Making a strong business case

Joerg Mommertz 32 copy

Q & A

Joerg Mommertz,

Chairman & Managing Director,

MAN Trucks India Pvt. Ltd.

Interview by: Bhushan Mhapralkar

Q. What did you think of the economic changes that took place when you took charge of MAN Trucks India?

A. The transport business is a big contributor to the GDP. It and the commercial vehicle business are an early indicator of which direction the economy is moving in – if it is slowing down or picking up. I think that the development, which took place when I took charge would have a short-term effect. I believe that India will be on course to be the most sustainable commercial vehicle market in the coming years. For us, India is one of the most dynamic markets. Look at Europe, and the markets there are quiet stable and saturated. There are some ups and downs, but there is no course. In India, we see a trend where the whole CV market will grow in the future. Having managed worst crisis – some central eastern European markets in 2008 saw a decline of 99 per cent, the developments here are of a short-term nature. I was responsible for Baltic markets as part of Central East Europe, and there was no market anymore. There was no market for two years. Considering this, I am very optimistic about CV market growth in India. After having been in the CV industry for long, I have come to observe that the CV market is cyclic the world over. The cycle lasts for five-to-six years. One has to be flexible to adapt to the cyclic nature of the market.

Q. What synergies has the formation of Volkswagen Truck and Bus Group achieved? How is it influencing MAN’s Indian operations?

A. The formation of Volkswagen Truck and Bus Group is part of Volkswagen’s worldwide strategy. It is part of the consolidation process. MAN is strong in Europe; also Scania. Volkswagen is not a complete CV producer. In Europe, it makes light CVs only. The strategy therefore was to establish a worldwide competitive CV portfolio that spanned from an LCV to a heavy-duty vehicle. The CV Group has a significant share of bus business. The synergies achieved include purchase, R&D and production on the inside; outside we are completely independent. In India, we don’t have any link to the Volkswagen (Indian) operations; we don’t have any link to the operation of Scania in India. Scania for us, as in a lot of markets, is a competitor. The model replicates Volkswagen’s passenger car business. The synergies are resulting in cost savings. A recent example of how it is working for MAN is that Scania and MAN are sharing a production facility in Russia. This is resulting in significant cost saving without touching the products of either CV maker, the customer approach or the product blend. The Latin American trucks of Volkswagen brand belong to MAN. The company that produces the heavy-duty trucks is MAN Latin America. Volkswagen sold their CV brand to MAN. In India, we are looking at areas where synergies will make sense; where there is a business case. MAN, Scania and Volkswagen are sharing resources regarding purchase activities. We recently held a vendor conference.

Q. How do you find the vendors in India?

A. Vendors are big contributors to the business; to product development, and to the product quality. We are working in-line with Volkswagen’s purchase strategy. We have a strong focus on quality and what we offer to the customer. The MAN team in India, through their long experience, has engaged the right vendors. Some of our vendors are already listed on the Volkswagen channel. We have been working closely with our vendors to realise our expectations from them. Some vendors, we have found, are highly professional in their approach. To handhold vendors is necessary as we want to guarantee MAN CVs for quality and performance.

Q. MAN enjoys a high brand recall in Europe. How do you look at it in India?

A. MAN wants to partner with the transport customer. It therefore wants to offer quality and reliability, uptime guarantee, and a state-of-the-art after sales experience. MAN in Europe is known for value for money. We don’t want to be cheap, neither do we want to be premium. MAN wants to offer CVs that guarantee highest productivity and fuel efficiency; low TCO and life-cycle costs.

Q. Unlike in Europe, MAN seems to be concentrating only on trucks in India. Any reason?

A. In Europe we have a strong presence in the bus business as well; in luxury coach, and in inter-city buses. In inter-city buses, we offer state-of-the-art products. The Indian market is completely different. The structure of the bus customer is different, and the product requirements are different. We do not want to compete with budget mass producers. We find profitability to be very low. Investments required are quiet high. We looked at bringing our low entry city-bus to India, but found the market to be very small. The investment to localise is high. The premium (inter-city) bus segment we find is too small. It is looking to be a 1000 units segment when stable, and is dominated by three known brands. We may look at the segment when it grows; becomes sustainable. We have decided to use our chassis structure with better specifications than the domestic budget producers are able to offer to participate in the high quality economy segment. These include a front-engine 220 hp and 280 hp bus chassis. We would soon include a 300 hp chassis as well. With features like air suspension and good body build, we are looking at offering the customer value for money.

Q. Isn’t that a competitive space with local and global players looking for participation?

A. It is a competitive space, but our chassis offers a little bit more than what the domestic mass volume players could offer. The good part is, we have the product, and do not need to do high investments. We believe that we can have a piece of the cake.

Q. With stress on value, would MAN look at a sub-brand for India for a mid-premium positioning?

A. We took a clear strategic decision to have one brand worldwide. So, the trucks that we make in India will be called as MAN. The product range we are designing and making in India are different. The Cargo Line Asia (CLA) range is made for India, other Asian markets and some export markets. Rather than making a differentiation by brand, we are making at differentiation by the product range. We are looking at mid-premium positioning. We have also tasted some success with completely imported products. If there is a particular customer who demands a fire fighting (special application) truck or a heavy-duty application, we are ready to offer completely imported high-end TGX or TGH range. In TGX, we also have TGX WW, which was created for some exports markets and could have a potential here.

Q. How far are you looking at taking the CLA range?

A. Above 16-tonnes, principally we have all the offerings. What we want to do is to activate our sales in all segments, including haulage, rigid, and tractors. I am seeing a change in the market in the direction of truck-tractors. Over the concrete product portfolio we are offering, we are intensifying our activities here in India. We do not want to be known in the market as just a mining truck manufacturer.

Q. But then, you are not into deep mining trucks?

A. We have released a project for heavy deep mining application, and will have a launch in 2018. This product will be an extension of the CLA, and will have a different power pack.

Q. You are looking at the haulage segment. GST could influence it. What is your strategy?

A. The government, I think, is doing the right things. I wouldn’t say that they are all in our favour. GST will help us, and so would the other activities like AC cabin and BSVI by 2020. This, I think, is a push in the direction of technology development, and in the direction of changing the customer’s mind a little bit. The customer changing his logistics concept will create demand. Different configurations, stronger focus on fuel economy, and at the same time, a stronger focus on ecology will mark the future. We are therefore confident of the future of the Indian market.

Q. Is GST playing out the way you and your team at Germany expected it to play out?

A. We had to explain to our board in Germany the reasons behind GST. At the beginning they were confused, and we had to explain. We believe that the way GST is (playing out), is in the right direction. I would like to compare it with the European Union. It took long for the EU to abolish the export and import duties. To have a free trade between European countries, and have one currency. I think, this is a similar process.

Q. How do you see the hub and spoke transportation system evolving in India?

A. Infrastructure, logistics optimisation and ecological aspects will play a role. GST will also play a role. I would cite the example of Moscow where 12 million people live officially, and 17 million people live unofficially. A mega city Moscow is. At short-notice, a ban on heavy-duty trucks entering the city was introduced. There was hue and cry. There was no impact on the sale of heavy-duty trucks however. Demand for light and medium CVs went up. In Scandinavia, it is very different. They have 20- to 60-tonne configurations. The 60-tonne is a 25:25 concept. For every city there are logistics hubs and distributing hubs. It is because of this that electric vehicles are coming into focus; electric LCVs are used to enter the city. I believe in this concept. How soon it would come to India, is hard to say. In India, transport volume will increase. Other transport channels will have to absorb the rise. The same may not happen. If the total transport volume in EU is growing by five per cent, it is growing share wise five per cent in truck transport, five per cent in air, and five per cent in shipping. The advantage of transporting goods by road is to have them delivered much more quickly. In India, I think, road transport will be the main stay because of speed, flexibility and logistics systems. The need is to bring goods to the point of need – to the customer. Looking at our last greenfield site at Poland with a trailer yard, truckers deliver packed trailers and pick-up empty trailers from the yard. With this, inventory time is reduced and the whole process is streamlined. It is ‘Just-In-Time’. As private consumers, we expect delivery of goods tomorrow with the press of a button.

Q. Would the shift to higher tonnage reduce the number of trucks on road and give rise to new concepts?

A. I see a link to the 25:25 concept in Scandinavia. I was comparing two Scandinavian countries, Sweden and Finland. Norway has 50-tonne trucks. I compared the number of trucks; the average truck market per year in these markets with other developed markets like Germany, France and UK that are at the same level of development. There are rough calculation guidelines. As per the guidelines, one-million people in the country translates into a total truck market above six-tonnes of 1000 units on an average. Germany has a population of 83 million, and the truck market above six-tonnes is 80000 to 85000 units. It is the same in UK and France. In Sweden, with a population of 8.7 million, the total truck market is 5000 to 5200 units. A 25:25 combination to come to India will take too long. It requires infrastructure. If the market is moving in that direction, I see a huge potential in improving the load capacity of the existing combinations based on homologation and registration conditions. I see lift axles and tractors optimising payloads. It signals towards reducing the weight of the truck, and the body.

Q. What is the scope of weight reduction in a CV?

A. In Europe, we launched a special Lion edition truck for bulk transport. All elements were optimised for bulk carriage. It was aimed at the chemical industry where payment is per kg. Strict rules mean there’s no scope for even a kilo of overload. For the customer, a truck tractor-based bulk tanker combination with 500 kg weight advantage means much. He can carry 500 kg more payload. The 500 kg weight saving was achieved by incorporating aluminium wheels, aluminium tanks, air bellows and tiptronic gearbox apart from other optimisation. The pay back period was calculated to be one year.

Q. Are you leveraging any weight saving technology for India?

A. We are working on updating the (CLA) product. We have seen the need for product improvement and development. We started a lot of projects. In the next twelve months we will not give a big bang. We have something reasonable in the pipeline. The current CLA we have converted to meet BSIV emission standards. We also established the product maintenance process recently. About leveraging weight saving technology in India, it depends on the business case. Weight saving costs money. The last 50 kg weight reduction in a sports car costs a fortune for example. Getting a truck to shed 500 kg is tough. Customers should be ready to pay for it. It is a chicken and egg story. We are not waiting however; we are starting the process.

Q. How do you look at the segment shifts in India?

A. Segment shifts are influenced by logistical changes. We see a strong trend in truck-tractor. Much depends on the fuel economy, tyre wear and other factors. We see a smooth change in the market segments rather than a quick step up.

Q. There is urgency about truck code and trailer code. Does the lack of timeline confuse you?

A. The truck and trailer combination have to match perfectly. About urgency of truck code and trailer code, I think there are a lot of advantages to offer to the economy. Reducing the number of trucks on the road by optimising load can help the environment. We made a prototype in the form of Concept S truck-tractor combination to optimise trucking, but the government is not ready. In EU, what makes it tough is that there are more than one countries from a legislation point of view. In India, I don’t believe in a quick change. Where I see a quick development – politically driven, is in alternate fuels like CNG. I don’t believe in LNG.

Q. But, the amount of trouble it will entail to get an alternate fuel CV on the road?

A. We have CNG technology but it depends on the infrastructure. Three years ago I signed a Memorandum of Understanding with the chairman of Gazprom in Russia for CNG. Gazprom was unable to develop CNG infrastructure in Russia. As a truck maker we cannot create CNG infrastructure. The technology is there, and there are a lot of advantages. For India, we currently don’t have a plan for CNG. If we see a demand, we can act quickly to deliver even a CLA in CNG technology. In the case of hybrid buses, we feel it makes sense where infrastructure is available, and it makes a business case for the customer. Hybrid buses are much more expensive than regular diesel buses. Hybrid buses amount to niche products. In the heavy truck business, I don’t see a future for hybrid technology. Even in an urban application, it is better to shift completely to electric or alternate fuels like CNG.

Q. Would BSVI compliant CVs in 2020 cost almost as much as their hybrid and electric variants?

A. It is challenging. The BSVI technology will increase the product cost and the cost for the customer as well. From what we saw, the main concern of the customer was if the new emission standard will increase the fuel consumption. Using advanced technology we have been capable of countering this. Fuel consumption has actually reduced. The BSVI technology will increase cost. There will be some added element on the truck. Compared to a hybrid, I assume, a BSVI CV will still have a price gap of 30 per cent. Consider a regular diesel low-floor 12 m city bus with a CNG low-floor city bus, and the price difference is 20 to 25 per cent. It makes a business case if there is an infrastructure; the gas supply. Hybrid technology is even more expensive as a business case.

Q. What role does MAN look at playing in the Indian bus market?

A. I can’t see a trend for rear-engine buses at the mid-premium level over the current premium level at which they operate. We already have a design for the rear-engine chassis to co-operate with body builders. But this is not making a business case yet. We want to place our ‘economy’ chassis in a certain niche. Our worldwide strategy regarding coach builders is to be open for co-operation with more or less all of them. The emphasis is however on quality. To co-operate with a coach builder may be viable than to build buses on our own. It will be quicker. After a study of the market scenario, we came to the conclusion that it does not make sense to build buses. If the market volumes grow, we will act. To make a business case, our estimate would be 1000 units a year. With the bus chassis model that we currently employ, we do not have to worry about viability. If one were to do a high-end premium monocoque construction bus, then considering the investments involved, the need would be for a stable volume of 1000 buses a year. For the chassis with body built by the coach builder model, we have body builder guidelines. This is to ensure that the body builder delivers on quality. We have similar guidelines for trucks too.

Q. Are you looking at a new engine in India?

A. In India we use D08 engine family. We are taking steps to align D08 with global sourcing strategies. We are already supplying some products to our engine factory in Germany from Pithampur. CLA localisation is above 82 per cent. What we supply to Germany include some core parts too. We are running projects, and if a demand for higher performance output engines comes up, we are ready to have our engine families localised.

Q. To which markets do you export your trucks?

A. Exports to neighbouring countries was part of our strategy to look at India as a hub for Asia, some African and Middle East markets. We export ‘Truck-in-the-box’ (CKD kits) to South Africa. Our biggest export customer is our joint venture in Uzbekistan. We send CKD kits there. In Uzbekistan, MAN CLA and TGS are offered. In Middle East it is not looking very good. The market in Saudi Arabia has more or less collapsed. We will be having a group of customers visit us in March 2017 at our Pithampur plant from Africa. We are also looking at South East Asian countries like Malaysia, Philippines and Indonesia for exports.

Q. Where does MAN India stand at the scheme of things at Volkswagen?

A. The expectation of the board is to be seen on the market as MAN; reflecting to the market our core values as a brand. To make it easier for our customer to do business, and to be profitable. Last year, we sold 1,600 units in the domestic market. We exported in the region of 1,200 units. We want to increase the volume. I am realistic, and we are not unhappy. We did reasonably well last year. One has to be serious in the business strategy. If you have the ambition to beat domestic budget producers, this is not the business field to be in, also from the view of profitability. The margins are low. Also, this is not MAN’s standing for the customer. We are therefore looking at what is the market that we can address. Yes, we want to get a piece of the cake. We want to grow with the growth of the segment or segments that we find we can address.

Q. You seem to be rigid in not wanting to look at any segment below M&HCV?

A. We have launched in Europe the TGE. It is the right product and the right concept for Europe. For it to compete in India, which is a low-budget mass volume market, is not what we want. We are looking at some synergies with Brazil. To localise the product here is not yet decided. We are talking inside the group, but at the moment, below 16-tonne, we have not decided anything. We also need to look at where we are strong. And, we are strong in the segments above 16-tonnes. In Europe, we are strong in segments above 7.5-tonne. We have the MAN TGL with a weight of 12-tonne. This is however not the market for it. We are looking at all opportunities since we are launching some new products in Brazil, but we do not have a plan as of now. What we want to do, is to reinforce our position above 16-tonnes. We want to sell all that we have to offer and update it.

Q. Are you carrying out a drive to upgrade existing dealers and appoint new dealers?

A. A dealer has to be motivated to do good business. We have some areas of focus where we have to get better. We have to lift the quality and density of our network. We want to make it a feasible business case for the dealer. The volume of 1600 trucks is not enough. We have to feed the dealer network. We are working towards guaranteeing the customer of maximum uptime. A dealer is playing a major role; he is at the place of the customer, and guaranteeing him good service. We have 42 dealers at 62 locations. We are looking at expanding dealers, carefully, and with a focus on quality service to the customer.

Q. What growth are you looking at?

A. I will not give you a figure, but we want to grow stronger than the market is growing.