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Last Updated : Jul 10, 2019 06:29 PM IST | Source: Moneycontrol.com

Why Mahindra is looking forward to BS 6 rollout, which is making most carmakers jittery

There is such a thing as blessing in disguise.

Swaraj Baggonkar @swarajsb

The upcoming rollout of Bharat Stage 6 (BS-VI) emission norms, slated to kick in from April 1 next year, may have worried many carmakers but SUV-specialist Mahindra & Mahindra (M&M) is using it as an exercise to clean up its portfolio.

The maker of Scorpio and XUV500 is replacing all ageing laggards with new products and powertrains (engine and transmission) developed from scratch, including those born from its recently-struck partnership with Ford Motor Company.

For the past few years, despite negligible demand for certain products such as Xylo, Verito and Vibe to name a few, the Mumbai-based company continues to produce them. This was possible because of high localisation content, which makes production cost-efficient for the company.

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The presence of several non-performing products has resulted in M&M’s market share coming under pressure, even as it has ensured that stringent cost management measures allow it to avoid any significant erosion of its margins. This it has managed even as raw material costs and retail discounting remained high.

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But, at a recent interaction with analysts, Pawan Goenka, managing director, M&M, laid out a clear vision to streamline the company’s product portfolio in light of the BS 6 rollout. “We will end up with five platforms after we finish with BS 4. BS 6 has given us the opportunity to clean up the portfolio. We will not have any aged vehicles on April 1, 2020.”

The Indian government decided to advance the rollout of BS 6 from 2022 to 2020 despite protests from carmakers who said they were not ready. The new standards, which will ring in tighter emission norms for both diesel and petrol cars, require significant investments by carmakers to upgrade engines.

Worse, some car companies say upgrading diesel cars is a bigger problem as the investments required will make the products unviable, even as Mahindra, whose most popular products are diesel-based SUVs, has played down some of the concerns.

Here’s how it will proceed with streamlining its platforms: the older version of the Bolero (M&M’s highest selling product) and the longer version of the same model will not be upgraded to BS 6. Multi-seater Xylo will be discontinued along with the van version of the Jeeto and Maxximo. In addition, the CRDE and direct injection (DI) engines seen on the Thar will disappear under the BS 6 regime.

“We managed with multiple platforms. Each platform had small volumes because we had mastered the art of making money on small volumes platforms. Now with new technology, new emission and safety norms kicking in, it is beginning to become more and more difficult to make money on small volume platforms. But our definition of large volume is much smaller than the definition of multinationals”, added Goenka.

Goenka further said that M&M will have to ensure a volume range of 50,000-70,000 per platform to be profitable, which is lower than targets set by international carmakers. Including the venture with Ford, M&M intends to have five platforms in the SUV space in the near future besides an all-electric vehicle based on Ford’s globally sold sedan Aspire.

“We have made good progress in having several high impact projects between Mahindra and Ford. The two biggest ones is the C-SUV and supply of engines from Mahindra to Ford. This will be the petrol engine that Ford will be using for some of their products,” added Goenka.

“There are two more agreements we are finalising right now. One is using the Ford Aspire for the next electric vehicle of Mahindra and the second is using Ford’s B platform for doing a Mahindra product, which will be just the reverse of what we will do with the C platform. These are under discussion right now, not finalised,” added Goenka.

The association with Ford will generate several common parts sourcing opportunities resulting in cost savings. With the help of M&M, the US-based carmaker stands to save at least 25 percent on product development costs, expect market watchers.

“On the C-SUV, the vehicle by M&M and Ford probably will have two-third common (composition) and one-third unique and therefore the two-third will be shared by the two companies. If we are able to get a volume of 50,000-70,000 per platform, we can be fairly comfortable in terms of making good profit margin. And all product development is done on that basis. We would probably end up with five platforms in the SUV space and try to get more volume per platform,” added Goenka.

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First Published on Jul 10, 2019 03:38 pm
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