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Driving into a new league

Surajeet Das Gupta

Will the world-famous Mitsubishi Pajero help Hindustan Motors to come roaring powerfully out of the red? And will the blockbuster sports utility vehicle, which can be seen on highways around the globe, help to change Hindustan Motors' stodgy, low-tech image?

That is the question which C K Birla promoted Hindustan Motors is trying to answer as it launches the popular Mitsubishi Pajero. Internationally, the powerful vehicle from Mitsubishi has become almost synonymous with the SUV market segment.

In India the Pajero will be second only to Mercedes-Benz. Priced at Rs 3.4 million, the 3.2 litre engine Pajero is being imported directly (as a completely built unit) from Japan with no changes in design. Available in four colours, the bookings for the SUV have already begun and the first models are scheduled for delivery in the first week of July. But that is only the beginning of HM's grand plans.

In the second phase, HM is also planning to bring in a cheaper 2.8 litre version of the Pajero at around Rs 2.2 million in October. The price will be cheaper as the model will be brought through the completely knocked down route, has a smaller engine and has a chassis construction rather than a monocoque body.

Hindustan Motors is putting great faith in the Pajero. It has set ambitious targets for the vehicle and hopes to sell around 25 to 30 of the 3.2 litre Pajero each month. Similarly, it aims to sell around 60 SUVs of the 2.8 litre version (it could, they say, go to even 100) by cashing in on the first mover advantage.

Says B K Chaturvedi, president and executive director, HM: "The Pajero will give a major facelift to the image of HM as a company that is associated with world class products. It will also help in improving our bottomline to a certain extent. It will also have a rub-off effect on the sales of the Mitsubishi Lancer and we expect sales to go up."

HM, which posted losses of Rs 339 million in 2001-02, hopes that the Pajero will contribute an additional Rs 100 million to its bottomline.

But will the Pajero gamble work? For one, HM may be the first off the block in this segment but other carmakers are waiting in the pits to join the race. In the next few months a traffic jam of SUVs can be expected on Indian roads.

First, there's Hyundai which is expected to launch its Terracan in October at an aggressively priced Rs 2 million - cheaper than both the Pajeros. Also, waiting at the lights are vehicles like the Toyota Land Cruiser Prado, the Suzuki's Grand Vitara and Ford's Escape, all of which may be launched this year.

Analysts concur that a shakeout is inevitable. Says Vikas Bali, manager, automotive practice, A T Kearney: "At the moment it is a small niche market of around 1,000 to 1,500 cars a year. But it will grow in the next three to five years when prices come down. No doubt there will initially be eight to 10 models in this segment with car companies wanting to provide customers the complete range but we expect only a few to survive."

Bali, however, says that many carmakers will hang in there if they can. Firstly, they can make profits even if they are only selling a small number of vehicles. Secondly, the SUVs are image-boosting vehicles and they have a rub-off effect on the company's entire fleet.

Even competitors acknowledge that the Pajero is a world-famous brand. But they will try to match its appeal by reworking their products to meet the needs of the Indian customer (the recently launched Pajero has not been adapted for Indian roads). Also, some of the rivals will try to leverage their superior after sales and service networks (which is key in highway driving).

Says B V R Subbu, president, Hyundai Motors India, which expects to sell at least 250 Terracans this financial year (in four months): "Pajero is a big name but we are reworking the Terracan so that it meets the specific needs of Indian consumers who do not want to use SUVs for off-road driving but for highway driving and are not so concerned about its speed, but more about its comfort and safety. We will surely match the Pajero in all these aspects - we have a better and larger after sales and service network, and we will also offer a better price."

Other competitors say that the SUV market will eventually be divided into two segments. One will include vehicles that will sell for over Rs 1.5 million. The other one will include vehicles that will cost more than Rs 2.5 million.

Says a senior automobile industry executive: "Products like the Grand Vitara from Suzuki and Terracan from Hyundai will be in the first category while the others, like Pajero, will be in the second category. Obviously, it is the under-Rs 2 million segment that see more growth and so we don't see major competition from Pajero."

Of course, HM, which is in financial trouble, is aware that nimble-footed competitors could come racing in and take away their first-off-the-blocks advantage. What's more, Hindustan Motors is painfully aware that it doesn't have the cash to play around with and, therefore, can't afford big advertising budgets. So it is treading cautiously in this market.

For one, it is not building any inventory of the Pajero - so there is no off-the-shelf delivery and shipping of cars will take three to four weeks, which is the gap between ordering the Pajero and delivery. Says Chaturvedi: "Our investments are minimal and we will have hardly any inventory, so we save on costs and whatever we sell will give us incremental profits." Even for the CKD product, the total investment would not be more than Rs 10 crore.

The company is also offering the product only in selected markets. The Pajero will be available in Delhi, Mumbai, Chennai, Bangalore and Chandigarh (HM believes that Kolkata is unlikely to be a significantly-sized market). Even in metros, the product will be distributed only through a few select dealers. The Pajeros won't go to all the dealers who sell Mitsubishi Lancers.

The Birla company plans to approach existing Mitsubishi Lancer buyers (there are 25,000 Lancers in the market) apart from buyers of other D-Class cars (like the Hyundai Sonata, Honda Accord, amongst others). Points out Chaturvedi: "We might use direct mailers and will approach our own customers of the Lancer to sell the Pajero."

Hindustan Motors has staked a lot on the Pajero. It is hoping that a well-recognised marque will need very little marketing. But will that be enough - both in terms of finances and image - to put Hindustan Motors on the highway to recovery.

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