Ghosn and the journey of frugal engineering

Renault CEO, Carlos Ghosn will personally unveil the global compact car in India later this month. In the process, he will send a clear signal of how important the product is to him and the company going forward.

The last time Ghosn made a big ticket appearance in the country was in mid-2013 to announce the revival of brand Datsun. This was in his other avatar as CEO of Nissan, the company which Renault acquired 15 years ago. Ghosn was a key part of this buyout and the turnaround of the Japanese automaker catapulted his own brand to stratospheric heights.

Yet, the Renault compact car will perhaps be more significant for Ghosn and this is not just because Datsun has failed to create the impact it promised. On the contrary, this car from the French automaker marks the culmination of a journey which began nearly a decade ago. It was the time when Ghosn made the term ‘frugal engineering’ fashionable within the automobile industry. And the product that fuelled his imagination was the Nano.

The Renault chief was the first to doff his hat to Ratan Tata, the then Chairman of the Tata group, on achieving the remarkable costing structure of the people’s car. Even before the Nano was unveiled at the 2008 Delhi Auto Expo, its price tag of ₹1-lakh (or around $2,500 at that point in time) hit the headlines first.

There were many in the global auto industry who sneered at this initiative but the exception was Ghosn who marvelled at this feat in frugal engineering. From his point of view, it was clear that this was the success formula for carmakers in emerging economies like India, Russia and Latin America where value-for-money would be a completely different proposition.

Ghosn wasted little time in translating words into action. His India story had already kicked off through a joint venture with Mahindra & Mahindra for the Logan. The bigger one, though, was to do a Nano for Renault and this is where he zeroed in on Bajaj Auto as an ally for the ultra low-cost (ULC) car.

Ghosn reasoned that the company had already put a competitive costing structure in place with its three-wheelers. Bajaj, in its turn, maintained that it was in a better position to design a new four-wheeler based on the mindset of a motorcycle manufacturer. Hence, the priority would be on mileage as the first bait to draw the customer to the showroom. With Tata Motors gearing up to officially unveil the Nano at the Expo, Bajaj decided to showcase its own concept car in what was seen as a tug-of-war between two big brands in Indian industry.

To that extent, the 2008 Auto Expo had its share of action but the real work on the Renault-Bajaj ULC car was yet to begin. The partners made an official announcement for the project where the base model would be launched at a price tag of around ₹1.5 lakh. By this time, it was also getting increasingly clear that the Nano was having its own share of problems especially with its plant location in West Bengal.

While Ratan Tata was the star of the Expo with his memorable line, ‘A promise is a promise’ (on the ₹1-lakh price), the events that followed were threatening to derail the prospects of his pet project. There were tremendous political protests at the factory insisting that this was farmers’ land which had to be returned.

This was when Tata Motors decided to relocate the Nano project to Gujarat while using its plant in Uttarakhand as an interim production base. In the process, deliveries of the car just could not cope with the order book. And even while the Nano was grappling with all kinds of problems, it was not as if much headway was happening with the Renault-Bajaj ULC car either. In late-2009, the partners announced a new demarcation of responsibilities on manufacturing and distribution even while the entire project was shrouded in secrecy.

Renault, in the meantime, was focusing on its Chennai project with Nissan as well as its alliance with Ashok Leyland. The Logan had not quite created any waves in the market and it looked as if the joint venture with M&M was really not heading anywhere as a result.

It was also quite clear that the Nano had not created the kind of customer connect it had promised and this was also the time when Renault made known that it was working on its own affordable car.

Frugal engineering was fine but there was only so much a manufacturer could do in striking the balance between costs, safety and profitability. Hence, the more realistic price would now be upwards of ₹3-lakh which was something customers were also ready to cough up. The global compact car, with India as the launch pad, would have the best engineers working on it. Brazil and South Africa were identified as other potential markets.

When Bajaj finally unveiled the RE60 at the 2012 Auto Expo, it was clear that this would not have anything to do with Renault’s idea of a low-cost car. Ghosn may have wanted something different way back in 2006-07 but at a more pragmatic level, the unveiling of the sub-₹ 4 lakh global compact car on May 20 is a significant step for Renault. More importantly, it will stay true to its CEO’s credo of frugal engineering.

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