The Hindu Business Line : Renault puts Chennai plan in cold storage

Slowdown blues
Nissan had earlier said that only one assembly line would be set up in 2010
Renault’s shift from Nashik to Chennai will depend on the duration of slowdown

Murali Gopalan

Mumbai, Jan. 9 French carmaker Renault’s decision to freeze its Rs 4,500-crore Chennai project comes weeks after its global ally, Nissan made public in Tokyo that only one assembly line would kick off in early 2010 instead of the originally planned two.

The two have a 50:50 joint venture in India that will see manufacture of over 400,000 cars by 2014.

On Friday, the top Renault management reiterated at a press meet in Paris that the Chennai plan was not being shelved but only put on hold due to the current global slowdown. Agencies quoted Executive Vice-President for Sales, Mr Patrick Blain, stating, “We had a date (for completion of the project) but we no longer have a date.”

In New Delhi, Nissan Motor India’s Chief Executive Officer, Mr Shouhei Kimura, told reporters that the company was sticking to its Chennai project though numbers would be lower than what was initially projected. It is planning to make two sub-compacts at Chennai codenamed X02A and X02B.

SMALL CAR

Renault and Nissan will, however, stay committed to the ultra low cost (ULC) car being planned with Bajaj Auto. Touted as the challenger to the Tata Nano, this vehicle will be manufactured at Chakan near Pune. Thus far, all indications are that the project is on schedule for a 2011 rollout.

Nashik/Chennai?

Top sources told Business Line that Renault had decided to produce the Logan derivatives, intended for Chennai, at the Nashik plant which is already home to the sedan version. The Sandero hatchback (codenamed B 90) and Steppe station-wagon (R 90) options will now roll out of Nashik which has enough capacity going around.

A crossover sport-utility vehicle (H 79) was also planned for Chennai and it now remains to be seen if this will also be produced in Nashik. Sales of the Logan have been plummeting in recent months to levels of 300 units and sources said “projections had gone completely awry”.

The installed capacity at Nashik is 50,000 cars and Renault would much rather use this optimally rather than divert fresh investments to Chennai. Ancillary suppliers, who spoke on condition of anonymity, said this was “the best piece of news” since most of them were in no state to earmark funding at a time when the market was in a virtual tailspin.

Greater clarity is required, though, on issues relating to the joint venture business model. The present Logan seen on Indian roads is a part of the Mahindra-Renault alliance which was confined to the present sedan version. The Logan derivatives, on the other hand, were to be produced under the Renault-Nissan umbrella in Chennai. Should these move to Nashik, Renault will be part of a contract manufacturing agreement with Mahindra-Renault.

RETAIL STRATEGY

However, on the retail side, the French company had decided to use the Mahindra-Renault sales channel for all its products due from Chennai. This network already caters to the Scorpio and Logan as well as M&M’s Xylo multipurpose vehicle which will be launched on December 13. Nissan, on the other hand, has drafted its own retail strategy while the ULC with Bajaj will need less showroom space since it is strictly not a passenger car.

Will Renault now abandon Chennai completely or only use Nashik as an interim option? Sources say it will adopt a “wait-and-watch” attitude before taking a final call. The biggest concern is the duration of the economic slowdown; if it lasts till end-2010, as is widely believed, the shift to Chennai will be delayed to that extent. By then, market feedback to the Sandero hatchback, in particular, will give Renault more time to plan its India strategy.