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| What went wrong with Logan |
| Swaraj Baggonkar / Mumbai Nov 10, 2009, 00:28 IST |
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Pricing problems, poor localisation put the Mahindra-Renault sedan in reverse gear.
 French car maker Renault SA’s CEO Carlos Ghosn talked about the need for "patience and determination" to bring Logan back on track in India, at the India Economic Summit yesterday.
Going by the sedan’s performance in India so far, Renault and its joint venture partner in India, Mahindra & Mahindra (M&M), would need much more than that. When it was launched in April 2007, the joint venture was targeting sales of 30,000 cars a year, or 2,500 a month. Actual sales have been one-fifth of that, at just under 500 cars a month. In October this year, that number fell to 401, a 68 per cent drop from the figure a year ago.
M&M has already said it does not see volumes of the car going beyond 500 units per month.
The result: the joint venture posted a loss of Rs 490 crore in the year ending March 31, 2009 on sales of Rs 740 crore — something that prompted Ghosn to say at the Tokyo Motor Show last month that the company wouldn’t be surprised if it lost at least one of its three partners in India.
So what went wrong with the car that promised so much? Analysts said the biggest problem was the price point. The petrol range starts at Rs 4.43 lakh going up to Rs 5.32 lakh and the diesel variant (1.5 DLX) is priced at Rs 6.68 lakh (all prices ex-showroom Mumbai).
But that’s not exactly a low-cost entry mid-sized car model as Mahindra Renault, the 51:49 joint venture, had claimed. Stronger competing models in the market with aggressive price tags such as Maruti Swift Dzire and Tata Indigo CS and other models like Ford Ikon and Hyundai Accent that were available in a price bracket close to the Renault model put pressure on demand for Logan.
Logan’s failure to play the pricing game was because the localisation content (the percentage of parts sourced locally) of the car, which is at 50 per cent, is much lower than competition and thereby has pushed up the final cost of the car.
Also, the engines were imported from France, forcing the joint venture to price the sedan higher than the segment leaders — Maruti Suzuki and Tata Motors.
Some experts say Logan has suffered also because of the dual structure excise duty, which is lower for small cars ( up to 4 metres long) at 8 per cent while larger ones such as Logan (4.24 metres long) face a heftier 20 per cent. Competitor Tata Motors has trimmed the length of Indigo to take advantage of the lower excise for small cars, thereby bringing down the cost of the car.
Automobile experts cite other reasons for the poor performance of Logan. "One of the primary reasons the demand of Logan didn't gather pace was its dated looks. Also the car ended up being a tourist taxi in many urban centres, which dented its image. Besides the uncertainty hovering over the future of the joint venture created doubts in buyers’ minds", said a Mumbai-based analyst.
A latest JD Power India Automotive Monthly study says, “Even the festive season was unable to turn the fortunes of Mahindra-Renault Logan, which plunged 71 per cent year-on-year in September. Indications that all is not going well in the partnership was evident from Renault CEO Ghosn’s comments at the Tokyo Motor Show. Earlier plans to bring other Logan derivatives to India may be put on hold indefinitely.”
Ghosn had said at the Tokyo Motor Show that amongst the three separate ventures it has in India — Ashok Leyland, Bajaj Auto and Mahindra & Mahindra — it was keen on continuing with just one of these.
On Sunday, the CEO said in Delhi, “I am not saying all our partnerships are going exactly as we want them to go. We have been questioned by some performances but we are talking to our partners on what's the best way ahead and what we can learn from our mistakes, so we can envision better relationships in the future.”
Also read: October 22: Ghosn puts Renault and Nissan’s India ties on trial
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