He is best known as the man who came up with the Scorpio which changed the image of the Rs.43,000-crore Mahindra & Mahindra (M&M) as a modern automobile manufacturer.
As Executive Director and President — Automotive, Farm Equipment and Two-Wheelers, M&M, Pawan Goenka today runs the most important businesses of the group. A graduate of IIT-Kanpur and a Ph.D from Cornell University, Dr. Goenka says that a lot of the company’s energies will be directed to the utility vehicles (UVs) business where it is the leader. Denying that M&M failed to spot the trend towards compact SUVs, Dr. Goenka says that he would have been comfortable if their products had hit the market now rather than a year later, as per current plans.
Excerpts from an interview with The Hindu in Mumbai recently:
How do you assess the state of the auto industry now?
When the excise duty reduction was announced in February, all of us thought that it was the end of our woes but it didn’t happen. February was bad, March was even worse and April was bad. After the elections, there has been some positive change; May saw a bit of a turnaround and June also looks reasonable though we can’t say anything till the end of the month. I think it will start picking up. By the time of the festival season in October, we should be in full bloom. The only thing that can derail it is macro-economic environment not improving in the way most people are hoping. We are hoping that interest rates will come down in the second-half, that the GDP growth will inch towards 6 per cent during this year. We are also hoping that the monsoon effect will not be too severe, and there is no further escalation in oil prices. I was more confident two weeks ago but things have not gone very well since then.
M&M is leader in UV and tractor segments but your plans for cars have never really taken off?
We’ve never said we want to be a passenger car player. The Logan/Verito were exceptions, which came as part of a joint venture. That is like a one product business which is there but is not doing wonders for us. Our focus is on SUVs and UV segments where we have a good line-up of products today. We are not interested in passenger cars. We have enough competition and challenges in the UV business, and if we can manage that well we’ll be happy.
In the UVs, did you failto spot the emerging market preference for compact SUVs?
We didn’t miss the trend but we delayed it by about a year. We would have been more comfortable if new products had been launched this year rather than the next. The change or impetus for compact SUVs happened a year sooner than we thought. That’s the way I would put it. We have two new products coming out next year which are in the compact SUV segment. Once we have them, then we’ll have a strong line-up in the segment.
How significant is the CV business in your overall plans?
We have broken the industry internally into five sub-segments -- The 0.5 tonne segment which includes the 3-wheeler, the small CV segment which has the Maxximo, the pick-up segment with the Bolero, the LCV segment and then the MHCV segment, which is from 15 tonnes to 40 tonne vehicles. In the MHCV business, there are three sub-segments we can look at. First, 11-16 tonne where we are not present right now, second is 25-plus tonnes where we are already present, and buses. In the 25-plus tonne segment, we have decided that we will add to the product that we have by creating variants. Next, we will develop a totally new product in the 11-16 tonne segment for which work is already on with a budget of Rs.200 crore-plus. Of course, it will be several years before it is launched. In the bus business, we have products up to 40-seaters built on the LCV platform. We don’t have a product in the over-40-seats category, and we have decided that this is a segment that we will wait on.
M&M is in the entire range from two-wheelers to utility vehicles to trucks and even tractors. Which will be your prime focus areas for future growth?
That is difficult to say but what I will tell you how we are looking at the UV/SUV segment and you can draw your conclusions. In the UV segment, we have four sub-segments. The one segment where we are doing very well and think we will continue to do so because others are not looking at it seriously is the frame-based full-sized SUV like the Scorpio and Bolero but the catch is that this segment will not grow much in future. All the new entries are in the compact, monocoque body SUVs. The second is what we call the MPV segment which could be frame-based or monocoque but primarily designed as a people-carrier and not SUV. Examples of this are the Innova, Tavera and Xylo. The third is the premium segment which has products like the XUV, and the fourth is the compact segment. We have plans for each of these that see us either in the number one or two position but nowhere in number three. There is no mystery about the fact that we will do a fair amount of product development in the UV segment. I’ve already expanded on our plans for the CV business. In two-wheelers, we are a niche player with just about a 2 per cent market share. We cannot certainly aspire for one of the top three slots. Our immediate focus in this business is to get to a point of break-even. We are a serious player, and there is no question of backing off despite the fact that it will take a lot of effort from us to get to break-even. We need to be selling about a million vehicles per annum to be of economic size, and we are far from it with just over 2,00,000 vehicles sold last year.
Your dealerships are seen as being stolid and not sophisticated enough compared to other car showrooms. What is your answer to this perception?
First, we need to do the right comparisons. We should compare M&M showrooms not with that of BMW or Audi but with a Maruti or Hyundai or Toyota one. There will be showrooms that stand out for these companies, and there will be showrooms that stand out for us. I would request you to visit our Andheri showroom and compare that to any other you may have seen in a metro. In Mumbai, space is limited but if you go to a Delhi showroom or even cities a rung or two lower, you will be amazed at the space that we have. This is an impression left over from the past. In the last few years, we have spent a lot of money to upgrade our showrooms. I don’t think that we are today disadvantaged by the look and feel of our showrooms.
Moving to your tractors business which is quite different from others, what’s next? How long will this industry continue to grow?
The growth question is one that comes up often. Tractors have a long life and will there come a time when growth will stagnate? The answer is yes, but then we are much further away from that time than most people think. We have put the industry in two buckets — replacement and new. Right now the growth is roughly equal between the two. As per our estimates, the current growth will continue for about 10 years. We can expect to see 8-10 per cent CAGR. After that, the new growth will slow down and only replacement will continue. This is assuming that the industry structure does not change. Though it has never happened, there is always this talk of farmers moving from smaller to higher power tractors. With each generation, farm sizes are becoming smaller, and, therefore, large tractors don’t make sense.
Every industry has to innovate disruptions. In some ways, the Yuvraj tractor we launched 5-6 years back was a disruption. I would expect many such disruptions from players as growth begins to slow down in a decade. The other growth impetus will come from global markets for which we have to develop specific products that may not be suited to India. That is the challenge.