M&M, Peugeot will have their work cut out

Tuesday saw Mahindra & Mahindra make a big-ticket announcement at its office in Mumbai on a new partnership with Peugeot Scooters. Thousands of miles away, the French automaker had a special meeting of its Works Council where management had drawn up a revival plan.

While the M&M alliance was a critical component of this turnaround, other initiatives would also kick in quickly. This would include subcontracting some manufacturing and logistics operations in which Peugeot Scooters ‘no longer has critical mass due to the decline of its markets’.

Game plan

As the press release states, the plan will also entail deploying a programme to align jobs and skills. In particular, this will involve a voluntary senior leave scheme for nearly 80 employees and hiring young recruits on work-study contracts.

The management subsequently plans to negotiate a performance agreement with employee representatives that ‘should make the launch of a new vehicle possible in 2017’. From the company’s point of view, though, the M&M partnership is the pivot to the revival especially with the infusion of equity leading to a 51 per cent controlling stake.

“In a European market that has been in steep decline for several years, the partnership with M&M would enable Peugeot Scooters to diversify its business base and speed up its international expansion by leveraging the strengths of both parties,” the statement adds.

One of the most important regions for growth would be India which is the world’s largest, yet the most competitive, two-wheeler market with 15 million units produced annually. The French automaker believes that the partnership will strengthen its position for the future. “It supports Peugeot’s mobility policy by offering a variety of development prospects,” it says.

Better together? M&M has constantly reiterated its intention to be a provider of mobility solutions while focusing on its core business of SUVs. It is into pickups, cars, trucks and, of course, two-wheelers. Peugeot, likewise, has cars, light utility vehicles, scooters and bicycles to offer as part of its (mobility) policy. Will this, therefore, be an ideal marriage where it will be a win-win for the partners concerned?

For the moment, neither is in top shape as far as their two-wheeler businesses are concerned (Peugeot actually has a greater challenge in turning around its car division). Their market shares are marginal back home, in India and Europe. Yet, there are strengths in frugal engineering and R&D that can perhaps be combined to greater advantage.

Not everyone believes it will be a cakewalk though. “Mahindras could have opted for a stronger brand association. Peugeot will hardly help their cause,” a top two-wheeler executive, who did not wish to be named, told Auto Focus . According to him, Vespa or Triumph Motorcycles could be open to suitors except that the asking price will be “prohibitively high”. In contrast, M&M only needs to $30 million in Peugeot Scooters.

The French automaker will bank on M&M to help it grow globally in markets like India and Asia-Pacific. It is very likely that an R&D centre could be conceived in the ASEAN region which has traditionally been home to top Japanese brands such as Honda, Yamaha, Suzuki and Kawasaki. European counterparts like KTM and Piaggio are eyeing these regions too and it would not be too long before Mahindra-Peugeot follow suit.

Yet, the road ahead will have its share of challenges for the duo. While focusing on scooters makes sense, given the buoyancy in the Indian market , it would require something special to draw customers to showrooms.

Playing field This will require a lot of brand-building efforts for Peugeot scooters if they have to be positioned at the premium end with M&M’s range perhaps as the ideal commuter option.

In the Indo-European model for two-wheelers, Bajaj Auto and KTM can stake claim to having a successful business plan in place. Bikes produced at the Chakan plant near Pune head out to Europe and the US. Going forward, this facility will cater to markets in ASEAN like Thailand, Vietnam, Malaysia and Taiwan.

KTM’s acquisition of Swedish brand, Husqvarna, is also likely to see interesting dynamics pan out at Chakan, the backbone for emerging markets. At the front-end Bajaj and KTM retail outlets are exclusive giving customers a clear idea of what is on offer.

TVS Motor has tied up with BMW Motorrad to make mid-size motorcycles for a host of new markets.

India’s scooter market is growing by over 20 per cent annually and accounts for nearly a fourth of overall numbers. Honda is the clear market leader with monthly sales of over 2.2 lakh units. TVS Motor, its closest rival, has hit the sweet spot with its recent offerings where the Jupiter, in particular, has been a big hit. Hero MotoCorp has a good thing going with the Pleasure.

Will Peugeot also opt for M&M as its preferred ally should it decide to launch its cars in India? There is still sometime before this happens but contract manufacturing will be the ideal cost-effective model.

M&M already proved its frugal engineering skills with another French automaker, Renault, and it’s Logan. Perhaps, Peugeot may also drive down this road in the coming years.

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