Carlos Ghosn: "We Donít Want to Be a Niche Car Maker"

Carlos Ghosn, CEO and president of Renault-Nissan, shares up learnings from his Indian sojourn

Published: Nov 23, 2009

Looking back, auto sales have done much better than people thought largely perhaps because of government-backed incentives. So how is the outlook for auto demand looking?
I think 2010 is going to be relatively stable as compared to 2009. It’s not going to be stable in every country, because in some countries it is going to go up, in others it is going to go down. But globally, we are forecasting — with a lot of facts and data behind it — that 2010 is going to be at the same low level as 2009 and if there is any pick-up we are not going to be able to see it globally before 2011.

The downturn has focussed a lot of attention on the fact that car companies used too much capital. There has been a lot of talk about the decapitalised model. Is the downturn really going to hasten the whole creation of a decapitalised auto company?
I think the downturn has shown many things for car manufacturers in that we are going to have to change. We are going to have to change taking every single opportunity offered to us. One of them is that we are spending too much money in investments. [While] you cannot avoid developing technology and products, it means car companies are going to come together to develop the same thing. So, instead of each one paying the bill for the development of technology, we are going to be coming together in a way which is very opportunistic in order to share the cost of technology. That’s point number one.

And the second is the inventory. You know during the crisis, we all have to reduce our inventory to reduce the need for cash and we are discovering new ways to be able to supply to the market at much lower levels of inventory and I think that’s going to stay.

So what therefore are the main capabilities that you focus on as an auto maker? And what do you leave for others to do?
You know there are a lot of things that we can do but we will not do very well and I can give the example of the ultra low-cost car. I mean if you were capable of doing the ultra low-cost car at the same level of efficiency as other car makers then we would do it by ourselves. But in this case, we recognise this fact that we need an Indian partner who will naturally be able to come to [a] much better solution and be able to put together a solution in a much more efficient way. Now, this Indian partner needs some of our support; some technology, some knowledge, support of any kind to make it happen so we have to recognise when somebody does a better job than us in some particular field you know to do it with them.

Renault-Nissan seem to be lurching from one bad headline to another. Of course, you could blame part of that to a sensationalist media but what is your assessment of your experience in India?
I don’t think we had bad headlines; we had interrogation; we had skeptics. You know the media is always teasing you to say that this is not as good as you think etc. And this is a normal game. I think the Logan is a good car and is having good sales, not at the level of our expectation. In fact, the biggest satisfaction is that the people who own Logan are very happy with the car. You know, I don’t want to paint the Logan as a failed car. It is a good car but obviously our expectation was much higher than this.

What’s the learning? Is it that the Indian market wants a better looking car, a more modern car?
Frankly, I don’t think so. I think the learning is the fact that this car which is a low-cost car in many other countries is not a low-cost car in India. It is not. It is in the middle range or in the upper middle range where in many other countries where we introduced it, it is at best in the mid range if not in the lower range. So obviously we have to accept this.

Is it because of purchasing power parity or because of taxes?
I think the lineup in India is very specific and doesn’t look like the lineup in any other [market]. The Chinese offer is different, the Russian offer is different, the Japanese offer is different. So we need to learn also our way coming to India to adapt to product and to develop the product that the Indian people need. For example, the agreement that we [reached] with Rajiv Bajaj for the ultra low-cost car is totally new to the fact that we are observing in India that if you want to become a large contributor to the Indian car market, you have to have a price point which is very competitive and you don’t have it so you are going to have to develop it with an Indian maker.


How does the relationship move forward with Bajaj and why has it taken a fair bit of time to get the alignment right either with Mahindra or with Bajaj?
In the case of our relationship with Mahindra, it is not that we were not aligned together; we were aligned together but the problem is that the product that we brought to India did not deliver to all the expectations. So the discussion is not about our relationship together. It is about what are the reactions in order to boost the sale of a product that we selected together to come to India. So it’s a different story. Now, with Bajaj, the definition of a product is the ultra low-cost car which is very innovative. Obviously it has to take some time. I mean Bajaj is coming in from a two wheel-three wheel experience, while we are coming in from a four wheel experience. So, before we really align ourselves on the product and agree with it, it takes some time. And you know what? We prefer to do it right even if it takes some time than do it very quickly and then have to correct during the course.

So you said that the ultra low-cost car will be ready by 2012 but have you set any milestones up till 2012?
Sure. We have a complete agreement on the definition of the product; we have a complete agreement on the role of each company. You know Bajaj is going to take the design, manufacturing, engineering, sourcing of the product with our support and we are going to take leadership in marketing, selling this product in India and outside India with their support. So we have a very clear picture of who is responsible for what and who is going to be supporting for what. I want to have this product in the showroom of Renault and the showroom of Nissan as soon as possible because if not, then we are going to be a very niche car manufacturer, we are going to appear as just an expensive car and we don’t want to have this starting in India

We also wanted to focus on the electric car because that is your big bet. Clearly, the pieces are falling in place. How would you describe, it is an evolution obviously, where are you on that journey? And why an electric car when the rest of the world is working on hybrid?
No, we have the hybrid technology; we don’t consider the hybrid technology as breakthrough. We think it is an evolution of the normal combustion engine. Hybrid is a good technology [but] it is more complex, it is more expensive. And that’s why, even though hybrids have been launched ten years ago, they still represent less than 2 percent of the global car market. The benefit is very good but the cost is very high. And in hybrids we are part of the pack of the global car makers, we are not taking leadership, we are not without this technology, we are in this pack. Now, on zero emission, we are leaders and we want to be seen as a leader in mass-market zero emission and that’s why we are the only group that has invested massively into battery capacity, into electric car assembly capacity.

So you have got to set up an entirely new infrastructure, now how long will that take?
Let me kill this idea [about] people thinking that infrastructure is going to be huge and government is going to put in billions. Not at all because the system today we want to put electricity in the car is a very simple system. All you have is a system at home which is not very expensive. I have been told that the cost of adapting your home or your apartment to what is necessary to fill your car is less than installing a telephone line in your home.

Will that car be a car for the developed markets or do you see it catching on to the emerging markets?
It is going to start with the developed markets because many countries like the United States, like France, like the UK and Japan want to reduce their emissions of CO2 and at the same time reduce their dependence on oil. So they are putting every kind of incentive for the consumer and the car maker to make this happen. Now we are adapting our products to this, but I think this is going to come to China, come to India but for this to have a chance to be successful, we are going to have to lower the cost of the battery, to make sure that the electric cars fit with affordable cars which I think is going to take a lot of time.

Coming back to India, what’s the corporate structure of Nissan-Renault going to take? You have got many joint ventures, one with Hindujas, one with Mahindra, one with Bajaj. So what’s the final corporate structure going to look like?
You are going to have Renault of India and Nissan of India. Now, each company has specific partnerships but the partnerships are never full-fledged partnerships. I don’t think there is any confusion. People understand very well that we have three partners to do things that are different. By the way each company has two partners and not three because Nissan is working with Ashok Leyland for the large commercial vehicles (LCVs) and with Bajaj for the entry level product. Renault is working with Bajaj for the same reason but also with Mahindra for the commercial venture of Logan. So people understand very well that we are not talking about a full-fledged partner doing everything but we are talking of specific partners into specific areas of interest. Now some of them will probably develop in more than one specific area. It’s too soon to tell.

Finally for F1 fans, how important is F1 still for Renault?
F1 is one of the most-seen spectacles in the world. It is facing some challenges: Challenges on how fair it is and how do you marry F1 with the environmental concerns. Can you bring zero emission through technology? So there are lots of questions about F1 and…

Can I say that F1 is not going to be a core part… you don’t think it is going to be important for Renault?
I don’t think it is going to be very important for anybody, if it doesn’t answer some of the concerns that surround F1. I notice that in the last year, three car manufacturers have bowed out of F1. Three in one year! That means there are a lot of questions that we need to resolve.

(This story appears in the 04 December, 2009 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)

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