The Chinese are here!

Beijing Automotive Industry Holding Co., better known as BAIC plans to sell commercial vehicles in India. Good news, bad news? I say premature news.


Well, you see, China and India are the poster children of the global economy at present, especially in the automotive industry and these two countries are trying to make their mark felt in the industry. They drive substantial global sales, but do not have domestic companies that contribute much, yet, to those sales figure. China and India are core competitors in the automotive industry, like everything else. When it comes to these two countries, it is not about the companies, but about the countries. These two countries are growing at an incredible pace and they will be the architects of the present and future world economy. 


So, a rapidly growing Chinese company trying to sell its wheels in India, or rather, to quote Bloomberg, "start its overseas expansion by entering the Indian market", is bad news for India's rapidly growing automotive companies (talking in terms of the global automotive scenario) like Tata Motors, Mahindra&Mahindra, Ashok Leyland and also for the smaller International Cars & Motors Ltd. (that is Sonalika - the Toyota Qualis look alike - for people unfamiliar with the name of the real company).


Okay, enough of cryptic clues. The crux of the matter is, both Chinese and Indian auto makers are trying to go global in a big way - they have the same goals, so it does not make sense for them to mutually compete in each other's domestic markets. India has a maximum of 10 auto makers, both passenger and commercial (yes, including Hindustan Motors and Premier), China has around 130 indigenous automakers!


Both these markets need to break even and their domestic auto makers need to win a decent pie of the global automotive market before they can start competing with each other. They are already struggling hard enough to make their presence felt among the Detroit and Germany big 6.


Here is the piece of news that got me started in the first place.

M&M acquires Ssangyong - Can we say that finally?

Okay, we have been hearing about the Mahindra & Mahindra acquisition of Ssangyong for a while now and no further developments have been heard of; however, there is definitive news that M&M will buy a majority stake in the smallest of the Korean car makers, Ssangyong, by end-2010 or early 2011. At this stage there are no details of the amount involved in the acquisition. M&M mentioned that it will go through the final due diligence of Ssangyong sometime in September 2010 and then fix the deal.

Not many people have seen Ssangyong cars, rather SUVs - that is what this Korean car maker specializes in - low-priced, robust SUVs. The Korean SUV maker has vehicles like Rexton, Kyron, Rodius and one sedan in its entire line-up - the Chairman.

M&M, through this deal, can expand its line-up of SUVs; but when it comes to sedans - the basic ingredient for any versatile car maker - I can only hope that M&M does not have another sour experience like the Logan. Ssangyong, on the other hand, will not go bankrupt and have access to more markets and M&M's technology. With this deal, M&M is giving out all the signals that it intends to focus on SUVs - at a time when people are selling off their gas guzzlers and shifting to more fuel-efficient vehicles. Lets hope that M&M becomes the phoenix of the SUV market , and brings out SUVs that suit the taste and needs of the present and future markets - vehicles with more high-end torque, yet thrifty on fuel consumption.

Here is a ball-park SWOT analysis of M&M:

Strengths: Well established as an utility and farm equipment manufacturer. Has dealer networks in the US, South Africa, Latin America and other key markets. Diversified business and hence the group has financial stability. Few model line-up in the passenger vehicle segment, hence less complexity. Has the advantage to design a new global vehicle platform and bring out different products. Has been making vehicles since the 1940s and has a lineage of sorts.

Weaknesses: Does not yet have a mass-market sedan or hatchback - and hence missing out on the major passenger vehicle market share. Has not yet reached the levels of international collaboration needed to bring out world-class petrol/diesel engines in the 1.3 to 1.6 liter displacement range, to be globally viable. Vehicle platforms are dated and the company is still perceived as essentially commercial vehicle manufacturers. Cannot really go global with just utility vehicles and SUVs. The Scorpio cannot sustain M&M for long.

Opportunities: Emerging markets in South Asia, like Vietnam, Thailand and Indonesia, markets in Eastern Europe, like Russia, Turkey, et al and Latin American markets. M&M needs to develop a small/mid-segment sedan or hatchback to shares in these markets. The acquisition of Reva holds lot of potential. M&M should aggressively pursue electric vehicle development at this moment, and if done properly, the company will have a headstart over many smaller but global players. M&M should invest its research rupees in developing a global small SUV - which is the fad and demand of the day. It already has the expertise and just needs to tweak the engine and platform a little bit.

Threats: The biggest threat for M&M is Tata Motors and the Chinese companies. Other OEMs comparable to M&M are increasingly entering into technology sharing partnerships and thus have access to better technology. Consumers in India and other potential markets have more options to choose from and if M&M does not diversify its product portfolio it will lose out to competition.

For those who have not seen Ssangyong vehicles:

                                                                           Rexton

Mandatory fuel economy standard for India

The biggest irony for a country obsessed with fuel economy is the fact that India does not yet have an official fuel economy standard set by the government. Efforts to set up a standard have been made in the past; however, like everything else in this country, those efforts yielded no outcome as everything got lost in the mire of bureaucracy and organisational power play.

However, things are set to change as the Environment and Forest Minister of State Mr. Jairam Ramesh, formally announced on August 2010, that there will be a mandatory fuel efficiency standard for auto makers. What worries me however, is the fact that the minister did not specify a timeline. He just said that a standard will be enforced “soon”. Now, from what little I know of these auto-related policies, there always is a time frame set for the enforcement of policies and future regulations. It would be a welcome change if this time the ball is really set rolling and we have a fuel economy standard by end-2012.

The automotive industry is gradually becoming very uniform across the globe. What I mean to say is that the regional differences of types of engines and cars are lessening as the world strives for smaller and more fuel-efficient cars. Auto makers are already collaborating with one another in terms of technology sharing so that they can bring out cleaner cars. This is partly due to the price of fossil fuel, growing awareness among people for the environment, the US suddenly waking up to the need to have fuel-efficient cars and lastly, but by far the most important reason, the very strict CO2 regulations imposed by the EU 27 states. The point, however, is that OEMs already have the technology, so an Indian fuel-efficiency standard set at par with global standards will not be impossible for auto makers to achieve, and this in a way will contribute to the much talked about harmonization of standards in the automotive industry.

Lets hope this time we really show we are concerned and join the global race to cut emission, reduce fossil fuel dependence and participate in a greener tomorrow.

Renault-Nissan teams up with Daimler

Renault-Nissan enters into a strategic partnership with Daimler. All the three automakers will have around 3% stake in one another through equity exchange. The near-future aim of this alliance is to collaborate on the next generation Smart Fortwo and the Renault Twingo, including electric versions of the cars.

The overall objective of this alliance is to share and develop engines and powertrains for future passenger cars and light commercial vehicles for all three automakers.

In a nutshell, Daimler will get to use Renault-Nissan's latest generation small 3/4-cylinder small petrol and diesel engines for new Smart vehicles and also use these engines to introduce entry-level vehicles in the future. Daimler also gets to use Renault-Nissan diesel powertrains for it van, the Vito. Moreover, Mercedes-Benz Vans will get to include Renault-Nissan entry level models in its Light Commercial Vehicle portfolio from 2012 onwards.

In return, Daimler commits to lend its 4/6-cylinder petrol and diesel engines to Nissan's luxury car brand, Infiniti.

The deal clearly states that the brand and product identities of the three car-makers will remain intact.

There is also talks about Daimler and Renault-Nissan using one another's plants in the US to manufacture vehicles.

This looks like an interesting alliance provided Daimler keeps its end of the promise and not provide dated engines and powertain to Nissan like it did to Chrysler.

Whichever way the alliance swings, but one thing is for sure, the new age of automotive industry has arrived and many more consolidations are in the cards.

Recalling the Toyota recalls

During my stint with erstwhile Chrysler, I learnt one important thing about the average American car drivers - they are a quirky and very paranoid bunch of people when it comes to the quality and the safety of the vehicles. No wonder they have the safest and the most technologically advanced vehicles; but at the same time over-dependence on technology has diluted the driver's intuition in the average American.


The recent Toyota recall story is not new. It is a deja vu of the Audi 5000 recalls in the mid-1980's. Anyway, we all know the story of unintended acceleration of certain Toyota and Lexus models and the number of recalls made, etc. In my opinion, Toyota did a commendable job in managing the negative publicity, but just a couple of months after the hue and cry is over, everybody seems to forget to find out what really happened. Were the Prius' really faulty, as alleged? What about the outcome of the investigation?


I stumbled upon Drew Winter's commentary in Wards Auto and I think it is a must-read. Drew gives very nice details on what really happened as the initial Federal investigation results showed up and further investigations are made. To read Drew's article click here.


Addendum - The NHTSA slammed a fine of USD 16.4 mn on Toyota stating that Toyota was aware of the faulty electronic throttle, but chose to remain silent. Food for thought - Toyota being fined means the Big 3 sales increase, two of which are owned by the US government.

Is BYD, China, buying the Maybach marquee from Daimler?

The latest speculation in the automotive world is BYD approaching Daimler AG to buy the Maybach brand. BYD is one of the smaller Chinese automotive companies that focus in battery-operated electric vehicles. BYD already had teamed up with Daimler to develop electric vehicles for the Chinese market.

Interesting facts about BYD are that, Warrren Buffet has a 10% stake in the company and it was originally a Li-ion battery manufacturer for Nokia and Motorola.

Spokespeople from both the companies have clearly denied the rumors and have passed it off as market speculation.

The truth remains to be seen. But with a poor sale of around 200 Maybachs last year and Daimler working vehemently to lose its extra fat, such a rumor might not stay a rumor for long.

Geely buys Volvo

The announcement of Chinese car manufacturer Geely buying Volvo Cars from Ford Motor Company is a big news. A landmark event or not, remains to be seen. I make this comment because if we consider the popular school of thought, according to which, consolidations in the future would leave about 5 major global automotive companies owning over 30 brands, Geely's acquisition seems like a small ripple in the grander scheme of things; but nevertheless an important milestone, especially for the Chinese automotive industry.

Estimated at USD 1.8 bn, the Geely-Volvo deal marks China's biggest overseas auto purchase and a global shift in manufacturing from North America / Western Europe to China.

According to Geely, its present and near-future aim is not to tap the western market but bring volumes to the the Chinese market and boost manufacturing. This objective is not so simple as it sounds. Volvo Cars sold around 50,000 units in China in 2009, while the market leader in the premium segment in China, Audi, sold almost 130,000 cars in 2009. But the acquisition is a step forward in the right direction for Geely. Already, a big player within its compatriots, Geely now has the famed Volvo safety design and vehicle engineering technologies at its disposal. This will take Geely a few steps ahead of the other Chinese automakers.

The deal took almost 2 years in the making since Geely went to Ford Motor Company with a speculative bid to buy Volvo Cars. But the buy-over did not happen earlier mainly due to two reasons -

1) Fears of loss of Intellectual Property. The Chinese manufacturers do not have a very good reputation of protecting the interest of foreign JV partners. Remember Chery shamelessly copying the design of Daewoo Matiz? (I heard Chery did such a fine imitation that the QQ headlamps would fit like a glove in a Matiz!)

2) Geely is essentially a private firm without government stakes in the company. This does not bode too well for a foreign investor because according to the Government Procurement Law of the People's Republic of China, "...purchasing activities conducted with fiscal funds by government departments, institutions and public organizations at all levels, where the goods, construction and services concerned are in the centralized procurement catalogue complied in accordance with law or the value of the goods, construction or services exceeds the respective prescribed procurement thresholds", basically, fiscal funds can be used only when the government gives a go-ahead.

But what is interesting is that Geely only paid USD 800 mn of the total USD 1.8 bn amount to Ford. The rest of the money comes from "regional investments", which basically means local governments.

After the unsuccessful attempt by the little-known heavy machinery maker Sichuan Tengzhong Heavy Industrial Machinery to buy Hummer, the Geely-Volvo deal is a new chapter in Chinese automotive history. What remains to be seen whether this is a mere ripple in major consolidations in the automotive industry that are to happen in the future or a milestone event that could change the global automotive industry and start a new trend.

Portion of Hyundai i20 production to shift to Turkey

By June this year Hyundai will shift a part of its production of the i20 to Turkey. The main reasons for this shift are -

1) The production capacity (~600,000 units per annum) of the two plants in Chennai is almost saturated.

2) The recent spate of labor problems in the plant.

What this means for the Indian consumer is that the waiting period for the i20 will now be around 3 weeks.

This move also signifies the Indian economy losing out a portion of its revenue to an Eastern European country, which have become close competitors to India, China and other South-east Asian countries in terms of affordable labor and raw materials for automotive OEMs.

What seems curious is that, Hyundai after announcing India as its small car manufacturing hub, should have considered capacity expansion in India rather than moving to another country. But I guess this will be the trend going forward, as Turkey has the advantage of being closer to the European market besides offering the same USP as India.

The Dark Horse gets its strategy right – Ford hits India with the right product

I like American cars, especially Ford. When I saw the Ford Escort around 1998, I was, let’s say, not so enthused. The Ikon was much better and the Mondeo was true Ford DNA; but Ford never could make a mark in the Indian market. Ford was never mass-market here and the only feeble effort was the launch of the Fusion in 2004. But like I discussed in an older post (look at the post at the bottom), the Fusion could never compete with the hatchback leaders in India.

But things are going to change for Ford in India and the B+ segment market here is in for some fresh competition from the Ford Figo. Ford, for the first time, understands the importance of the Indian automotive market and actually has a strategy. It took more than a decade, but finally, I feel Ford will see its market size grow in India from a puny 1.6% (volume).

I will not talk about the specifications as they have been discussed in many places, especially the Team-bhp review, which is all comprehensive. You can read it all here. My personal opinion is that two engine variants, 1.2 L petrol and 1.4 L diesel churning out 70 bhp and 68 bhp respectively are very decent options for the Indian buyers, though other OEMs have set a higher standards for power.

What I feel will make the Figo a hot-seller in India is its neat looks (no overambitious design experimentation like the Ritz, A-Star or the Beat), ample space in the car and most importantly the price. INR 4.5 lakh for the high-end petrol version and INR 5.3 lakh for the diesel variant places the Figo bang in the middle of the hottest selling hatches in India (the Swift and the i10). The mileages are impressive too. At 15.6 kmpl (petrol) and 20.0 kmpl (diesel), the Figo numbers are among the best offered in the country.

The improvements visible in the Figo are a step in the right direction for Ford; but it only means that Ford is catching up with Maruti, Hyundai and the other hatchback makers in India. What I really feel gives Figo the edge over competition is the fact that Ford has managed to pack its essence in a B-segment car in the true sense, namely, handling and the sheer driving pleasure. A Ford has always been a driver’s car. GM needs to pull its socks up.