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Tuesday, November 10, 2009

Bajaj, Renault bury hatchet; to announce details of ultra low cost car

10 Nov 2009

Bajaj Auto and Nissan-Renault have resolved their differences and are set to announce the details of the proposed joint venture for making the ultra Bajaj small car prototype

low-cost car on Tuesday. Nissan Renault CEO Carlos Ghosn met Bajaj Auto MD Rajiv Bajaj Monday evening to settle issues relating to branding and the basic concept of the car that were delaying the project.

With Rajiv Bajaj being the only partner Mr Ghosn met in this current visit to India, it seems likely that the $2,500 car will be Nissan-Renault’s flagship project in India. The two partners have decided to go to market together with the ultra low-cost car. Nissan has a joint venture with Ashok Leyland for light trucks and Renault with Mahindra & Mahindra for the Logan sedan. Both these joint ventures are facing problems and Mr Ghosn had last month said it was possible that his group would end up with only one partner in India.

Announced in 2007, the Bajaj-Nissan-Renault partnership has been working on the small car for two years now. The project ran into hiccups over branding, product detail and concept issues. This summer Rajiv Bajaj went on record to say he had asked for all the work done on the project to be scrapped. He wanted major modifications on design, positioning and other details. The new concept that the team came up with has now met with Mr Ghosn’s approval as well.

Mr Ghosn’s India strategy has come under pressure lately because of the poor performance of the Logan sedan which Renault makes and markets in India in partnership with Mahindra & Mahindra.

Relations between Renault and M&M became strained with the Indian partner unhappy over its lack of control on product design. His other JV between Nissan and Ashok Leyland will also see a significant reduction in investment from the earlier announced $500 million.

At the ongoing World Economic Forum summit, Mr Ghosn admitted that there were problems with his partnerships in India but added that he was gung ho about the $2500 car which will compete with the Rs 1 lakh Tata Nano when it rolls out in 2011. He told ET Now on Sunday that Renault, which had earlier frozen overseas investments during the financial crisis, will now resume its investments in India including its share of the $1 billion new factory in Chennai which it will share with Nissan.

"We had suspended the second phase of Chennai investment until we could see where the global car market would end up," Mr Ghosn had said. "Now that the estimate is that the year will end with around 60 million units, up from around 55 million last year, we seem to have hit a plateau. So all plans of expansion can be resumed with a more solid understanding of the future. The Chennai plant will be inaugurated early 2010 and I will be there for it."

With the investment tap turned back on, the ultra low cost car is likely to be the biggest beneficiary. The $2500 car is crucial to Nissan Renault not only because it has been Mr Ghosn's pet dream since 2007 but also because it is at the center of his plan to make India a frugal engineering hub for the group. "I am absolutely convinced about not only the potential of the internal market in India, but also the potential of India as an exporter and also the potential of India as an important participant to the engineering effort and product planning effort of the group," Mr Ghosn had said on Sunday.

Renault had earlier reportedly invited Bajaj to be a part of its 49:51 JV with M&M but Mr Bajaj had turned down the offer. The Logan sedan, Renault's best-selling low cost car worldwide, did not succeed in India. Its product size made it ineligible for the small car excise benefits in India. Cars that are less than 4 metre long or have engines bigger than 1.2 litre for petrol and 1.5 litre for diesel, pay only 8% excise duty while bigger cars pay 20%. Logan sales have declined 69% during the April-September period to 2,901 vehicles.

Economic Times News

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