Mahindra War Room 2016

Automotive Business Caselet

MAHINDRA AUTOMOTIVE & FARM SECTORS:

AUTOMOTIVE BUSINESS: WINNING IN THE PARADIGM OF AGGREGATORS
Mahindra Automotive & Farm Equipment Sectors (AFS) comprise businesses ranging
from Automotive (including Cars, UVs, Small Commercial Vehicles, Trucks and Buses),
Agri-business (including Dairy, Seeds and Applitrac equipments), Construction
Equipment, Powertrains (Engines, Transmissions & Gensets) to Tractors. This caselet
pertains to the Automotive Business of Mahindra AFS.
BUSINESS BACKGROUND
The Automotive Industry is one of Indias critical industries, accounting for 45% of the
manufacturing GDP and 7.1% of National GDP, employing 19 million people directly and
indirectly. Automotive also happens to be one of Mahindras oldest businesses
commencing with the Willys Jeep in 1947. Almost 7 decades later, Mahindra is still
Indias premier Utility Vehicle company, with iconic brands such as Bolero and Scorpio,
offering a range of Cars, Electric Vehicles, Pick-ups and Commercial Vehicles.
Mahindras Automotive range comprises Gio (compact small commercial vehicle),
sedans like Verito, Actyon, Chairman W & Vibe range of Cars, e2o range of Electric
Cars and Utility Vehicles including Bolero, TUV 300, Thar, Scorpio, Xylo, Quanto,
XUV5OO, Rexton and Kyron along with a range of trucks and buses. Mahindra
Automotives R&D is concentrated in Mahindra Research Valley Chennai, with
manufacturing facilities across 9 plants world-wide. In 2011, Mahindra acquired
Ssangyong Motor Company of South Korea with presence in over 90 countries worldwide. Mahindras vehicles ply both on paved and unpaved roads of Australia, Europe,
Latin America, Malaysia, South Korea and South Africa today, contributing to about half
of Mahindra Groups revenues.
LIVE CHALLENGE: WINNING IN THE PARADIGM OF AGGREGATORS
The Automotive Industry began in the 1890s, with hundreds of manufacturers disrupting
the horse carriage industry. Before the Great Depression of 1929, there were 32 million
automobiles in use, and the US Industry produced almost 90% of them. In 1980, Japan
overtook the US as the largest producer of cars, which the US reclaimed in 1994, only
to lose to China in 2009. In 2012, China produced twice as many automobiles as the
United States. In 2015, China has managed to outperform every other country by
producing 21.08 million units of cars with Japan a distant second at 7.83 million units.
By 2020, over 6 million vehicles are estimated to be sold in India.

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Automotive Business Caselet

In this significant history of over 100 years, it is interesting to note that automobile has
always been looked at as an aspirational product rather than just an object of mobility.
The Original Equipment Manufacturers (OEMs) of Automobiles exercised an iron-hand
in controlling the prices of the vehicles. Automotive Marketers played on the emotional
appeal of automobiles, selling imagery beyond just the product. Designers in companies
such as BMW saw cars as extensions of a persons personality and character,
designing cars that made people believe in certain specific attributes of who the owner
was as a person.
There used to be a perception globally that the real answer to survival in the auto
industry was scale. As Mr. Anand Mahindra recounted in a recent interview, I remember
that when we launched the Ford Escort in the joint venture we had with Ford and
Jacques Nasser (former Ford Motor CEO) was in the car with me when we rolled it out
from our assembly line. I remember Nasser saying in another five years, there will be
only five car companies left in the world. I hardly need to stress that he was clearly off
the mark. Many leaders like Mr. Nasser believed that Scale was the palaces for all
carmakers, and without scale it is impossible to survive. Even today, there are reports of
Mr. Sergio Marchhione, Chief Executive of Fiat Chrysler Automobiles, looking at
merging with large companies to gain scale. But newer Automobile companies like Tesla
seem to think the exact opposite - believing it to be a game of identifying the point of
disruption in Mobility, rather than about scale.
All this appears to be changing in the last decade. Ever since Steve Jobs launched the
iPhone in 2007, overthrowing global leaders Nokia and Blackberry out of business,
millions of Apps - tiny programs that prey smartly on information - got created. Tiny as
they were, the apps started creating a revolution in the way we live, eat, shop and
travel. Opening the proverbial Pandoras box, Apps soon started doing everything for
smartphone users, from checking into a plane or hotel, helping them buy groceries, to
getting around in unknown places. In just 18 months after the iPhones launch, Garrett
Camp and Travis Kalanick received USD. 200,000 as seed funding to start Ubercab for smart-phone based hailing, tracking and paying of Taxis. By mid 2016, Uber grew to
over 66 countries spanning 449 cities, attaining a valuation of USD. 62.5 Billion.
Controversial as it was, Uber made car companies sit up and take notice, even in an
evolved Automotive market like the US. India too had a slew of rival apps such as Ola
and TaxiForSure, apart from Uber itself.

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Automotive Business Caselet

Collectively called the Aggregators, App-based companies are commodifying the

automobile experience, boiling it down to taking your body from point A to point B at the
least possible cost - debunking years of marketing imagery about the aspirational value
of cars. With large investments flowing into all these companies, cabs were generally
available easily on demand, though the experiences have been varied - from
refreshingly positive service to the occasional criminal experiences. As people got used
to the aggregators, they are slowly questioning if they should be investing their precious
life savings into owning an automobile, or simply hail a cab through their smartphone
when they need one. The age of access has arrived. An increasing number of people
are now content to get access to transportation when they need own, without owning an
object of transportation, however charming it might make them.
The advent and rapid rise of aggregators is reminding one of the cliched Chinese
alphabet that represents both crisis and opportunity. On the one hand, as aggregators
step in and sweat the car more and more, the need for owning cars will come down.
On the other hand, this could be an opportunity to create strategic alliances with cab
aggregators.
Thus, the Automobile Industry is getting polarised into 2 extremes - one is the
Automobiles as Objects of Mobility pole, where the Ubers and Olas play. This pole will
become an increasingly commoditised space, with users not being bothered about the
brand of the car they are riding on. The other pole, Automobiles as Objects of Desire
is where cars are being bought because people like cars, want to spend on them and
like the experience of driving. For this pole, it has become even more essential to be
clear about what the brand stands for, and articulate it adequately.
As an Automotive OEM, Mahindra would like their brand to move as an object of
desire. Yet, how could they not let go of the opportunities arising in the Object of
Mobility space. How can Mahindra make the two spaces co-exist? What are the
factors most important for aggregators and those seeking personal mobility? Are
they the same or are they different, and if so how to cater to both? While costs
may not permit creation of two completely independent products, a common
platform may be created differently for personal ownership and aggregators.
Evolve a strategy for Mahindra to convert the threat of aggregators into an
opportunity, and grow in a bi-polar Automotive World.

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