India Autos: Renault Struggles

Renault's efforts to make a dent in the Indian car market through alliances may come unstuck with simmering differences between the local partners and Europe's third-largest carmaker coming to the fore in a dramatic way. (Watch)

Pune-based Bajaj Auto, which is partnering Renault in the ultra-low cost car project, is likely to spurn the French firm's invitation to replace Mahindra & Mahindra in Mahindra-Renault, the joint venture that sells the Logan car in India, said a person with direct knowledge of the matter.

Bajaj is already experiencing branding problems with Renault in the low-cost car venture and sees little point in joining with Renault in another struggling venture, he said, requesting anonymity.

Renault, which has several pending problems with partner M&M, had approached Bajaj with the offer some time ago. Mahindra Renault, a 51:49 joint venture between the two partners, is struggling to sustain volumes due to uncompetitive pricing.

M&M is also unhappy with the joint venture and is seeking greater control on product re-engineering. "The company will not be unhappy to walk out of the JV," said a person aware of the development who asked not to be named. The Logan experience prompted M&M to seek greater product flexibility in its truck-making venture with ITEC.

Renault, meanwhile, officially maintains that it has no plan to change partners in India.

"Renault denies the rumour that there is any move to ask anyone, Bajaj Auto or otherwise, to take over the M&M stake in MRPL. Renault remains committed to the Indian market, as well as to the Mahindra Renault JV and is committed to getting back on track," said a Renault India spokesman in response to an email query from ET NOW.

Mahindra-Renault failed to price its Logan sedan competitively because of the 20% excise duty on the car that measures 4,247 mm in length. Excise duty on cars measuring up to 4 metres is just 8%. Mahindra's demand to reduce the car's length was turned down by Renault, which was not keen to tweak a global platform.

Logan's sales have been slumping in India, a rare situation for one of Renault's best-selling products worldwide. Sales crashed 71% in September to just over 500 vehicles. Its April-September sales at 2,901 units are less than a third of the 9,217 units sold in the year-ago period.

An M&M spokeswoman also denied any knowledge of the development. "Mahindra is not aware of any dialogue that Renault may have with any organisation, including Bajaj. We are currently in discussion with Renault on the way forward for the Mahindra Renault JV," she said. A Bajaj spokesman refused to comment on the matter.

The Mahindra-Renault JV was announced in 2005. Set up with an initial investment of Rs 700 crore, it planned to crank out 50,000 Logans from M&M's Nashik plant. The JV was quickly followed by the announcement that Renault and Nissan would invest Rs 4,500 crore in a greenfield plant in Chennai. Less than a year later, Renault boss Carlos Ghosn announced the ultra low-cost car project with Bajaj.

Renault's Indian operations are not in great shape. Its investments in the Chennai plant are frozen and the ultra low-cost car project with Bajaj is stuck due to branding and other issues. In May, Bajaj Auto MD Rajiv Bajaj told reporters that the low-cost car project has issues over branding and a final joint venture agreement has still not been signed.

Bajaj and Renault-Nissan have already had disagreements over design, positioning and some technical specifications of the new car. In March, Mr. Bajaj asked for major modifications in design, positioning and other details in the project.

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