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Updated: October 21, 2012 22:15 IST

‘Dieselisation’ will continue: Pawan Goenka

Ramnath Subbu
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‘Our success depends on making customers happy and everything else is incidental’

The Mahindra Group has been growing its automobile business over the years and has moved from being largely a farm equipment major till a decade and a half ago. Today, Mahindra & Mahindra (M&M) straddles almost the entire chain of automotive transport in India with the unique distinction of being the only manufacturer in the world to make cars and tractors under the same roof.

Pawan Goenka, President, Automotive & Farm Equipment Business, Mahindra Group, and Chairman, Ssangyong Motor Company, has been working with the newly appointed group Chairman Anand Mahindra to help transform M&M’s auto business over the years.

Dr. Goenka gave up a senior position in a multinational U.S. car company where he had done pioneering research in engine design and development in 1993 to join the Mahindra Group and has spearheaded the group’s entry into different segments of the automobile industry and also its overseas forays and acquisitions.

Last week, M&M launched its first premium SUV, Mahindra Ssangyong Rexton. This is the first product from the Ssangyong stable launched in India after the Korean company was acquired by M&M in 2011. Dr. Goenka spoke to The Hindu on the issues facing the industry and the way forward for his company.

Last week, the Society of Indian Automobile Manufacturers scaled back sales growth estimates for the current fiscal. What is the scenario and what ails the industry?

What is ailing is the overall economic scenario. The fact is that consumer sentiment continues to be down. There was an up-tick 3-4 weeks ago when a lot of policy announcements were made but given that, inflation has not come down but has, in fact, gone up again. The sentiment has not continued to be very upbeat. And that is the prime reason. There is nothing else that is going wrong with the Indian automobile industry. There are new product launches happening, good pricing with good discounts being offered etc. Of course, there is an effect of fuel prices being very high because of exchange rate and the effect of high interest rates … which again is all part of the overall economic scenario.

Are you hopeful of any steps or measures that the government could announce that might provide a boost for the automobile sector?

The announcement of the duty drawback on exports to 2 per cent a fortnight ago was a bit of a disappointment. We were, in fact, hoping for a further incentive to boost exports and it was certainly a disappointment that it went the other way. However, now that it is done, we have to accept it and move on.

On the other hand, the biggest impact will come if there is a cut in interest rates. If interest rates were to go down, then that is an immediate, short-term support that will come to the market. However, I do not expect it to happen in the next announcement. Next will be the effect of excise duty which, too, I do not expect to happen in the current scenario. Therefore, I do not see too much in the short-term other than a cut in interest rates that we can expect.

There has been a steady trend of ‘Dieselisation’ with increasing popularity of diesel vehicles. Would things change with the recent increase in diesel prices and prospective further hikes?

I do not know yet whether there has been an impact on dieselisation due to the increase in diesel prices. I had not anticipated any effect on the SUV segment because in SUV there is no petrol vehicle that is selling fast. In the premium hatchback category where there are both diesel and petrol variants available, I had expected some kind of shift happening but there is no data yet and it is probably too early to say.

There was clearly a shift towards diesel before the price was increased but that was not only because of diesel prices. It is also because more and more diesel vehicles are now available. Earlier, diesel vehicles were not available in the hatchback segment and certainly not in the low-end sedan segment. Now they are available and, therefore, more and more people opt for diesel. There are factors such as fuel efficiency and also driving pleasure you get in some cases because of the low-end torque that these vehicles offer.

I do feel that the ‘dieselisation’ in the Indian market is likely to continue. Earlier, very clearly the diesel-petrol price differential was too high and we have always said that it was too high. And that was one factor that was causing dieselisation.

If it (the price differential) becomes more reasonable which it has now with a Rs.5 per litre increase and a likely further Rs.2-3 per litre increase that might happen in the next 3-6 months, then I think the dieselisation effect will come down. But, having said that, dieselisation will certainly continue.

The farm equipment sector has clearly been under pressure. What is the road ahead like?

The farm equipment or tractor industry is now clearly struggling. There has been a 5 per cent de-growth in the first-half of the current year and the second-half does not appear to be too exciting either largely because the ‘kharif’ crop looks likely to be 6 per cent less than last year. Therefore, the current year looks like a difficult one for the farm equipment sector but hopefully, next year will be much better.

What about manufacturing facilities? Does M&M have adequate capacity given the aggressive plans going forward?

Right now our Chakan facility near Pune is filling up and we have said earlier that we are looking for our next expansion which could happen in Chakan or somewhere else. We have not yet decided. That would happen for our new products we are working on, that is other high volume products. For the Ssangyong products such as the Rexton, volumes do not justify a new facility. So any expansion of manufacturing facility, when it happens, will be at Chakan or a new facility.

After you assumed charge at M&M and working with Mr. Mahindra, there have been significant changes brought about, including the concept of ‘frugal engineering’, among others. What has been the cornerstone of your strategy?

There is no complex strategy involved here. It is very simple. You need to keep your feet on the ground. Eventually, our success depends on making customers happy and everything else is incidental. So if you are able to understand what the customer wants with the product and provide it and provide service and even after-sales service, you will then do well and win in the marketplace. Having said that, the same is also true for all vehicles or for that matter any product. It is easier said than done; otherwise everyone would do it.

ramnathsubbu.r@thehindu.co.in

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