Dr Pawan Goenka retired as the MD and CEO of Mahindra and Mahindra on April 1, 2021, after a stint of 27 years with the home-grown carmaker, and over four decades in the auto industry. This period has seen India grow into one of the key automotive markets in the world, albeit, not without its fair share of challenges.
We caught up with the stalwart, just as he begins to unwind, to take a look back at the transformation of the passenger vehicle (PV) industry into what it is today.
- Supplier base, product quality and local R&D efforts have made great strides
- An almost 35 percent market share of SUVs was unexpected
- Even with volumes of just 50,000 units, a model can be profitable in India
Surge of SUVs was unexpected
Traditionally known for their affinity for budget-friendly hatchbacks and sedans, value-conscious Indian consumers have surprised carmakers in recent years by readily taking to contemporary, monocoque-bodied SUVs, despite them being priced at a premium.
“When the share of SUVs was 16-17 percent, I used to say that we should get to 25. But I never expected a 35 percent share. At that time, people wondered who would buy SUVs. But what has happened is a very rapid shift from the ladder-frame vehicles to (unibody) crossovers,” mentioned Dr Goenka.
In a troublesome FY21, for instance, while the market declined, SUVs continued to rally upwards, accounting for 8,59,549 units out of the total 27,11,457 PVs sold, or about one third of the overall market share. What has helped is the proliferation of monocoque construction, which imparts more car-like driving dynamics to otherwise ponderous-feeling SUVs.
“So I did expect crossovers to come in, but I didn't expect everything to become crossovers. And today, I think there are very few new products launched on ladder-frame. Mahindra still believes in it, we have a 50-50 kind of offering on both sides. So that was a bit of a surprise that the switchover was not just to SUVs as we expected,” he continued.
With Mahindra’s legacy rooted in ladder-frame vehicles, this presented a bit of a challenge. “We had an inherent advantage in body-on-frame because we knew that space quite well. On the crossover front, we didn't have that advantage and had to learn from the ground-up. But the XUV500 was hugely successful, and that really surprised me. I felt so good about it because it was our first monocoque and the most premium product that Mahindra had done,” said Goenka.
He added, “But then we tried to enter into a very crowded hatchback kind of a space with the KUV, which didn't do very well.”
Mahindra then went on to launch the XUV300, also based on a unibody construction, which has found success, despite the compact SUV space bursting with competition.
The company will be taking the story forward with the upcoming XUV700 that will rival the likes of the Tata Safari and MG Hector Plus.
Powertrains remain a Mahindra strongpoint even as petrol demand rises
“We have an edge on engines,” commented Dr Goenka. Admittedly, he said, “It’s possible that unconsciously, or subconsciously, I have supported engines more.” However, he was quick to add, “But I have supported vehicles and platforms equally well.”
Mahindra has always had a strong engine line-up, in part, due to Dr Goenka’s focus and keen interest. Reminiscing his days at the company, the former chief said, “I guess, owing to my engineer’s background, when I would go to the MRV for review for two-three days in a quarter, I would forget that I’m the MD of the company. I would roll up my sleeves, become one of the engineers and go over the details that one would never expect, or perhaps even want, an MD to get into. But I would love it and enjoy it.”
Still, the SUV-specialist has traditionally been known for its diesels, which could have presented some challenges in a world fast moving towards petrols. “For the longest time, everybody was very apprehensive about Mahindra being able to launch successful petrol engines. And now, we have two highly successful petrol engines – the one in the XUV300 and the one in the Thar,” he said.
The compact SUV gets a 1.2-litre, port injection, turbo-petrol motor, while the second-gen Thar comes with a 2.0-litre, direct injection, turbocharged petrol from Mahindra’s new mStallion family of engines, which also includes a 1.2-litre and a 1.5-litre mill. The mStallion line-up is slated to power numerous models across the carmaker’s portfolio, and if the performance of the Thar’s 2.0-litre unit is anything to go by, Mahindra could very well have proven its critics wrong.
Key areas of improvement
Recalling what India Auto Inc. had to offer 27 years ago, Dr Goenka said that it had made great strides in numerous areas ever since. “The first one, and also the biggest change, is the development of the whole supplier ecosystem, which has happened since the time we first started doing the Bolero and Scorpio. I still remember how rudimentary the supplier base was at the time. Compare it to where we are today, and our suppliers can now rub shoulders with the best in the world,” he told Autocar India.
The progress can be highlighted by the fact that even a player like the Volkswagen Group, renowned for its impeccable quality, is now looking at increasingly tapping into the Indian supplier base for its export markets.
“The second thing that has changed significantly is the product quality, owing to the tremendous focus put by the OEMs and suppliers, as well as the pull created by customers who reject poor quality,” said Dr Goenka.
He added, “The third one is our ability to develop products. Now, there are several companies that have full-fledged R&D centres and can do full product development, including design and engineering. The whole infrastructure is there and everybody is coming to India to set up R&D centres.”
For reference, the domestic carmaker’s own R&D facility – Mahindra Research Valley (MRV) in Chennai – was inaugurated back in 2012 and has overseen the development of the company’s powertrain line-up, as well crucial models, including the Mahindra XUV500 and the Marazzo.
Scale not an issue in India
With Maruti Suzuki making up for almost 50 percent of the passenger vehicle sales in the country, scale has the potential to become a big challenge for the rest of the automakers. “Given that we are a three million unit (PV) market, and half of it is taken by one player, with the remaining 1.5 million divided into 15 players, there is very little left for the tail. Therefore, the tail cannot survive, that’s for sure. There have been one or two casualties lately, but nobody wants to quit the market because it has potential,” said Dr Goenka.
Explaining the business case for auto companies in such a competitive environment, he said, “Somehow, India has gotten over this scale issue in some sense.” He elaborated, “We are able to make money (on a model) even at volumes of 50,000-60,000 (units per annum). Nowhere else in the world can you make a good profit on a 50,000-60,000 unit volume on a platform.”
There are a few factors giving companies in India this edge. “There are two-three things. One is the low cost of development. The second factor is our low overheads. If I was to compare the P&L (profit and loss) of Indian auto companies to that of the Koreans or Europeans, you will find that the so-called SG&A (selling, general and administrative expense) is very small in India. Also true is the fact that labour costs are lower. So when you add it all together, we are able to make money,” said Dr Goenka.
“Maruti, Mahindra, Hyundai and Toyota are profitable, and Tata is turning the corner. So you can make money even on a small scale,” he mentioned.
However, he added, “There are very few products in India that go beyond 50,000-60,000 units.” For reference, just 20 models managed to break into the 50,000 unit-plus sales club in FY2021.
To improve their odds, then, all carmakers have now trained their sights at the SUV segment which is booming. “A lot of things are changing. Everybody is trying to get into a space that is growing, but new to them,” mentioned the former Mahindra boss. He added, “And I think more is going to change – electric vehicles are going to redefine the whole game once again.”
Catch the complete interview here: Dr Pawan Goenka on his 27 years at Mahindra, the Indian auto industry and more