a Vento or Vento Compact, then exporting from India is not a problem.
4. Logistics: As we mentioned earlier, logistics costs are insignificant as long as the consumption is local. Try crossing a couple of oceans and things fall apart. Logistics costs are a prime reason why a car manufacturer now thinks of setting up a plant in Gujarat, and not Chennai / Ennore, for shipping to the Middle-East, Africa and Europe.
5. Model Cycles and Outdated Models: The global economy is divided into three zones — developed countries, developing countries, and under-developed countries. While some of the promising developing countries, especially the BRICs are now well penetrated by global car manufacturers, it is the under developed countries that hold the most promise, and pose the biggest challenge, to carmakers. A land mass like Africa has about twenty promising economies that would emerge as major car markets in the next decade. Even Africa taken as a sum of many trickles is a promising entity as of today. However, its under developed status means that what sells in Europe may not be palatable in Africa. The last generation model from India may just be the right choice for under developed economies. For example, Hyundai India used to export more than half the production of the old generation Accent compact sedan. So not following the global lifecycle to the dot may turn out to be beneficial for India at time.


Small Cars – The Big Export Story

Simple business logic tells us that the more you make of something, the cheaper you can turn it out. This is a basic principle that is true for nearly everything, from commodities like crude oil to hi-tech me conductors. This is especially true for the automotive industry, an industry which thrives on scale. Suppliers are always keen to run their plants at the full capacity even if it means offering lower prices on a per unit basis. A plant running at full capacity would make up for any price discounts. A price discount by the supplier would effectively lower the cost of the final product, making it even more exportable.

So scale is the primary concern. In essence we would like to pursue exports of something that is already very popular in the domestic market. One needs to start with products that already have large economies of scale. That explains best why Bangladesh has little chance of becoming a major car exporter in the near future.

Small cars fit the bill. Due to tax benefits and their cost advantage, they are already hugely popular in India. The country is the largest manufacturing base for A & B segment cars worldwide and arguably the cheapest manufacturing base. This means that most suppliers have good economies of scale. Any export volume would be added leverage for the OEM and drive costs even lower, benefitting sales even further.

That explains why Hyundai, Maruti-Suzuki and Renault-Nissan have used India as a small car manufacturing base. Hyundai has been exporting more than 50% of its output for many years now while Maruti-Suzuki has been used as the global manufacturing base for a few Suzuki models in the past. Nissan also uses the Oragadam plant a sourcing hub for the Micra & Sunny / Almera models.

Extending the argument of large volumes benefitting exports, one can also see the start of a trend for exporting compact sedans, compact SUVs, compact MPVs and small trucks. Some of these vehicles have evolved in India but their strong acceptance is an indicator that they may have a good market in other developing economies as well.


The Advantage of Exports

While the direct advantage of exports in driving volumes are visible, there are several other advantages that we would like to point out:
1. Incremental volumes: Exports bring substantial incremental volumes that helps suppliers install larger capacities and keeps their plants running. They in turn can offer better prices and terms to OEMs, improving the OEM’s profits and margins.
2. Better Insurance: The Indian market is a developing market and most global carmakers get it wrong at times. Often, this results in strong deviations from RFQ volumes, something that hurts suppliers badly. Support from exports irons out such problems and provides some sort of insurance to the supplier. Consequently, they are more enthusiastic about programs with a good export potential and more willing to offer better pricing on such programs.
3. Improved Margins for OEMs: Exports are mostly done at a more favourable price than domestic sales. Export vehicles also have a richer trim level and this also helps in margins. Also, exports mean that the OEM’s own plant is enjoying a higher capacity utilisation, improving profitability.
4. Faster percolation of Technology: Technology elements like LED headlamps and advanced body electronics are more prevalent in the export variants. However, their significant volumes drives down their supply costs and helps their percolation in the domestic variants as well.
5. Propping up deadwood: Consider you are a dead manufacturer, one with multiple failures in the past and volumes fast approaching zero. Suppliers have lost all trust in you and any RFQ you float in the market is met with guffaws. One of the best ways to potential resurrection and to get a second chance from suppliers is to announce that India is now part of a major exports push. From Fiat-Jeep, Volkswagen to GM, a number of carmakers are increasingly using this tactic. Final success may be analysed five years down then line but for now supplier confidence has been restored.


How do Carmakers Perceive Exports

Depending on their exports strategy, EMMAAA divides carmakers into three categories:
1. Been there, done that, moving on: These are carmakers who committed themselves to exports a long time back. However, their current strategy is focussed more on domestic sales. Hyundai is the prime example in this case. At the start of its innings in India, Hyundai made India the exports base for its small car, Santro. Later on the same privilege was extended to the i10 and i20 hatchbacks. However, persistent labour strikes and a clogged Chennai / Ennore port pissed off the Koreans somewhat and they opened a plant in Turkey, moving most of the Europe bound exports from Irrungattukottai to Europe. The new generations of i10 and i20 have not been given the VIP exports treatment that the previous generations enjoyed. Considering that the company is taking it easy on production capacity expansion in India, it is clear that they will focus on domestic business more than exports. We feel that Renault-Nissan would eventually move in Hyundai’s strategic direction a few years down the line.
2. India part of global strategy carmakers: Then there are carmakers who have to look at the parent organisation for their big time sport push. Maruti-Suzuki is the key amongst these. The company may have a big production base in India, the export of a model is still a central Suzuki decision. So while the last generation A-Star / Alto / Pixo was exported from India in large numbers, the Celerio has not been given such a favour. Instead, European exports of the Celerio happen out of Thailand where Suzuki needs those production volumes to meet its Eco car requirements.
3. The Indian: These are Tata and Mahindra, companies who have ambitions less than none. Exports are a part of their strategy even though their products have not quite yet reached the level where they would be globally acceptable.
4. Exporting to move into the big league: These are carmakers who have had reasonable success in the past. They now want to move into the big league. Setting up an exports centric plant is the next big one for the local management and it also helps in driving costs down for the Indian market. The prime example of this strategy is Ford. Moving into this direction eventually would be Honda.
5. Exporting to Buy Time: These are carmakers who have faced rough weather in the recent past and look at exports as something to buy time. Let’s count Volkswagen and Toyota in this segment even though the Japs are smug and haven’t committed to exports yet.
6. Exporting to Survive: These are carmakers who need to export to survive. They have been in rough weather since their birth and have very little hope, so run down is their brand. Fiat and GM fit the bill here.


Exports – How Does India Shoot Itself in the Foot

What India got right on the policy front, it undid at the execution side. While the tax benefits to small cars ensured that they became the fastest growing passenger vehicle segment, the slow pace of infrastructure development ensured that actual exports stayed nightmarish. Carmakers exporting out of the country suffered because of clogged ports and handicapped logistics to the port itself. Things haven’t improved tremendously though the future crop of exporting carmakers will likely shift cars out of Mundra in Gujarat on the West coast and not Chennai / Ennore on the East coast.

Reforms are also needed on the labour issues side. Labour laws in India are archaic and makes manufacturing in India tougher than its supposed to be. While governments in the past & present have promised reforms to the labour laws, the touchy subject has not been poked yet. As a result, labour strikes are not infrequent and the disruption affects the exports side as well.


The Next Big What?

Changes are also happening in the way carmakers, especially the larger ones, treat exports. Earlier, exports were a central prerogative and the Indian operations were nothing more than a factory. So Hamamatsu and Korea decided how many cars needed to be shipped and to where. They also decided pretty much everything else on the trade side.

With the increase in size of the Indian operations and with persistent executives on the so called international desks asking “What do I do next?”, global carmakers have reluctantly given a free hand to the Indian operations to seek out new exports markets themselves. This is a win-win for everyone. Hungry Indian executives have gone ahead and opened doors in several under developed markets. These are completely new markets that have never been on the horizon earlier and where the parent company was not selling anything yet.

This works well for established carmakers as when they move exports to established markets out of India, the loss in volumes can be compensated by someone else.

July 2015 – Monthly Vehicle Sales Analysis

July 2015 sales numbers have been released by SIAM and the team at EMMAAA has interpreted the numbers visually.

The below slider consists of 15 slides, closely examining the performance of each OEM in every segment over the last four years for the month of June.

To request a PDF of the presentation, mail us at quickfire (at) emmaaa (dot) com


Early Sales Reckoner – July 2015

July 2015 has started off with a bang with almost all carmakers reporting healthy growth numbers. 

July is a good month as it is the first firm indication of things to come in the financial year. Most carmakers spend Apr-June ironing out inventory issues at the dealer ends following the end of the financial year in March.

Maruti leads the month with a 22.55% jump in dispatches. The carmaker is now comfortably in the six digit zone every month and at 110k units, these are very healthy dispatch numbers.

Hyundai did even better with a 24.68% jump in dispatches at 36500 units. The company’s strong run continues with a very healthy growth for the i20 Elite.

Honda is doing well for quite some time and July wasn’t any different. The brand managed a 18.44% jump in dispatches at 18606 units.


The surprising good story of the month was Volkswagen. Not only did the brand witness a 18.19% jump in dispatches, they also came out of their shell to disclose the numbers to the media.

Also continuing their resurrection was Tata Motors with a 27.11% jump in dispatches. The Bolt and Zest may be disappointing but the fight is still on.

Toyota had a forgettable month with a 1.25% improvement in dispatches. However, having a bad month was Mahindra with a 12.75% drop in dispatches. The conventional utility vehicles segment is still suffering and Mahindra needs those new models fast.

We still await numbers from GM, Nisan, Renault, Ford and Datsun. Keep checking here for more updates on Monday evening.







Royal Enfield – Faster than a Bullet

A brand that grew 54% in FY 2013, 68% in FY 2014, and 60% in FY 2015 should hardly be the one we choose to talk about on the pages of IAR. But who said we should always be the harbinger of bad news?

We find Royal Enfield (REML) at an interesting time in its life. The company has successfully built a rolling juggernaut of sales on the back of three main product lines, three engines, and one chassis with three tweaks. On the way, it has redefined biking in India and almost singlehandedly created the problem of trash disposal in Ladakh.

It’s recent acquisition of Harris Performance, UK – the guys who did most of the chassis engineering on the REML flagship Continental GT – also indicates that the senior management is hungry to go higher and go global. It also tells us that the guys running the company are pragmatic and aware of the company’s shortcomings in product development.

Siddarth Lal’s (the company’s promoter & group CEO) recent decision to move to London for a year to focus on new product development also indicates that he is aware that the company’s future prospects lie in the export market. The mid-segment motorcycle is where Royal Enfield plays and that is where REML sees a big opportunity in the global markets.


Fast Growth

Over the last three years, Royal Enfield has nearly quadrupled its sales. To make it sound even more impressive, REML’s sales in 2015 were nine times its sales in FY 2008. This is a CAGR of 36.87% over the last seven years and a CAGR of 60.39% over the last three years.

That is impressive by any account, especially for an industry which has grown at only 12.55% in the same period.


REML.001Emerging Markets Automotive Advisors (EMMAAA) maintains its forecast of REML as the fastest growing mainstream motorcycle brand over the next decade. As per the company’s recently released forecast update, REML should end the current financial year with domestic sales of more than 445,000 units and should end FY 2021 with dispatches over 942,000 units.

In doing so, REML has transcended from being a niche manufacturer to a volume manufacturer. It completely dominates all the SIAM defined segments that it participates in. It also outsells all the import large capacity bike brands, all taken together.

While REML has always led Piaggio/Vespa in the Indian market, it has now also overtaken Mahindra and Suzuki. That too without making cheap scooters.

Media outlets also gleefully point out that Royal Enfield now also outsells Harley-Davidson globally. This is pretty much on the lines of how Hero Motors has outsold all of North America since birth. Frankly, that is an apples to burritos comparison and not something that should be a part of this analysis. Somehow, it will still pop up somewhere later, to prop up a facet of the company we want to analyse.


The Renaissance

REML’s explosive growth was kick started with the launch of the Classic range in 2011. While Royal Enfield always had character, the Classic brought in style and a build quality a few notches above the traditional Royal Enfields. The company was left fighting waiting lists for the next few quarters as the production capacity was woefully inadequate. REML followed with multiple variants of the Classic, mostly depending on the paint job and the extent of chrome.

While the Classic was the avalanche waiting to happen, the actual tectonic shift had started to happen when REML decided to swap the gear-shifter and brake levers from the old English-Royal Enfield way to the positions most of the world has known them to be. This swap, combined with the introduction of the unitary construction engine, eased the effort in gear-shifting and operations, making the Royal Enfield as easy to operate as a Honda. In a way, this was the parallel of power steering in motorcycling. No longer did you need to have balls the size of grapefruits to ride a Royal Enfield.

All this happened without any sacrifice in the ‘machoness’ of the product. This was good news for the hundreds of bikers who were anyways going to buy a Royal Enfield. It was even better news for the many thousands of wannabes who did not buy a Royal Enfield earlier because they simply couldn’t get the damn shifter into neutral.

Scratch that, getting into neutral was a piece of cake. It was finding second that was a pain.

Suddenly, thousands of bikers came out of hiding and embraced Royal Enfields. If Harley-Davidson has always been the antidote for a person’s midlife crisis, Royal Enfield became the hallmark of knowing when you were no longer a person; you were an individual.

Note to self — we must examine the correlation of Macbook sales, ponytails, french beards, mobile internet penetration and Royal Enfield sales.


Over-dependence on Classic

The Classic also had a rub off effect on the rest of the showroom as demand improved for the traditional Bullet Electra and the Thunderbird range. The Thunderbird range itself was restyled in 2012 and that provided a much needed acceleration to sales.

However, and there is always a however, the company has been over dependent on the Classic. As of recent data, the Classic range (350 & 500) account for more than 55% of the company’s overall domestic sales.

Exports may be an even more skewed story considering numerous variants of the Classic account for most of the numbers. However, on a single model name basis, the Continental GT has an edge.

The over dependence on Classic should not be a reason for worry. Most Royal Enfields trace their mechanicals to the same drawing board. The Classic, the most glittery Royal Enfield this side of the Thunderbird, just means fatter profit margins. So frankly — the company would be wishing — all strength to the Classic.

However, the situation is like Maggi Noodles Masala flavour. (That is before the recent blanket ban on Maggi noodles.) Sure, the Masala flavour sells really well. However, the other flavours are so marginal that small retailers don’t even bother stocking them. The company then has to resort to experiments like Oats Maggi, Atta Maggi, Dal Maggi and Water Chestnut Maggi for fasting Hindus.

Okay, we made the last one up but the point is that most of the sales still come out of Masala Maggi. Even the new variants like Oats, Atta and Dal may have added ingredients but still rely on the same Masala flavour. This may be less of a problem for the company and more of a headache. You have success, how do you replicate that in the future?

Recent debacle of the Continental GT indicates that it is not an easy task.


The Continental GT Problem

Talking about the Continental GT brings us to a real problem. Launched in 2013, the Continental GT is REML’s most expensive bike till date — at about INR 200,000, it is priced nearly twice as much as the entry Bullet 350 Twinspark.

It is also REML’s most aggressive bike, featuring a completely new cafe racer styling and higher quality cycle components. With chassis inputs from Harris Performance and styling by Northumberland-based Xenophya, REML has not left any stone unturned for the Continental GT. Media reviews ranged from the Excellent to Great with even European journalists liking it, mostly due to the comparatively low price point for their market.

However, the domestic response has been cold. Introduced in November 2013, the Continental GT’s domestic dispatches peaked in April 2014 at 388 units. Over the past twenty months, sales have been patchy with an average of little more than 200 units a month. REML dispatched 26562 units (twelve month rolling average dispatch volume) of its 350cc range in June 2015. The same month, the Continental GT dispatches stood at 198 units. That’s a pity considering the profit margins on the GT would be a couple hundred basis points higher than the Bullet 350 Twinspark.

More than the profit margins (quite healthy!), what is more worrying for the company is the indication that the customer believes that Royal Enfields should be priced at a certain level. This is hitting the pricing glass ceiling in the motorcycle market.

Any future product development now has to aim at either playing within the ceiling and delivering value & profits or aim at shattering the glass ceiling. While the first is easy, the second needs a considerable improvement in the product attributes as well as the brand image.


Richness of the Portfolio

The above mentioned Continental GT vs 350cc range dispatch volume comparison also brings us to the next problem — richness of the REML portfolio. The company makes motorcycles in three engine sizes — 346cc, 499c and 535cc. However, sales of the 346 cc machines by far outstrip the other two combined.

As of June 2015, 346cc machines accounted for 89.5% of dispatches (based on twelve month rolling dispatch numbers). This is an overwhelming customer tilt towards the lower priced machines. That number 89.5% is actually an improvement for the high capacity machines. Till 2011, they used to have a share in sales of a little more than 5%. However, the launch of the Classic moved a lot of new customers into buying the 499cc version.



For the purpose of analysing sales volumes, EMMAAA uses 12-month rolling sales averages. Under this system, we consider the last 12 month net sales as a better indicator of performance than the much used (and abused) monthly dispatch numbers.This shift to a 12-month rolling sales volume ensures that any sudden spurts or declines in volumes are ironed out effectively. Also, since sales volumes in India are not exactly sales volumes, but dispatch volumes, a 12-month rolling volume system effectively negates anomalies introduced due to minor factors like temporary production disruptions, over-jealous sales managers or temporary logistics issues.


As a result, the share of higher capacity machines in REML’s sales mix improved to 9.48% by the end of 2011. This share peaked by Q3 2014 to 10.95%. However, since then the customer mix has moved towards 346 cc again and the share of higher capacity machines has come down to 10.52% in Q2 2015.

For the sake of simplicity, we will assume that margins improve as we move up engine sizes as the company has been able to extract nearly 30% more in prices from its 499cc Classic 500 over its 346cc Classic 350. Practically, not many components change in value significantly between the 350 and 500 so the margin gain should be good at higher engine sizes. In essence, due to the tilt towards 346 cc machines, REML would be losing some margins.

However, within the segment, the customer tilt is more towards the higher priced, higher margin Classic models. This indicates — and what should be good news for Royal Enfield — that the customer desires to acquire the brand and the Classic styling. However, within the brand, he doesn’t care if the engine is small or big.

In a way, the virtues of the Royal Enfield brand — relaxed, lifestyle, cruising, and independence — don’t have anything for high power and more cubic inches.


Which leaves many question marks on future product development. If higher power and bigger engines is not what the customers want, then what should REML serve?

Take the H-D Comparisons with a bit of Salt…Chase it down with a tequila!
While the recent comparisons with Harley-Davidson reveals (once again) the naiveté of the Indian media, it did highlight an issue for REML. Going by the ambitions and the direction taken in recent times, REML has ambitions of becoming a global motorcycling force. Theoretically, it has everything going for it — a heritage brand, good looking bikes, huge domestic volumes, improving quality levels and a price point that is extremely affordable for most developed market audience and competitive for developing market audience.

However, a look at the export numbers reveals that the exports are still at a nascent stage. The big positive takeaway from the numbers has been that first the Classic, and then the Continental, are driving exports. Exports have more than doubled within the last two years as REML adds more markets and offers better products. The company has focussed on getting recognised as a global brand and pushing the customers to recognise it for its British heritage — the Continental GT was launched with a bike ride from the iconic Ace Cafe, London to Brighton. This was before the actual launch happening in India.

Theoretically, REML has a huge global opportunity — the affordable classic mid-size bike market is under-penetrated across the world. Even though Harley-Davidson has come down the engine class with the Street 500, it being a twin and much more expensive than the Royal Enfield offerings means that both are essentially fighting in different areas of the market. Others like Triumph end up even higher and are twins as well. There are plenty of obscure Russian, Chinese, Czech and Global manufacturers but none of them has a heritage matching Royal Enfield.

Though arguably, nothing can match the quirkiness of a Ural.

We digressed…

But then, Royal Enfield also has its quality issues. Even though build quality has improved significantly, it is nowhere near the Japanese defined benchmarks. Luckily for REML, it is on an upwards curve of quality improvement. The company also has new platforms under development, always good news for improving quality. And then it operates in the classic bike market segment, a segment the most forgiving on quality issues. It also helps that even H-D had a bad quality day with the Street 750, an issue that the brand is now busy addressing.

Saying that, it does not absolve REML with the quality problem thingy. Most Continental GT riders that we spoke to, were not very happy with the quality and vibration levels in the bike. Perhaps they feel it more because they paid twice as much as a basic Bullet 350 Twinspark and because the promise in the GT does not match the actual product.


Tip of the Iceberg – Opportunity or Shipwreck in waiting?

Surprisingly, for a brand with the kind of rich heritage that Royal Enfield has, it has failed to exploit the same extensively. Parts & Accessories and Merchandise (PAM) sales are the cream for most heritage brands. For some like Ferrari, they are the core business. For others like Harley-Davidson, a much better comparison, they account for nearly 17% of revenues. For Royal Enfield, they are in the nascent stages of development.

The problem with PAM is that it’s an ecosystem that needs to be developed from scratch. Part of it is to identify and nurture vendors who will provide top-notch quality and designs that extend your brand’s attributes. Royal Enfield has taken the first baby steps in this direction. The company has launched a full range of merchandise available now on an online store as well as the company’s exclusive merchandise store at some of the most tony locations in New Delhi. That’s a step in the right direction considering that REML has chosen some of the most expensive shopping centres in Delhi to open its stores. There is no way that the stores would turn profitable anytime soon but the idea is to propagate the Royal Enfield brand and a good location works wonders.

However, the PA part of PAM is still unexplored. For someone like Harley, the PA alone accounts for 11.5% of revenues. For Royal Enfield to get into that area will need the brand to collaborate extensively with tuners and aftermarket experts. This also needs extensive work by the company’s own engineering department. It’s not there yet but something that could be the next step for the brand.


New Products – A Himalayan Task

A Royal Enfield draws many parallels with a Harley-Davidson. Both are iconic, both have a characteristic note and both have an unparalleled brand loyalty. Both brands can also get away with murder as long as the jury is populated by their fans. Harley-Davidson has always been the laggard on the technology front in a race defined and led by the Japanese manufacturers. That has not deterred it from growing faster than the Japs in the North American cruiser bike market.

Royal Enfield on its part has been selling the classic experience for a long time in an almost unapologetic way — for the most part they sell a classic bike with lots of modifications and not a modern bike dressed like a classic. This works as long as the customer is already an enthusiast. Beyond a certain point, as you enter new markets, and have to tell your story repeatedly, customers also like to take a long hard look at your product.


This has traditionally been the weak spot for Royal Enfield as far as global markets are concerned. While the small steps of improvement and new paint jobs work well in the Indian market, the big international markets look for more than that. They need new products, new engines and new chassis, and this is what Royal Enfield is working on now.

Media reports — IAR is not in the scoop business — indicate that the company may be working on two new platforms. Note the keyword is platform which in industry parlance means new engines, new transmissions, and new chassis. Needless to say the other component modules — suspension, brakes, lights and tyres would be completely new specs as well.

The engine sizes of the two new products may be (as per media reports) between 370 cc – 750 cc. To us that looks like a single and a twin in the works. The single is needed to replace / supplement REML’s current engine range and should pack in significantly higher output than Royal Enfield’s current range of singles. It would also need to meet Euro V and Vi and the noise output regulations in developed markets.

The twin is another level of awesomeness altogether. A 750cc twin means a lot of power, which would require mechanicals beyond the comfort area of REML. That is where Harris Performance would start making a lot of sense.

During this analysis, we have said that Harley-Davidson and Royal Enfield are brands with parallel stories. This 750cc twin is where the paths intersect each other. Actually, it is also the platform that will have REML’s path intersecting Triumph and the Japanese as well. A twin 750cc does not just mean a bigger engine, it would also mean significant jacking up of prices. This would mean Royal Enfield going to the enthusiast and asking for significantly more money, up to 50% — 60% more than the Continental GT.

Does the brand have the kind of loyalty? It may be a tough ask in the domestic market going by the experience of the Continental GT. However, the international market is a different game altogether and REML has a bigger shot at success if it plays its cards right.


Brand Drives the Bike

A surprising facet of the global automotive analysis industry is that two-wheelers are not considered a part of the automotive industry. Concession is made for markets like India, ASEAN and China where two-wheelers mean a mode of transport. In the global developed markets, two-wheelers mean lifestyle and that is why every brand craves to carve a niche identity for itself.

Royal Enfield operates in the classic road-bike segment, a segment that is defined by enthusiasts as machines with character, quirks, difficulties, and yet top notch quality and build. Fanatic enthusiasts won’t mind machines with a starting sequence reminiscent of the cult classic YouTube video of loading a Howitzer. However, they would be extremely pissed off if the paintwork peels off within months. The funny thing is that the pricing of these machines leaves the realm of logic far behind as long as the brand is solid enough. One just has to look at the pricing of a Harley-Davidson and their annual report to see the margins they enjoy.

Brand is what Royal Enfield is aspiring for. That is where the money is. A better brand identity will give them more export numbers, higher pricing power and better margins.

That is also where it makes sense to hire a Unilever top honcho like Rudratej Singh to run your brand identity, merchandising and retail efforts. REML appointed him as their new President in January this year. The fact that the company chose to pick up a soaps & shampoo guy to run their motorcycles business, instead of poaching someone with industry experience, is an indication how serious Royal Enfield is about its brand image.

Subtle, yet serious, efforts are visible since then. The company has opened exclusive merchandise stores in New Delhi and an exclusive brand store in London (now two stores). Future Royal Enfield dealerships are expected to follow the same format as their London store.

A far cry from a decade back when it was hard to distinguish a RE dealership from a three-wheeler dealership.


Leaving Sloppiness Behind?

The thing with a habit is that it takes time for it to go. Changing from the sloppy to the slick is not an overnight thing. It takes many months, perhaps years, of concentrated efforts and RE has miles to go before it starts getting taken seriously as the torchbearer of British origin biking. Some efforts have started working well, others still reek of sloppiness.

Take the Enthusiast Speak section on the homepage of Royal Enfield’s London store. It has wannabe suppliers, job seekers, people with poor language, and even someone who once did SEO for RE’s website, all commenting. Being open to comments is fine and we like that. Displaying it on the homepage of your prized London store is sloppiness to the power N. The last thing you want a knowledgeable classic bike enthusiast to see on his wannabe favorite brand’s website is someone called Chanchal using the homepage to seek a job.

And this Chanchal is not even a graduate…

Then there is the History section of the UK website. The navigation sucks and we are still figuring out how to go beyond 1930 in the section.


Production Capacity

There is also the issue of production capacity. In the early days, it was a matter of pride when the Classic had a wait-list of nearly a year. When the wait-list continues years after the launch, it is just poor planning. The company’s growth has been unprecedented and often keeping production aligned with sales becomes tough. Royal Enfield has been slow in expanding capacity. Currently, the company’s operational capacity is just sufficient to meet the projected 2015 demand. By the end of the year, REML plans to expand it to 600,000 units, again sufficient for two more years.


Separation Time?

Part of the sloppiness is also the Eicher brand, a brand fondly remembered for tractors and now recognised for capable Heavy Trucks. Due to its history, Royal Enfield operations are still clubbed with Eicher Motors, the parent company. While that does not pose operational challenges, the blistering pace of growth of Royal Enfield presents an opportunity to split out the division into a separate company. Considering Harley-Davidson and Triumph have their separate identities and someone like Polaris has a complementary product range (ATVs), RE really has no business in being clubbed together with Eicher.

It also doesn’t make financial sense to club a very fast growing lifestyle business like Royal Enfield with a cyclic business like trucks. Separation would also be good for investors considering a lifestyle business would attract a better P/E ratio in the stock market than a diversified group business.

Vehicle Sales – The Half-time Report

The first half of the year has gone by and it is time to take a count of where we stand with vehicle sales.

The below slider consists of 15 slides, closely examining the performance of each OEM in every segment over the last four years for the first half of the year.

To request a PDF of the presentation, mail us at quickfire (at) emmaaa (dot) com



June 2015 – Monthly Vehicle Sales Analysis

June 2015 sales numbers have been released by SIAM and the team at EMMAAA has interpreted the numbers visually.

June was quite slow for most vehicle segments with Passenger Vehicles barely managing to stay in the positive zone.

The below slider consists of 19 slides, closely examining the performance of each OEM in every segment over the last four years for the month of June.

To request a PDF of the presentation, mail us at quickfire (at) emmaaa (dot) com




As an automotive forecasting & consulting organisation we often have to make a number of intelligent assumptions about the future shape of the market.

Primary amongst them is the assumption that every model in the market represents a generation for the nameplate and has a certain lifecycle. So the second generation Swift was launched in 2005 in the Indian market and it completed its lifecycle in 2011. It was followed by the third generation Swift introduced in the Indian market in mid 2011. Continuing the nameplate, and if enough people are still buying cars, the fourth generation Swift should enter the market sometime in 2016. And so on…

Likewise, popular global models like the Toyota Corolla, Volkswagen Golf, Honda Civic have already passed through multiple generations in international markets.

In forecasting a model in the long-term, the two major assumptions are — first, the nameplate continuity, and second, the expected lifecycle of the present and future generations. Predicting the nameplate is not tough – it is unlikely that an Accord would be replaced by a Treaty, or a Magna Carta. Millions of buyers of the nameplate may get permanently pissed off if some bright guy armed with PowerPoint messed around with the nameplates.

However, things get murkier if the nameplate in question is not as successful. What if it is the Datsun Go? Will it still remain the Go for the next generation if the Go does not go?

More importantly, will there be a next generation?

Things are also not so clear when it comes to nameplates with a local name, e.g. will the Figo stay the same in India or will it jump to a Ka nameplate as Ford’s B-segment hatchbacks are known in most global markets?

The even more difficult part is predicting the lifecycles. For most purposes, the lifecycle lengths in a forecast are based on either firm knowledge of OEM plans or by making logical, intelligent assumptions based on historical trends. In most cases, firm knowledge is applicable for models being replaced in the next two years. These models are in the advanced stages of development and at least the rolling prototypes have been shown to the suppliers and key dealers to gauge their reactions. There is also a tentative launch date hanging, give or take a few weeks.

Logical assumptions have to be made when forecasting lifecycles beyond that. Most car manufacturers use a six year or seven year lifecycle for most mainstream nameplates. However, some have been moving to a more nimble 5-6 year lifecycle. After the lifecycle ends, the textbook says that the incumbent model should be replaced by a comparable sized model. The replacement model will likely carry the same name but should see a comprehensive rework to the underlying platform.

What defines a platform is a large grey automotive area that we would talk about some other day.

For most purposes, we consider a platform as one where there has been a comprehensive re-skinning, significant changes to the underlying mechanicals, and where a new program code has been issued on the RFQs to suppliers. All three need to happen for a new platform as many-a-times, OEMs issue new program codes even for a cost reduction exercise.

[Tweet “Platform is a dynamic term with a floating definition.”]

The lifecycles in most cases can be predicted correctly, give or take a few months. Since forecasting is a dynamic process, the lifecycles and the Start / End of Sales / Production dates get tweaked in a nudge-nudge, wink-wink way as they approach.


The Dark Corners of Forecasting – The Step Children

So for most mainstream models, forecasting lifecycles and nameplates are easy. If the nameplate is successful, locally or globally, there would be proper product lifecycle management behind it and a replacement would happen at the end of the lifecycle. There may be minor changes in lifecycle length and a new program code ought to start floating in the market about four years before the actual launch of the new model.

The problem is with the Step Children.

These are models that don’t belong to the mainstream. They were done by the respective manufacturers for various reasons — at times the niche was too tempting, at other times it made short term business sense, some time it made sense to do a product in a hot segment only to realise a few years down the line that the segment is on the decline and it is difficult to stay profitable in the niche. In all of these cases, manufacturers pull the plug on the successor of the model leaving a hole in automotive history.


Birth of Step Children – Bodystyles Falling Out of Favour

In most cases, it is a certain body-style that gets axed and not the entire platform. As an illustration, many manufacturers are killing the Coupe-Convertible body-styles from their B-segment and C-segment offerings in the European markets. This is because the CC body style — smouldering only a few years back — is dying now.

Instead, buyers are now moving to Crossovers. The overall impact on the platform (a combination of multiple body-styles on the same mechanicals) is not huge but has major implications for a supplier like Webasto.


Birth of Step Children – Broken Relationships

In a few cases, the reasons are bizarre. At times, an OEM is saddled with a product as an alimony payment coming out of a separation. The Mahindra Verito is one such product. The Verito and its hatchback sibling, the Vibe, are both based on the Renault / Dacia Logan Gen-1 platform. Post Mahindra’s separation from Renault, Mahindra received the platform as alimony. The Indian brand is quite good at these separations – it has received similar separation fees from Navistar for Heavy Trucks.


Birth of Step Children – Tooling Trading

Let’s digress a bit, seemingly our forte.

Till a few years back, an emerging market like India presented a huge opportunity (for consultants more than the actual manufacturers) for tooling trading. Many a platform in the developed part of the world had life left in them even after lifecycle management dictated that the next generation should be introduced. While the old platform and its tooling had little future in the developed end of the market as they were now outdated in a very competitive market, things were quite different if the same could be introduced in the developing world.

Or that’s what dubious consultants claimed when pitching the idea to Indian manufacturers eager to have a presence in a hot automotive segment but lacking an entire battalion strength of engineers needed to develop such a model.

Most of these Tooling Trading cases ended in disasters. These range from the Sipani Rover Montego in the long past, to the Italjet scooters that Kinetic bought a few years back, and the Premier Rio and Force One SUVs of the recent past.

In most of these cases, what seemed to work on paper didn’t really work in the real world. At times the products were half baked, at times poorly conceived, and in almost all cases, they were inappropriate for the Indian market. However, the core reason was the cumulative greeds of the Indian manufacturers and the consultants advising them. The winner in the end used to be the guy selling the garbage old platform.

In any business, monetising garbage is a huge win.

Take for example the Sipani Rover Montego. The Austin Montego was the butt of jokes in Britain in the late 1980s. Suffering from poor quality and reliability, though arguably ahead of its times in technology, the Austin Montego never established itself well in the home market.

So when Sipani Automobiles offered to take it off cash-strapped Rover’s hands, the Brits were quite pleased. This was not the first time that Sipani was raiding the British dilapidated cars garage. Earlier they had taken a Reliant Kitten away and hammered a fourth wheel onto it to make it the Sipani Dolphin.

Every Sipani bombed. Period.


Modern Day Tooling Trading

As Indian car industry grew and local OEMs matured, the concept of Tooling Trading stopped. However, there were still some fringe manufacturers who realised that buying the rights to an old platform from the developed world could help them leapfrog into the car manufacturing club.

Now that reads a lot like Pakistan’s ballistic missile program blueprint but mind you, it works, and so the Indian OEMs-behind-the-tech-curve could make the system work too.

Enter the Force One SUV and the Premier Rio small SUV. The Force One was based on dies and tooling that Force Motors imported from China. The Chinese manufacturer was never involved beyond the pawning off of the dies. On their part the wily Chinese had been making a copy of an older generation Ford Explorer SUV. So in essence, the Force One SUV is a second hand tooling trade result of a fake.

[Tweet “Force is smug about importing the drawings of a fake Hermes from Bangkok. “]

Beyond the size and bulk, the One had little going for it. The initial curiosity and megastar Amitabh Bachan’s endorsement kept the sales momentum up in the first few months. Beyond that, it was a steep climb and the Force One stalled soon.

It was pretty much the case for the Premier Rio. Based on tooling imported from Chinese manufacturer Zotye, the Rio was essentially an older generation Daihatsu Terios. Zotye had bought the dies from Toyota and dumped them on Premier after juicing them for a few years. There was not much promise in the Rio except the very low pricing. Needless to say, it sank without a trace.


One Size Doesn’t Fit All

Mind you, not all of the above were dodos. There has also been the Tata Winger, a first generation Renault Trafic that landed in Tata’s lap after the French carmaker shipped the dies to India in 2007. Tata loved the idea and could see a lot of potential. Optimism was high as the number of direct competitors to the Winger were zero.

However, things didn’t pan out the way they were expected to. The market for the Winger has been slow and the bigger, better and more expensive Force Traveler runs circles around the Tata sales numbers. However, Tata Motors has persisted and sales keep on trickling in for the Winger.


Step Children and The Complexity of Things

The biggest challenge that Step Children present, both for forecasters as well as the supplier industry, is the confusion regarding their lifecycle. So you have a product that wasn’t planned very well or has fallen out with the typical market conditions. It now sells a fraction of what it was supposed to. Momentum is nil and every month you struggle to push a few out of the showrooms.

There is no way you would replace it at the end of its lifecycle.

In most cases, you do not have the technical capability to replace the product. Even more, you have no idea what the lifecycle of the product should be.

Take the Tata Winger as an example, the Winger is in its 8th year of lifecycle and there are no plans to discontinue it. (That is 8 years after Renault had already milked it for 21 years and then mothballed it for another seven.) The perpetual existence is fuelled more by a lack of replacement (or even plans of that) than by the technical superiority of the product.

The same is the case with the Mahindra Verito. When the Indian manufacturer made the surprise move of walking away with the rights to the Gen-1 Logan platform from its separation with Renault, not many counted on an eventual successor. Mahindra hasn’t disappointed.

The Verito has been joined by the Vibe (apologetic hatchback on the same mechanicals) but that’s where it will stop. Mahindra will not do a second generation of the Verito as the numbers are not significant. Also, the Indian manufacturer still doesn’t have the bandwidth to do a full-fledged B-segment car replacement.

So the current generation Verito / Vibe will continue relentlessly till dealers revolt. Meanwhile, it has been valuable learning for Mahindra as it used the platform to learn monocoque builds and car assembly.


Step Children – Future Planning

As discussed earlier, most manufacturers do not do any future planning for their step children. This is mostly because these models themselves have been relatively unplanned. Since the models haven’t worked in the market, no executive ever took a step back and thought, “Hold on, this will get old one day and we would need to plug this market segment again”

So some manufacturers like Tata will continue to sell the Winger till the time they can keep on finding tour operators and hotels willing to pick a few units every month. others like Mahindra use the platform as a learning exercise and the lessons would be used for developing the next generation platforms even though the exact product my not be replaced.

And then there are some laughable experiments like Sipani Motors which just sink.

Early Sales Reckoner – June 2015

We start June 2015 with Maruti-Suzuki dispatch data. The company has reported a 1.6% improvement in dispatches. Considering June 2014 dispatch volumes were 100k+, this is not a bad show.

The problem with a 100k monthly dispatch volume is that its a peak that would be crossed emphatically only when there is a strong customer pull from the market. As of now, the dispatches are more of a push by MSIL than a pull from the market.

At the segment level, dispatches in the Mini Segment were down 27.9% while those in the Compact segment were down 24.4%. Considering that we had a nearly opposite trend last month, this is more of an inventory play.

There was some moderation in the Ciaz dispatch numbers as well though the Ertiga keeps going strong. Meanwhile MSIL’s old Vans – Eeco and Omni – continue to print money.



Honda has had a stellar month as dispatches, at 18380 units, were up 12.65%. The growth was led from the front by the City and the Amaze also had strong dispatch numbers. However, there is a strong dip in the Mobilio numbers and Honda still seems to be facing niggles at the production end.


Update 1: Toyota & Mahindra

Mahindra and Toyota numbers have been released and both brands are in deep red. Mahindra still seems to be battling the slowdown in the traditional UV segment.

On the other hand Toyota Kirloskar, Toyota’s India arm, cited a six day plant shutdown (regular maintenance) on the slowdown in dispatches.

Update 2: Tata, GM, Ford and Hyundai Numbers

We now have numbers from these four OEMs as well. Tata has been on a recovery run for the last few years (Mayank Pareek effect?) and June was no different. Dispatch numbers jumped by nearly 30% over previous year.

Hyundai also managed to dispatch 8.31% higher volumes than previous year.

However, volumes dipped sharply for Ford India and GM India. Ford needs the new Figo in the showrooms asap as everything in their portfolio, barring the EcoSport, have died together.

GM India meanwhile is not in a happy space as dispatches dipped yet again. The company believes that customer sentiment is not yet positive.

ESR June v3.0


This post would be updated multiple times over the next 48 hours. Keep checking back.

Fiat India – Missing the Boat Again


Of all the automakers who have ever entered the Indian market, Fiat has had the most interesting, and disappointing, history. The company was one of the earliest to start in India and was a well-known brand even before Suzuki entered the country. At that time, Fiat’s presence was only a legend, one that it had become a part of with Premier Automobiles Ltd and its Padmini model. PAL had taken a Fiat 1100 and rechristened it to the Padmini in India. Thanks to the era of strict licenses governing automotive production, the Padmini’s lifecycle had stretched beyond Mr. Fantastic’s capabilities. With only three major models on the roads, Indians had terrific recall of the Padmini still popularly known as the Fiat.

The Italian brand really entered the country in 1996 with the launch of the Uno. The car met with unprecedented enthusiasm and the initial bookings crossed 260000. However, a slew of problems starting with a strike at the plant made sure that the Uno eventually sold a fraction of that number in its lifetime. The models after that always had a mixed reception and Fiat’s stay in India since then has been a series of ups and downs.

Make that mostly downs.


Global Problems Damage Indian Operations

In a way, Fiat was the ideal folly to Maruti. To Suzuki’s Japanese small car ancestry, Fiat had the best DNA – of a European small car manufacturer. Unlike Suzuki, the Italians had aesthetics in their blood and made beautiful cars.

However, advantage Fiat ended just there.

Suzuki had almost no competition in the market and a huge pent up demand when it started rolling in 1984. People were ready to buy any car that would provide an alternative to the HM Ambassador or the PAL Padmini. That it came from a government owned company just made it better.

Twelve years down the curve, the market had changed. While the demand was even bigger (260k bookings are an indicator), Fiat now had Suzuki to contend with. It also had multiple new entrants like Ford, GM, and Mitsubishi, all entering the market at the same time. The Indian customer was getting exposed to new products and was getting picky.

More than that, Fiat had to contend with global problems that hampered its focus on the Indian market. The Uno was followed by the Palio/Siena which were followed by nothing for many years. The time was marked by badly rebadged variants on the Palio platform like the Stile, Petra and Adventure.

None of them sold much.



Fiat’s next serious car for the Indian market was the Punto, introduced in 2008. By then the brand had been reduced to selling only a handful every year and a chunk of dealerships had deserted it. Customer confidence was the pits and Fiat looked headed straight to oblivion as things stood.

More than the domestic problems, it was again the global problems that the company faced at the time which led to Fiat India’s downfall. Bereft of capable products and too occupied with its fight for survival at the global level, Fiat let things slip in India and never mounted a serious challenge with a new product lineup. The Palio was capable but overpriced. By the time Fiat’s desperation for numbers corrected the pricing, the Palio was old and dated.

Nothing new was coming as models like the Panda were never green-flagged. Others up the spectrum were never in the reckoning due to pricing issues and the (not so great) image that Fiat had already been branded with in India. As a result by the middle of the last decade, Fiat India was left with a single platform which resulted in very few sales. Worse, it was difficult to grow as attracting dealers to a sinking ship is always a challenge.


Desperate Situations Call for Suicidal Measures

By 2007, Fiat realised that they couldn’t go any further in the Indian market.

Alone, that is.

The need of the hour was to find a partner. The only thing was to find a partner equally desperate.

Enter Tata

By the same time, Tata Motors had achieved some success with its domestic passenger car business. The Indica Gen-1, a failure at the starting line, had found its second wind and was selling briskly. Tata also had a sizeable array of utility vehicles, all doing reasonably well. The company’s Medium & Heavy Trucks business was at a high, riding the cycle that had seen sales exploding from 2005 onwards.

Best of all, Tata had the Ace, a recent indigenously developed small truck that was a superhit with small operators and was doing five digit monthly sales by 2007.

However, the company had also steadfastly earned a reputation of making cars matching the quality of the company’s heavy trucks range. Considering Tata’s trucks had a WW II lineage, this could not have been good for the business in any way.

More than the quality, Tata’s shortcoming was in the product development area. The Indica had taken long to develop, was overweight & underpowered, and it had taken many years for the company to iron out the quality issues. Ditto with the Safari. By the start of the century, Tata had earned the dubious reputation of doing its QC Testing on the road, on actual customers. The company could develop cars but there was a wide gap between the product attributes and the market requirements.

The gap was even wider between Ratan Tata’s global ambitions and his team’s execution.

In short, Tata needed help in product development, engine development and even manufacturing.

Fiat could bring in everything.

They, in turn, needed help in improving penetration.

Tata could bring in its army of dealers. It was a match made in automotive heaven.

In Oct 2007, the two carmakers entered into a series of collaborations. On one side Fiat would supply its excellent 1.3-litre diesel engine to Tata and also assemble Tata’s Indica Vista hatchback and Manza sedan at its Ranjangaon facility. On the other hand, Tata’s dealers would also double up as Fiat dealers. Both assumed it was a win-win deal. The bonhomie went to the extent that both OEMs started to look seriously at developing a next generation global platform.

Then the glass shattered.


High Risks with Limited Profits

Very little in the agreement worked for Fiat.

Manufacturing the cars for Tata and supplying the engines (to Tata, Maruti, GM and whoever else wanted them) was extremely profitable. Unfortunately for Fiat, Tata’s Vista and Manza models – the two models assembled by Fiat at Ranjangaon – never took off. Despite the two being Tata’s best assembled cars, customers, most of which were now taxi operators, never took a fancy to the two models. Fiat’s upside was rather limited.

Selling Fiat cars through Tata dealers turned out to be a very bad idea. It would later turn out to be the automotive equivalent of weaning off heroine through cocaine. Tata’s dealers were never good, the sales experience bad & the service experience even worst. Subjecting its customers to using the Tata channel finished off whatever value was remaining by then in the Fiat brand.

The increased penetration did nothing for Fiat. While statistics tell us that sales jumped up by 58% between 2007 & 2008 and by a whopping 413% between 2008 & 2009, it is likely that the same could have been achieved without the Tata network considering Fiat had two brand new & very capable models – Grande Punto & Linea – in its lineup.

The year 2008 would turn out to be Fiat’s best year since 2002, a sales performance that has not been repeated till date. However, the instant gains from riding shotgun on Tata faded away soon as the customer experience was extremely negative. Tata dealers also ended up weaning away many potential Linea using Fiat as a leverage to sell Tata cars. So the Linea was unfairly compared to the Indigo Manza and the Punto to the Vista. ‘Using same engines’ was exaggerated by the dealers as ‘same mechanicals’ and architecture, pushing customers towards the Tata cars which were easier to sell and arguably offered better margins.


Arresting the Decline

Admittedly, the first two years under the Tata-Fiat sales joint venture were a honeymoon. Sales multiplied, partly due to an increase in Fiat brand’s penetration, partly due to two brand new models, but mostly because the brand had hit an absolute bottom in 2006 with annual sales of less than 1500 units.
You couldn’t fall further than this without shutting shop and booking a one way ticket to Italy.

However, 2008 was also the year when the honeymoon ended. After that there was a straight decline in sales, a trend which continued till 2013 by when sales had fallen down to a little above 10000 units for the entire year. Worse, Fiat had two models which were in the middle of their lifecycles and badly needing an injection of freshness & excitement. Brand Fiat had been battered as customers whined about the ‘Tata’ experience.

In contrast, things were quite different for Fiat globally. Marchioness move to integrate Chrysler into Fiat had reaped rich returns as sales were on the up. Driven by the global resurgence of the Jeep brand, Fiat-Chrysler (FCA) was delivering strong results. The momentum was expected to continue as the US economy had recovered and Europe couldn’t decline further.

It was the right time to look at doing better in emerging markets like India. The confidence from the global resurgence was the push that Fiat needed to break away from Tata and restart its journey on foraging an independent identity in India.


Separation and Freedom

The separation happened in March 2014 as Fiat announced that it would work on an independent existence in the Indian market. We appreciated the intent and honestly liked the whole idea of going solo and carving your own identity.

The first few months post separation continued with the downhill journey due to the momentum. However, things started improving as both the Grande Punto and Linea picked up momentum and the numbers started improving month after month. Within a year of separation, Fiat’s monthly numbers had more than doubled and had crossed a thousand units in rolling monthly dispatch averages.

Fiat India since separation from Tata




From now on, for the purpose of analysing sales volumes, EMMAAA would be using the 12-month rolling sales method. Under this system, we consider the last 12 month net sales as a better indicator of performance than the much used (and abused) monthly dispatch numbers. This shift to a 12-month rolling sales volume ensures that any sudden spurts or declines in volumes are ironed out effectively. Also, since sales volumes in India are not exactly sales volumes, but dispatch volumes, a 12-month rolling volume system effectively negates anomalies introduced due to minor factors like temporary production disruptions, over-jealous sales managers or temporary logistics issues.


By the end of FY 2014, Fiat was the fastest growing automotive brand in the Indian market. In a market that was on its way down, Fiat’s 86% growth in FY 2014 was terrific. It was the literal second wind for the company, that too managed on the back of two ageing models. It was a success story that needed a few shots in the arm.

Sadly, this is where the FCA management missed the proverbial boat. Just when they had learnt to stabilise the ship in the deep sea, they pulled out to go practice in the swimming pool. No new volume models came, none were planned and the pipeline stayed dry.

Sales / Dispatches having hit a peak in March 2014 of more than 1500 units slumped soon afterwards. By July, dispatches had fallen to less than half of the peak. Even the introduction of the Avventura crossover — an expensive Grande Punto on stilts — in Oct 2014, did nothing to stem the rot. Dispatches last month (May 2015) were all of 737 units.


Strings of Misses

When you have taken the bold step of undoing wrong decisions of the past and restarting everything, it has to be followed by even more confidence. In the case of Fiat, the ageing Grande Punto and Linea were fighting it in the market. Their impressive show in FY 2014 needed to be followed by an aggressive model strategy. FCA also needed to commit to the Indian market, the company’s prospective dealers and the Indian supplier community by starting work on a specific or heavily tailored model for the Indian market. We looked for a new Uno or Panda or even an earlier than expected new Punto. Sadly that didn’t happen.

The aggression and ambition were completely misdirected.

We got Fiat Caffè.

The idea behind the Fiat Caffè was to propagate the values of the Fiat brand to a wider audience. It was a kind of lifestyle lounge in the heart of Delhi (Delhi now closed but two more are operational in Pune and Bangalore) where Fiat afficionados could converge and discuss Fiats over the other popular Italian produce — coffee. In a way, Fiat was trying to take the automotive brand high space, associating itself with Italian lifestyle and design. It was trying to become the four-wheeled equivalent of Vespa.

Sadly even the Vespa doesn’t sell much in India.

They also outsourced the actual coffee to Barista, a chain as Italian as Sharma Pizzas in Meerut.


Dead Cat Bounce?

In the stock market it often happens that when a share has been hammered quite a bit, it often bounces back strongly. This is a dead cat bounce. Many investors suffer due to their misplaced optimism on a dead cat bounce. If the bounce is not supported by a lot of positive action on the fundamental side, the bounce fades away quickly and the share price starts its downward movement again, trapping investors.

Somewhere in FCA, there are a bunch of senior executives who do believe that the strong show after the Tata separation was something more than a dead cat bounce. Admittedly, we were of the same opinion as well till a year back but Fiat’s failure to improve on the fundamental side has cost it dear. The bounce is fading and the company is close to losing it again in the Indian market.

Somewhere, FCA executives regarded India in May 2014 as a comfortable win-win situation. Mike Manley, responsible for the group’s APAC activities and the Head of the Jeep brand, presented to analysts at FCA investors day in Auburn Hills, outlining the company’s five year business plan. In an industry incorrectly forecasted to grow at 12% CAGR during 2014-18, Mike forecasted Fiat to achieve 130,000 in sales in 2018.
This is a 51% CAGR growth from Mike’s estimate base of 25000 units in 2014. Frankly, we weren’t shocked. Fiat was doing well and if they introduced some more new volume products in the market, this was an achievable target. Ambitious, but achievable.

Fiat India Product Timeline

The problem, as we later realised after scanning — multiple times — through the ten slides on India in Mike’s presentation, was a complete lack of new products that could realistically deliver volumes. (Mike Manley’s presentation can be downloaded from here)

There was the new Grande Punto in end 2017, the Linea a few months earlier and even a new Avventura in end 2016. But apart from these three — all already a part of Fiat’s India range — there was nothing.

So where would the 130,000 in 2018 come from?

The 130k is especially worrying considering the whole volume jugglery was built on the assumption that Fiat would sell 25,000 units in 2014. They ended with 11640 units only. That’s not a great start to a plan that is already bordering on the insane.


Jeep and the Challenge of Being One

Yes, there was also Abarth and Jeep. Frankly with the amount of space devoted to these two brands in Mike’s ten slides, we are worried that FCA senior executives have started taking themselves, and the two brands, too seriously. They may be iconic and money-spinners in the global markets but have little potential in the Indian market.

So how many Land Cruisers does the country buy? Or how many Prados? That in a nutshell is the potential of a Jeep Grand Cherokee or Wrangler Sahara in the Indian market. Considering Fiat’s expected pricing of the Cherokee at upwards of INR 80 lakhs (INR 8.0 million) and the Wrangler’s pricing of 20% less than that, this in a nutshell is the potential of the brand in India.

Fiat India Product Plan_A

There is also the Jeep Renegade, a small SUV that Fiat plans to assemble in India. Local assembly would likely lower the pricing but it would still not be a Duster rival by any count.

Meanwhile, Fiat brothers on the Renegade platform have been shelved for India, not finding a mention in Manley’s presentation.

Surprisingly, Manley’s presentation has attributed about 25000 units in sales to the Jeep brand by 2018. That’s more than 2000 units a month and means that at least one of the Jeep models, most likely the Renegade, will have to do a Fortuner-and-a-half in sales to meet the targets. That is unlikely and we forecast that Jeep — if they are here — would be off by a distance.

Surprisingly, luxury SUVs from the German manufacturers sell quite well and that is an area that Jeep may be looking at exploiting. The challenge is to position Jeep in a way that it gets perceived as a luxury / lifestyle brand. Traditionally the brand has enjoyed a semi-premium status in global markets but achieving the same in India may not be that simple.

Not when Mahindra has been making poor third-world imitations of the Wrangler for so many years that the mass market considers it the original. Problem is that the niche end of the market may be put off by the imitations flooding Indian roads and a lack of novelty whatsoever.


Abarth and the Futility of it all

Coming to Abarth, it is Fiat’s performance brand. Now the Fiat 500 does not sell well in India as it is astronomically priced. By ’not selling well’ we do mean really not well. Only a handful have been sold till date.

Fiat India Product Plan_Page_27

So when you take the 500, jack the power to beyond comprehension and the price to beyond ‘Holy Cow’, you get the 595 Competizione. This is a car that would be a trophy and would be treated like a family heirloom. The size of a matchbox and costing to the tune of a Mercedes C-Class, the first Abarth model in the country is unlikely to help Fiat in achieving its five year target of 130000 units. Heck, priced at a likely INR 30 lakh, it would be lucky to sell 30 units.

So will Abarth have a rub-off effect on Fiat? Maybe, but we doubt how considerable it would be.


Down to Three Again

Essentially, Fiat India would still only have three volume products in 2018. Would they be enough to touch 130,000? It looks unlikely if we keep in mind the current product configurations. The Linea is an Executive segment car but priced more to match the lower Mid-Size segment and yet it doesn’t sell.

In contrast, the Grande Punto is priced at the top-end of the Compact hatchback segment. Only the Volkswagen Polo manages to match the Punto in price unaffordability. Again, the Punto does not sell much.

So we have two products that try two contrasting pricing strategies and both don’t sell.

That leaves the Avventura. It is an interesting product – Fiat calls it a crossover, though in essence it is little more than a Punto with high heels. However, it looks interesting with the tailgate mounted spare wheel and the bicycle racks on the top. The problem is that the present Avventura is very close a concept to the Punto. So Avventura customers have walked from one end of the showroom to the other. Net gain for Fiat has been zilch.

Interestingly in Manley’s deck, the next generation Avventura is expected to come out before the new Grande Punto or the Linea. We forecast the next generation moving towards a proper crossover shape and not just being a Punto on steroids.

Perhaps that is the reason why Fiat used the Avventura name and not an extension of the Punto moniker like competitors Etios Cross, i20 Active and CrossPolo have done.

A crossover would be good news for Fiat in 2016 and may partly be the reason behind the ambitious 2018 target. Would it be good enough to achieve 130,000? Our fingers are not crossed.


Lack of Confidence and the Inability to Exude

Fiat India’s low volumes create another unlikely problem. At about 90 dealers across the country, each is selling less than nine cars a month. That volume is not good enough for a dealer to be adequately profitable. The brand doesn’t even have a large parc to support its dealers to make money from servicing. In such a scenario, keeping dealers motivated is a challenge. Attracting new ones, for both Fiat and Jeep brands, would be difficult.



Unlike Fiat brand car sales in India, the company’s manufacturing and licensing operations have done very well. The Ranjangaon plant supplies cars to Tata apart from making Fiat’s own cars. However, the biggest money spinner is the company’s 1.3-litre diesel engine. The engine is the largest selling diesel engine in the country by far. Tata Motors, Maruti-Suzuki and GM India all use variants of the engine with MSIL being the largest user by far.

This widespread licensing nets Fiat a tidy sum and selling cars becomes sort of secondary. Not a great strategy but still better than nothing.


Will Global Problems Derail Fiat again?

Historically, Fiat India has time and again been let down by the global operations. Problems at the global level have often left the company cash-strapped and unable to focus resources on the Indian market. This may happen once again.

Looking at the noises Marchionne has been making lately, it seems that Fiat may be globally heading for tough times again. The street is worried about FCA’s debt situation and the mammoth investment that is needed towards new product development. On the other hand, suppliers in the US have indicated that Fiat has delayed development of many new products, including the next generation Wrangler. Both happenings do not augur well for the future of the company and Marchionne has been rooting for further consolidation in the automotive industry. It is a strong indicator that FCA realises the high cost of going it alone and the street may have the right hunch.

In light of all this, it is a difficult guess if Fiat India would stick to even the wafer thin product plans that Manley presented. Already the introduction of Jeep has been delayed considerably. From 2015, as mentioned in the slide deck, Jeep’s plans were moved to a reveal and launch at the Auto Expo. Recent murmurs now indicate that this may be further pushed down as the costing is not convincing and the dealer network may not be ready. That is not the kind of confident start that Jeep needs in a market like India.

May 2015 – Monthly Vehicle Sales Analysis

May 2015 sales numbers are now out and analysts at EMMAAA have interpreted the numbers visually.

We seem to be heading for a slow summer as monsoon clouds (or lack thereof) overshadow everything. A slow monsoon will derail sales at the bottom of the market, both for passenger vehicles and two-wheelers.

The below slider consists of 18 slides, closely examining the performance of each OEM in a segment over the last four years for the month of May.

To request a PDF of the presentation, mail us at quickfire (at) emmaaa (dot) com


Early Sales Reckoner – May 2015

May 2014 had maintained an almost flat trajectory over 2013. With the economy in revival, much is expected from May 2015 dispatches.

May has started off with good numbers for Maruti-Suzuki. The carmaker reported a 13% jump in dispatches in the month. This was driven by a surprising 20.6% jump in Mini segment (Alto, WagonR) dispatches.

However, the Compact segment (Swift, Ritz, Celerio, DZire) suffered with a 5.7% decline in dispatchs.

The Ciaz is still in a data honeymoon period and had healthy dispatches of more than 5000 units.

Maruti also did well with its Vans. The ERtiga dispatches were up 6.6% while that of the Omni / Eeco went up by 7.7%.


ESR May v3.0Toyota India’s dispatches were down 2.7%. This marginal decline was attributed to a planned plant maintenance shutdown which delayed dispatches.

Update 1: Mahindra and Honda numbers are out and both are pretty disappointing. Honda managed to stay in the positive zone but is hurt by the poor dispatches of the Brio and Mobilio.

Mahindra is down 7% on dispatches over previous years as customers still stay away from traditional utility vehicles.

Update 2: Numbers from Tata and Ford are also out. Ford has had a bad month once again as it is only replying on the EcoSport as of now. Meanwhile, Tata Motors had a pretty good month with a 21% improvement in dispatches.

This post would be updated multiple times over the next 48 hours.