labels: passenger cars, hindustan motors, automotive
Turning old into goldnews
Venkatachari Jagannathan
22 November 2002
Chennai: The duo presents quite a curious contrast at the helm of Hindustan Motors (HM). But both share one goal - reinventing India's oldest automobile company.

HM managing director A Sankara Narayanan, 59, is a cautious, soft-spoken old hand in the company. Entering the portals of HM as general manager, earthmoving equipment division (this was sold to Caterpillar recently), he was the first executive in the company's history to be co-opted into the board in 1997.

Narayanan shuttles between various plants during weekdays, but makes it a point to be in Chennai, his base, on every Saturday.

On the other hand, HM executive director B K Chaturvedi, 54, is a risk-taker. Instead of leading a comfortable life as the managing director of the profitable Eicher, he decided to join HM as president of the loss-making automotive division two years ago.

In a year's time he was inducted into the board - perhaps as part of the appointment deal, but he doesn't want to talk about it. Chaturvedi operates from New Delhi, where the company's marketing operations are centralised.

Now, both the veterans' common goal is to drive HM towards the profitability path. ''The immediate plan is to turn around the company in a sustainable manner,'' says Chaturvedi, a mechanical engineer with a management degree from Indian Institute of Management, Ahmedabad.

As part of this plan, two India-based multinational car companies, Ford India and General Motors, will source the engine and gear box - the heart and brain of any vehicle - from HM.

Black and red Ever since the automotive industry was opened up, it was a usual occurrence for HM to alternate between being in black and red. Narayanan is quite familiar with this phenomenon, but for Chaturvedi, who spent most of his career at Eicher, the work culture and response speed, not to mention alternating bottomlines, were something new.

Now both of them have decided that the emphasis should be on being in black in a sustainable manner. And that means reinventing the six-decade-old company. The new-look HM will be a vehicle manufacturer as well as an aggregate supplier.

Dividing the entire business into two segments (vehicles and aggregates) the duo's approach to sustainable profitability is a multi-pronged one - cost-cutting (materials, finance and others), utilising the capacity better by launching new vehicles and variants, shifting production centres, and contract manufacturing for others carmakers.

HM has four plants: Uttarpara, West Bengal (making Ambassadors and Trekkers, and has 35,000-unit capacity); Pithampura, Madhya Pradesh (making engine and gearboxes for all the vehicles and also rolling out the rural transport vehicle [RTV]); Chennai, Tamil Nadu (Lancer and Pajero models); and power products division (PPD), Hosur (manufacturing automatic power-shift transmissions for earthmoving and other vehicles).

The turnaround route ''For one and a half years we have been focussing on cutting costs at Uttarpara; now this focus has been extended to our other plants,'' says Chaturvedi. The effect of these measures can be seen on the company's first-half results.

HM lowered its losses over two quarters (March 2002: Rs 2.36 crore; June 2002: Rs 1.37 crore) and finally closed the half-year ended September 2002 with a profit of Rs 3.01 crore. The interest outgo went down by Rs 4.05 crore this year after the prepayment of some loans.

That is just a start. The Narayanan-Chaturvedi duo explains their detailed game plan.

The first step is to leverage the company's existing assets in an optimum manner and also to expand its product portfolio. Hence, September 2002 saw the company entering a new segment - the premium sports utility vehicle (SUV) - launching the 3.2-litre direct injection Pajero.

While this model is imported and sold as a completely-built unit (CBU) from Japan, HM followed it up by rolling out the 2.8-litre variant, assembling the completely knocked down (CKD) kits at its Chennai plant in October 2002. 

The CKD assembly is an attempt to deepen the Pajero market by utilising the idle capacity and the existing infrastructure at a nominal investment. Says Narayanan: ''The Lancer paint booth will be used for the Pajero - the assembly line cost us Rs 12 crore.''

Adds HM general manager (sales and service) S Vasudevan: ''We hope to sell around 1,000 2.8-litre Pajeros annually. Though there is no other vehicle in the same category, competition is round the corner with Toyoto Kirloskar Motor planning to launch its Land Cruiser/Prado.''

The other new launches slated are a 1.8-litre Lancer (Rs 11 lakh) during the first quarter of 2003, and the Ambassador Classic is expected to hit the roads soon. About the Classic, Chaturvedi says: ''There will be some change in the shape, bonnet and tail light, and the interiors will be plush. The price is yet to be decided. And the monthly volumes expected are in the region of 200 units.''

While the introduction of the Classic is expected to improve capacity utilisation of the company's Uttarpara plant, the same cannot be said of the Rs 320-crore Chennai plant, which rolls out around 7,000 Lancers (1.8 litre) as against a total capacity of 24,000 units per year.

''Universally, growth is witnessed in the mid-sized car segment. We hope the same will happen here,'' says Narayanan. But his wish will take some time to materialise.

A bumpy road ahead For one, multi-utility vehicles (MUV) like the Qualis and the Scorpio are moving fast from the showrooms, severely affecting the mid-sized car segment. Agrees Vasudevan: ''There is a clear shift towards the MUV segment. In the next two-three years, MUV will be a dominant category in the automobile segment.''

Says Mahindra & Mahindra vice-president (marketing, automotive sector) Rajesh Jejurikar: ''Seventy per cent of Scorpio buyers are car-buyers and 53 per cent of them are mid-sized car potentials.'' Further, Toyota's Corolla is an impending threat, and Chaturvedi is aware of that. ''We will be affected as the Lancer is a three-year-old model.''

The other instance of utilising the idle capacity is the idea to assemble the RTV (rural transport vehicle), a multipurpose vehicle at Uttarpara. Narayanan says his company sells around 1,300 Ambassadors per month now, thus leaving a large unutilised capacity.

The plan is to assemble the CKD kits of the RTV from Pithampur and later, based on the demand, decide the shifting of the entire plant to Uttarpara. Given the present market conditions, the Uttarpara and Pithampur plants are under-utilised and will remain so in the foreseeable future unless some concrete step is taken.

As against an annual capacity of 7,500 RTVs, the company rolls out around 3,000 units now. The vehicle is mostly used as a school bus or an ambulance van. Chaturvedi says there is also an opportunity to sell the RTV as a 2-tonne load carrier in the price band of Rs 4 lakh.

When the RTV is shifted to Uttarpara, the Pithampur plant will exclusively deal with aggregates (engines and gearboxes) for all the models except the Pajero and the roles of automotive plants will get defined vividly.

Looking outwards While this will take some time to materialise, HM is actively getting into contract manufacturing.

The company will soon commence supplies of engines and gearboxes from Pithampur to Ford India's 1.3- and 1.6-petrol Ikon models, says Narayanan. While a major chunk of the investment for the purpose has been pooled in by Ford India, HM has invested around Rs 25 crore.

Even as the duo is silent about the volumes, media reports suggest that Ford India will source 20,000 units in the first year and increase that to 50,000 at the end of the third year. A similar deal has been inked with General Motors for the latter's utility vehicle, to be launched in 2004.

The deals put together are expected to generate around Rs 200 crore for HM. In addition, such deals will free the Pithampur plant from the vagaries of demand for the company's own vehicles - the Ambassador, the Lancer and the RTV.

Narayanan and Chaturvedi, in the meantime, are spending time to understand the evolving market situation even as they arrive at solutions. Will any of the prescriptions detailed above scale the company to new heights? Well, as somebody said, only time will tell.


also see : HM to roll out 2.8-litre Pajero variant soon

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Turning old into gold