Mahindra-Renault begins restructuring due to dismal Logan sales

Think of “low cost car” and before the Tata Nano came up you’ll most likely think of the Renault Logan. The Logan is a car designed from the beginning to be very cheap to build, which means everything is low cost down to the design of the car’s exterior and interior, which feature shapes that are technically easy to cast and mould, etc.

You’d think that the Logan would do well in India but for some reason the Mahindra Renault Logan flopped. Last year’s sales only justified a production run of well under 20,000 units per annum – less than a third of Mahindra’s planned capacity of 50,000 units. The Mahindra Renault JV lost 4.9 billion rupees in the 2008/09 financial year.

The Indian-majority 51:49 JV is currently scaling down its business to adjust to lower than expected sales of the Logan. Everything will be slashed down to a level of business that supports only 500 units sales per month – that’s just 6,000 a year! India is a huge huge country with a massive customer base and that’s really low considering in Malaysia we saw the Perodua Myvi hit just over 7,000 registrations in November 2009 while the Saga did just over 6,000. Even moving up the price segments, a total of 791 Honda Civics were registered in November. So 500 a month in India is low.

The Logan’s failure is attributed to various factors – its higher price due to escalating material costs due to a rising Euro, a less than desirable low-cost styling which did not gel well to the tastes of an increasingly sophisticated Indian consumer’s tastebuds, etc.

Rising material costs due to forex is a real issue to the Logan as it is claimed that over half the Logan’s content is imported, and current volumes do not justify localization of supply in India. The Logan’s size is also over 4 meters in length so it is in one excise tax bracket too high.

I know many unrelated stories somehow end up being related to Proton in the comments but in this case I feel it is worth mentioning that these cases should be studied closely and taken seriously by Proton’s export team in order to ensure that a Proton entry in India is successful. For one, the Saga looks way better than the Logan so I don’t think that will be an issue! With the current Proton management’s product planning style of taking market research seriously, let’s hope that an Indian entry will be a good one.