Chennai: The Enfield Bullet is for motorcycles what the Ambassador is for passenger cars… an old Indian automobile brand that still survives fierce competition from jazzy models. (See 'Bullet and Ambassador: Interesting similarities' elsewhere in the page)
Bikes like Fury 175cc, Mini-Bullet 250cc, Explorer, Silverplus (both 50cc) Taurus and Fantabulous have driven into oblivion, but the Bullet is not just alive and kicking but will rule the highway if the management of Royal Enfield Motors, a part of the Eicher group, has its way.
Says REM's new chief executive Siddhartha Lal: "We are the leaders in the power bike segment. By launching new models every six months, we will maintain our leadership in this segment." This is a 360-degree turn for REM, which earlier used to offer new products every two years.
Mr Lal says REM will launch a new bike, Thunderbird, early April. "We will launch the Thunderbird first in Bangalore and Ahmedabad. To be priced around Rs 80,000, the 350cc Thunderbird is a cruiser bike with top speeds, left-side gear and is for people who often ride on the highways." Following that will be a 535cc variant and a street bike.
Only last September did the company introduce the Bullet Electra-350cc four-stroke with CDI ignition, sleek mudguards and in bright colours. The bike replaced REM's another product, the Campus. Today 60 per cent of REM's sales are accounted by the Bullet Electra. "By this fiscal end we will sell 9, 000 Bullet Electras," says Siddhartha.
Son of Vikram Lal, the Eicher group's major shareholder, Siddhartha Lal took control of REM last March from P K Purang, who shifted to another division in the group. The move raised many an eyebrow, as the Eicher group is known for giving a free hand to professional managers, with the promoter family keeping away from day-to-day operations.
The group explained the shift as part of a normal process to provide exposure to senior managers through different assignments and also meeting the leadership requirements in various parts, apart from protecting shareholders' interests. It was further reasoned that REM requires a formulation of fresh strategies to turn around, and Mr Lal is expected to provide the same. Last year REM registered a paltry 2-per cent growth when the bikes segment registered a double-digit growth.
Contrary to popular perceptions, REM derives just 7 per cent of its business from institutional sales - army and police - while exports sales account for another 8 per cent. REM exports its bikes to 37 countries where it is sold on the platform of Classic bikes. So it is the domestic retail market that gives REM its bread, if not the butter. And to survive, the focus should be on the retail market.
An economics graduate who holds a master's degree in automotive engineering from University of Leeds and a post-graduate diploma in automotive engineering from Cranfield University, the young Mr Lal studied the company's situation and immediately decided to bite the bullet to implement a multi-pronged turnaround drive.
The game plan is to optimise the operations and resources to beef up the bottomline without losing sight on the top-line growth. The latter is to be taken care of by new models, contemporary styling of existing models and better promotion, an area the company has had lagged all these years.
The forerunner for the revised communication strategy was seen with REM taking slots in satellite channels and the print media to promote the Bullet Electra. This had a beneficial rub-off on costs and sales. While sales increased by 19 per cent compared to that of last year's, REM stopped offering discounts on its models. Mr Lal hopes to close this fiscal selling more than 25,000 bikes as compared to 21,000-plus sold the previous year.
According to him, part of the strategy is to drive the 225-odd dealers to perform. "The dealer-churn ratio is at usual levels. In terms of numbers the existing distribution network is well spread to cover the entire country, but there are some laggards in the network. Our primary role is to offer products that the market wants and make the prospective customers visit a showroom. It is for the dealers to convert the prospects into a customer. So non-performing dealers will be soon replaced."
But the major thrust area is cutting costs at the shop-floor level. REM has closed its three-year-old Rs 40-crore Jaipur plant that has a capacity to roll out 15,000 bikes. The plant was set up to cater to the northern markets, contributing nearly 45 per cent of the sales. However, the market demand for REM's bikes is less than that of the Chennai plant's capacity of 24,000 units and hence, the overall capacity utilisation for the division plunged while the costs started to weigh down on its finances.
"It was then decided to rationalise the operations by a better usage of capacity and cutting down costs - fixed as well as variable," says Mr Lal. As the Chennai plant's capacity is sufficient to meet the current demand, REM has decided to downsize its Jaipur facility to cut costs. Apart from reducing the casual labour here, REM also wrote to the Rajasthan power board to downscale its power requirement to save on power charges.
Transferring the remaining staff to the group's other divisions, REM transported some critical machinery to Chennai to continue production of models that were manufactured in Rajasthan. Says general manager (manufacturing) S Krishnamurthy: "We brought the new CNC machines from Jaipur to Chennai after augmenting the stocks to meet the demand." Production at Chennai went up by 20 bikes per day to 100 vehicles at no additional investment.
The next step is to rationalise REM's vendor-base. Two years back the division sourced from 400 vendors, it was since then reduced to the current level of 200. The reduction in numbers and the consequent increase in volumes to the remaining vendors resulted in price reduction, says Mr Lal. REM helped out some small vendors to upgrade their operations through consultancy and even financial commitment. To get greater economies of scale, common components were used across models.
Krishnamurthy says during the first half of this year the division effected Rs 1,000 cost reduction per bike. "Our target is to reduce the vendor-base to 100 and effect further cost cuts by assuring volumes. We also earned some money by reverse auctioning of materials."
After the Thunderbird 350cc what next? Mr Lal has a ready answer: A variant of the Thunderbird 535cc and a street bike for the city ride. The Thunderbird 535cc might replace the division's existing model, Lightning 535cc, with the right gear accounting for just 4 per cent of the overall sales.
The final picture that emerges is REM, the staid-old bike manufacturer, is revving up to meet the market challenge. Mr Lal hopes the demand for its products will grow, as the market will shift more in favour of style-cum-power bikes. While his bikes have the power, styling is where he has to focus on.
Bullet and Ambassador: Interesting similarities
Perhaps except for the number of wheels, the similarities between the Enfield Bullet and the Ambassador, or Amby, are many. Both are old Indian automobile brands that still ply on the roads. And both the brands annually find a similar number of new buyers - around 25,000.
Their manufacturers - REM in the case of the Bullet, and Hindustan Motors in respect of the Ambassador - failed to read the market signals at the right time and lagged behind, while other new players zipped past them. The once mass-market players are now playing for the niche segment for survival. Both the companies export the respective brands to be sold on the Classic platform
The similarities do not end here. Built out of thick steel sheets, manufacturers of both the vehicles cite the same as the reason for maintaining or increasing the price, though the vehicles come out of plants that are fully depreciated several times over. And sizeable percentage of their sales is accounted by government purchases. In Hindustan Motors's case government ministries buy around 15 per cent of the total Amby production and REM sells around 8 per cent of its production to the army and the police. Both the vehicles find buyers predominantly in semi-urban and rural areas.
While the similarity - a niche player - is there, the strategy of each company is now slightly different. Hindustan Motors is now going back in times to launch an old model of the Amby and REM, on the other hand, is now looking at contemporary styles.