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Logan is dead, long live Verito

Source : BUSINESS_STANDARD
Last Updated: Thu, Mar 15, 2012 19:52 hrs

Nearly two years after sports utility vehicle market leader Mahindra & Mahindra took over the reins of its loss-making joint venture with Renault, sales volumes of the Verito sedan (formerly Logan) have trebled, encouraging the company to work on a modified, yet cheaper version.

The Mumbai-based company that had agreed to buy the 49 per cent stake held by partner Renault in the joint venture company Mahindra Renault (MRPL) in April 2010, has seen sales of the sedan jump by 79 per cent this financial year.

M&M, which had no prior experience in the sedan segment since the break-up of ties with Ford Motor Company that made the Escort sedan in the late 1990s, had no option but to salvage its reputation that had taken a knock after Logan sales went down sharply. The entry executive sedan was one of the cheapest cars on sale in Europe.

But the M&M magic has worked. According to data provided by SIAM, Verito saw domestic sales surge to 16,076 units during the 11-month period ended February as against 8,991 units sold in the same period last year, placing itself close to the segment's old warhorse Tata Indigo which recorded sales of 17,270 units including those of the Manza model.

For M&M, the rebranding exercise along with a renewed marketing and sales push certainly brought increased volumes. Monthly dispatches of the Verito rose to 1,500 units from the lows of 400-500 units per month when the car sold under the Logan brand name and operated under Mahindra-Renault.

Continued growth in demand has pushed the Verito to the third spot with a share of 10 per cent as against 7 per cent in the segment defined by SIAM as ‘Super Compacts’. M&M does not expect a significant upside in volumes from these levels as no more refurbishments are planned for this model during the year.

Pawan Goenka, president (automotive and farm equipment sectors) Mahindra & Mahindra says, “These are comfortable volumes. If you look at sedans in this price range, there are probably three to four models that sell more than that. Though 1,500 units are not big, it is okay in India where the pie is divided among too many players.”

Volumes in the ‘Super Compact’ sedan segment stood at 163,124 units during April-February, posting a growth of 30 per cent as against 125,623 units sold in the same period last year. Maruti Suzuki’s Swift DZire is the leader in this segment with sales of 15,000 units a month. Other competitors are Toyota Etios and Hyundai Accent.

“Though there wasn’t anything fundamentally wrong with the car, the Logan suffered from dated styling and poor brand recall. Hence the company was forced to cater to the taxi segment to keep up volumes. There is not too much competition in the segment where Verito operates as is the case in the small car segment”, says a Chennai-based analyst.

With no product development cost involved which is anywhere between Rs 1,000-5,000 crore internationally, experts say M&M can have a viable operation with the Verito as recovering cost target is comparatively lower than other models which are built from scratch. But Goenka refrained from sharing profitability figures.

“I would certainly say that when we took over the company two years ago, volumes were as low as 300-400 (per month). It’s three times that now, which is a healthy sign. This is not a product which has been designed from scratch for India. We have the licence to manufacture it in India from Renault and therefore the product development cost and tooling investment are not as high for let’s say a Xylo or a Scorpio. And therefore our break-even point would be lower for a product like this depending on the pricing”, Goenka says.

Before the takeover, M&M had to write off its investments in setting up the facility for the car in Nashik with a capacity of 50,000 units per annum. Joint investments by Renault and M&M to the tune of Rs 700 crore were earmarked for this facility. M&M thus had to start with a clean slate with the Verito.

“We had to write it off as vehicles were not selling at that time,” adds Goenka.

Though M&M is restricted from making significant changes to the basic platform of the car as per the licence agreement, it has trimmed the length of the vehicle to make it eligible for the tax structure applied on hatchbacks.

A new sub-four meter Verito will be launched by the company by the end of the next financial year. The car will attract excise duty of 10 per cent as against the 22 per cent. This new vehicle will be the cheapest in the M&M line up of passenger vehicles.

It will however not be easy for M&M to penetrate this newly discovered segment. Maruti Suzuki recently launched a sub-four meter DZire with face-lifted interiors and exteriors. Tata Motors has been selling the Indigo CS in the same segment. Other companies too are planning to launch models in this segment.




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