Moneycontrol
Jul 08, 2013 08:37 AM IST | Source: CNBC-TV18

EcoSport to drive Ford's profitability in India: Singh

Ford has priced its new sport utility vehicle (SUV) Ecosport at a very aggressive Rs 5.59 lakhs. At this price, not only has Ford created a new entry level SUV category but it will also compete with the likes of the Maruti Dzire and the Hyundai i20.


Joginder Singh, president, Ford India said the company is betting big on the new EcoSport to drive it to profitability in India and deliver returns on the USD 2 billion dollars, the global car company has committed to this market.


Ford has priced its new sport utility vehicle (SUV) Ecosport at a very aggressive Rs 5.59 lakhs. At this price, not only has Ford created a new entry level SUV category but it will also compete with the likes of the Maruti Dzire and the Hyundai i20.


Also Read: Ford bets on EcoSport to ride mini-SUV boom in India


The EcoSport will not be impacted by the additional excise duty on SUV, and in fact is a beneficiary of the small car duty as it is under-4 metre in length.


Singh said, we expect our customers to come from a whole variety of segments. “Existing sedan owners, people who own hatchbacks, people who own small SUVs, people who own big SUVs, they might think that this is the right size SUV for their lifestyle,” he added.


Below are the excerpts of his interview with CNBC-TV18’s Shereen Bhan


Q: What are your plans for India?


A: The interesting thing about India is that there are new segments emerging all the time. We are in the sub 4 metre category – it is the right SUV.


What we have announced today was the icing on the cake that we were able to offer such a compelling price proposition. This is what I call a ‘Dhamaka’ that we have been able to combine these things so well.


Q: Congratulations on pulling off what has been a very successful launch and let me start by saying that a lot of the assumptions have been proven wrong.


A: This is our own space, that’s the way I would define it. The interesting thing about India is that there are new segments emerging all the time. We are in the sub 4 meter category, it’s the right sized SUV and this is our own space.


We are very conscious of the needs and wants of Indian customers. Indian customers want the best features, best technologies and a great ride quality. They want the fuel economy and at the same time they want such a great product proposition at a great value for money.


To me, what we have announced today was the icing on the cake. We were able to offer such a compelling price proposition. I call it a Dhamaka that we have been able to combine these things so well.


Q: You have very aggressively been able to price this product. How much of the design specification was driven by the eventual price that you wanted to offer?


A: There is more than just a design specification. Ofcourse, we have to design what the needs of the market are when we think there is a strong demand in the sub four metre category.


However, it’s more than that, the reason why we have been able to offer such a great proposition to the customer. First of all we have the advantage of scale. The EcoSport product is being produced in our factory in Chennai, but it will satisfy customers not only in the Indian market, but also be satisfying customers in the export market as well.


We have that advantage of scale. When you have a factory which is running at higher volumes and the unit cost of production comes down then we are able to take advantage of that. The second factor in addition to the design efficiency that we have is the very satisfactory level of localization we have in this product.


We have been engaged in this localization strategy over a period of time, to make sure that we take advantage of our global suppliers that are helping Ford worldwide. They are also helping us in India in Chennai as well as in the upcoming factory in Sanand to take advantage of their design, innovation and ability to localise their supply chain. So, progressively we have been localising more and having been able to do that we are able to offer this very compelling price proposition.


Q: Is it going to be introductory offer? Are we going to see you move prices higher in a couple of months?


A: We are very mindful of our customers needs. They want the strong product proposition, at the same time they want a great product proposition. We will not waiver and lose sight of those requirements.


Q: So, who are you going to be competing against because the assumption was this is going to take on the Renault Duster which is entirely different also in price?


A: It is a new space. We expect our customers to come from a whole variety of segments. So, existing sedan owners, people who own hatchbacks, small SUVs, big SUVs, they might think that this is the right size SUV for their lifestyle. Therefore, our draw for customers is going to be from a whole range.


That’s the beauty of what we have done. It’s a fairly unique proposition that you are presenting to the Indian customers.


_PAGEBREAK_


Q: Is it ironic that you call yourself an SUV, but you actually don’t fall under the SUV category that has been put out by the Government of India?


A: When you look at the EcoSport from the outside, it has the DNA of an SUV. It’s design language, the contours, the styling right inline with the Ford SUV DNA that we are so good at particularly in the United States, the road clearance, the commanding seat position.


For inside it has car like comfort, it has the drivability, the driving dynamics of a car and then it is loaded with all these smart features with technology that also is the best of Ford that we picked. For examples, we are breaking in the Ecoboost technology, which is available to Ford customers in the United States and in Europe. We said why not for Indian customers as well.


It is such exactly in line with Indian customers’ needs and wants where we want the power, but we want the fuel economy as well. So, the wonderful piece of this technology that we are bringing is that we have one litre engine, whoever thought of a one litre engine in an SUV, we can have the power and torque of a 1.6 litre engine but with 20 percent better fuel economy and roughly 15 percent better emissions as well. That remarkable technology we are bringing to India. We think that’s completely in line with the needs and wants of Indian customers.


Q: Since you'll are talking about Indian customers and Mulally has spoken about how over the last five years at least the importance and the relevance of India in Ford's global strategy has changed significantly. I want to talk to you about how much of a bet the success of this particular car is going to be as far as your India plans go?


A: Not that long ago in 2011 our commitment to this country was USD 1 billion. 2011 we doubled it to USD 2 billion. That is a significant commitment that the company has made. Alan Mulally also made the point that despite the current hiatus in the industry we take a long-term view. It is a journey, it is like running a series of marathons rather than running a 100 meter sprint in less 30 seconds.


Q: But in hope of viability at some point?


A: This is a profitable growth strategy so over a period of time our transformation in India along with the investment that we are making USD 2 billion is going to be product led. The Figo that we introduced three years ago was one example of that product led transformation.


We had a step change in our presence in this country. We believe EcoSport will be another game changer for us. We will have another step changer now in our presence in this country and our ability to serve customers in this country.


Q: What is the target, when do you turn profitable?


A: We are investing right now, we haven’t finished our investment in Sanand yet. We are investing for the future so you would expect us to be making sure that we have all our investments in order to reap the benefits of that in the future. Our fundamental strategy is a product led strategy with profitable growth.


Q: When do you hope to be profitable?


A: Our product led transformation is going to continue for a period of time. We are looking to expand our showroom further with products that Indian customers want and need. The secret of success for us we believe will continue to be just like in the EcoSport.


Q: Since you are talking about the importance of India and you are going to be using India as an export hub. How are you dealing with the uncertainty and has the competitiveness that India enjoyed a couple of years ago reduced significantly today?


A: We take a long-term view of this. So, the buffeting that we are seeing in the industry right now, with the difficulty that we have we think is a temporary hiatus. Te long-term trend for India is a very positive favorable trend in gross domestic product (GDP) growth and industry volume growth.


Q: By when do you expect to see things turnaround for the Indian car industry? This has been the worst growth that we have actually seen in a decade for the Indian car industry, passenger cars have been decimated in the past year and it continues to look very weak?


A: In the last six-seven months we have seen de-growth in the Indian industry. We think that we still have issues for the balance of this year. In 2014 we will see some recovery as policy becomes clear. Maybe there is some announcement of growth friendly polices, investor friendly policies but despite that we believe if we take a longer term view by 2020 for example we believe that India will continue on its trajectory of growth. That by 2020 the actual industry in India will be around 9 million units instead of just over 3 million units right now.


That is stupendous growth by 2020, we believe in that thesis and that is the foundation for our commitment to India in terms of our investment. So, we are not letting up on the investment that we are making. We do believe that with that 9 million projection that we have India does offer that profitable growth opportunity that we are striving to take advantage of.


Q: In comparison to other emerging markets if I were to just ask you to do a spot analysis in terms of competitiveness and given the way that transaction cost have gone up significantly in India as an exporter are you beginning to feel the pain?


A: There are some pockets where we think that more efficiency is needed. However, the fact that we are able to build scale through domestic volume and export volume that is helping us. The unit cost of production goes down when you do that and it is just very gratifying to note that the cost of production in our Chennai factory is making us a business case for exports, which is very strong out of India. That is why we have this very fundamental part of our strategy to make India an export hub. Not just for cars by the way as much as 40 percent of the engines that we are manufacturing in Chennai and will be manufacturing in Sanand will be exported as well.


So, that is just a very fundamental shift and what it does is it is a business hedge also that we are able to mix and match between demand, between domestic and international. Also between petrol and diesel engines for example when we had that big dislocation in this country I can tell you that when petrol demand dried up in this country our Figo petrol were still being exported full speed ahead to countries like South Africa where the petrol demand was stellar.


So, we have this business hedge where we are able to mix and match. Again between domestic demand and international demand we are able to hedge. With this localisation as you correctly pointed out irrespective of where the currency goes, we can have a more balanced approach to our business.


_PAGEBREAK_


Q: One of the other problems that the sector as a whole is faced with is the government’s move to review the calculation of excise duties. I am not talking about the SUV additional excise duty -that is a separate matter. This pertains to the Supreme Court’s decision with regards to Fiat which now has implications as far as the entire sector is concerned. How do you view it and in your assessment is this going to be a significant challenge for companies like yours?


A: These things happen all the time. External environment keeps changing and that’s one of the wonderful things about India that they are such a dynamic market and rules and regulations change and the consumer behaviour changes and new segments are emerging.


Q: Has anyone from the government come calling, asking you for information?


A: We can't comment on the Supreme Court thing because that is sub-judice right now.  However we can tell you that we have a great relationship with state governments as well as the central government. We are members of all the professional bodies. So, we express our opinion as required. If there is a change in the environment as a responsible business we just have to deal with it.


Q: Let me ask you about the external environment, since you are exporting significantly from India. Any signs of a pickup or any signs of a revival especially as far as the European markets are concerned at this point?


A: There are better minds than mine who are handling Europe right now. However we have announced that there is a restructuring plan for Europe which is being executed as we speak. So, we are on the right track.


We are doing well in North America - you have seen the results of that. Our focus is on India and Asia Pacific. 60-70 percent of the growth in Ford's volumes through the end of this decade will come from the Asia Pacific region. In the next 4-5 years 40 percent of Ford's sales globally are going to come from the Asia Pacific region. Within the Asia Pacific region, China and India standout as the big opportunity markets for us.


Q: But it doesn’t worry you, because there are question marks on growth both in China and India. The assumption is that China will perhaps not be able to do any better than 7 percent, India of course is now down to 5 percent. If there is a protracted slowdown in both these key markets are you not worried that the arithmetic that you worked out globally is going to go awry?


A: We are here for the long term. That is the nature of our strategy. We are not running 100 meter sprint, we are running a longer marathon here. With the investment that we have here and with the workforce, we are expanding employment here, we are corporate citizens of this country. We are here to stay and take part in that opportunity.


We do believe that the trend growth for India will return to its previous trajectory and our expectation is that by 2020 the size of the Indian industry will be as much as three times of what it is right now and in the world hierarchy we will have China as number one, United States as number two and number three will be India.


Q: How does Ford want to position itself in India? You are competing against the likes of Maruti – the small car specialist, you are competing against the likes of Mahindra – the SUV and now also trying to get into the Sedan market. How would Ford like to position itself in India?


A: We want to bring products like the EcoSport – its fun to drive. Its loaded with technology that Indian customers want and value. Its at a great value for money proposition. To us that’s the formula of success. It is a hyper competitive industry right now.


Q: In a hyper competitive industry when everybody says my product is the best, my pricing is the best, what is the sharp positioning that you are going to be taking, what is the space that you hope to occupy in the consumers mind?


A: Our global brand promise. Ford's global brand promise is that we have attributes in our vehicles which Indian customers want and need. I can give you a few examples of that. We talk about four pillars of our brand promise – quality, green, safe and smart. We believe that these attributes distinguish us from the rest of the industry. EcoSport has wonderful proof points of this quality, green, safe and smart attributes. It’s a global platform. It has the quality and reliability of a global platform.


_PAGEBREAK_


Q: Do you see the industry moving towards a more platform-centric approach. It hasn't really been the case in India. We are now seeing more manufacturers move towards the platform-based approach and that really has significantly brought down costs and optimized efficiency?


A: That is a fundamental part of the One Ford plan, which is to leverage global assets and to standardise on platforms. So, the idea of EcoSport, for example - it is a global platform, it's the same platform that is for the vehicles in Brazil and China where the EcoSport is being sold right now. It has that global design language. So, that is very much in line with the One Ford plan. We intend to take full advantage of that.


So, think about Ford as a stable of platforms and technologies. My job is to bring the best of Ford to India and attune it to the needs and wants of Indian customers. That's where we pick the global platform and pick these technologies like the EcoBoost technology and the Sync Technology which we haven't talked about because we think that is very much in line with the needs of Indian customers. So, that wonderful combination of the advantage as you said of global platform plus technologies and features that are attuned to Indian customers’ needs and wants. To us that is the recipe for success.


Q: You believe with the Ford EcoSport you have actually created a new category in the Indian auto market. Given that what can we expect next from you?


A: That product-led transformation is going to continue, I can promise you that. What we have to be mindful of though is the very dynamic nature of the Indian industry. Segmentation is changing.


Q: What other segment or new segment can you hope to create or capture?


A: I wish I had a crystal ball. Who would have said three years ago that you would have an SUV of this nature in the B segment and running around with five people. The growth in the compact was very miniscule three years ago and it has sort of mushroomed. So, we have to keep a really close eye on the segmentation shifts and evolving consumer aspirations in India. That makes it a much more interesting and challenging market at the same time. So, we want to find that sweet spot just like we found with the EcoSport to have the right sized product with the right attributes and in a growing part of the industry.


That is where the EcoSport is positioned right now - the right size SUV with the right attributes and the technologies and in a segment despite all the trivial's and the issues that we talked about in the Indian industry, but more importantly with the design features and smart technologies which is the best of Ford that we are bringing to India, that to us is a recipe for success.  The future products that we are going to be bringing into the market will be based on that recipe. We just have to make sure that the clearance of these products is at the right time and we find that sweet spot for future product introductions also.   


Q: So, what is the sales target for the first year for this product? I know the pre-booking there was no price then so perhaps it wouldn’t be appropriate to judge the response that you saw but what is the internal target that you are working with?


A: We don’t share targets, but I can tell you that my job is to satisfy customer demand. We have equipped our Chennai factory with a USD 142 million of new investment to make sure that we satisfy demand.


Q: Do you believe you will be running at full capacity?


A: All the indications that we have had and consumers calling us even in the pre-launch phase, which is unprecedented in India, no other original equipment manufacturer (OEM) to the best of my knowledge has exhibited so much confidence in their product even before the formal launch.


Our  Urban Discoveries, we handed the keys to a 100 people, empowered them, real people in the real world and telling us their real experiences and I find out about this at the same time as you would sitting on the laptop, which is an exhibition of confidence.


So, the level of interest that we have had in our product even in the pre-launch phase has been outstanding, stupendous is the word that comes to mind. Based on that indication, we expect the demand for this product to be very strong.


Q: Better than the Renault Duster?

A: This is our space, it’s a new space and this is our segment and we believe that we have such a compelling proposition. It is a no compromise product in compact SUV and today the price we announce is a no compromise price. With that dynamite combination, we have setup for great success.

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