Friday, July 13, 2007

Will Bajaj team up with Renault ?

The small car space is getting hotter and the competition is getting fiercer. Renault has made no secret of its small car plans in the recent past, and the buzz now is that the company might team up with Bajaj Auto to produce Carlos Ghosn's pet $3,000 car project.

Sources have confirmed that Bajaj MD Rajiv Bajaj will meet top Renault officials in Paris shortly to discuss a possible partnership.

The Renault twingo concept - a maybe $3000 car.

At a time when the motorcycle market is witnessing a downswing, for Bajaj Auto the timing seems to be just perfect to diversify its business and expand product portfolio.

A small car and light commercial vehicle foray with Renault will be a snug fit given the two-wheeler major's large distribution footprint and strong engineering DNA. Also with the motorcycle market witnessing a downswing (it's been negative all through the quarter and is down more than 14% in June), it makes sense to diversify the company's strong three-wheeler business to four wheelers as well.

When contacted Mr Bajaj refused to comment. Carlos Ghosn has already announced that the combine would develop a $3,000 small car using Indian expertise. The car is Renault's big pitch for global volumes after the Logan and will be positioned below it.

Renault's current partner in India is Mahindra & Mahindra with which the French company has two separate joint ventures. Mahindra Renault, a largely marketing company, is in charge of selling Renault's global low-cost sedan Logan in India.

The two partners, along with Renault's sister company Nissan, are also putting up a greenfield plant in Chennai which will be used by all three. Renault is also putting up a powertrain plant in India as a 100% subsidiary.

When contacted by Economic Times, M&M vice chairman Anand Mahindra said that he had no comments to make on whether Renault was talking to Bajaj Auto but emphatically denied there were any talks with its French partner on the small car project.

"We have had no discussions with Renault on the small car project," Mr Mahindra said.

Sources say M&M is not interested in the $3000 car project because its long-term strategy is to be a global player in the SUV market.

"The $3,000 project would not be within M&M's core competence and would not bring in the kind of margins which would make the project attractive given the size of the investment required," said a senior industry source.

Mr Ghosn has been keen on the small car project, calling Tata Motors' Rs 1 lakh car as an exciting idea on his visit to India. Last month, he announced that the Nissan-Renault combine would develop a $3000 car using India's "frugal engineering expertise". However, at that time he was quoted saying local partner M&M would be a natural ally in the project.
Honda Jazz

Bajaj Auto has, for its part, announced its foray into the light commercial vehicle market with a product that would compete with Tata Motor's successful Ace light truck. And like Tata - which has just launched Magic and Winger, two passenger vehicle versions of the Ace-Bajaj Auto is planning to crank out a passenger vehicle concept version which will be showcased at the Auto Expo next January. In an earlier interview with ET, Mr Bajaj had announced that he would be open to an alliance with a car major like Tata Motors on a small car project.

The Tata Rs 1 lakh car project has triggered off a lot of excitement both among local auto majors as well as global biggies. While Mr Ghosn has announced his future foray, others like Honda Motor Company chair-man Satoshi Aoki have said that it will not be feasible to develop a car at that price point. Maruti MD Jagdish Khattar has also seconded Mr Aoki's view.

India's booming small car market is already attracting a lot of interest. Although there are no confirmations yet, Toyota is reportedly developing a small car specifically for India and other low cost markets while Ford is likely to introduce a model on its just-launched Mazda2 platform. Honda has announced its decision to introduce the next-gen Fit/Jazz into India while Volkswagen has said it will bring in a Polo variant for its B-seg foray. GM has just launched its small car Chevy Spark earlier this year.

However, most of these hatch backs are in the premium B-seg category pitted against current models like the Suzuki Swift, Hyundai Getz and Chevy U-VA. The Rs 1 lakh car, would be positioned below the current cheapest model M800 and would help upgrade a section of India's 50 million-strong two-wheeler population to cars.