October 22, 2011

The Inaugural F1 Indian GP Drama

An Indian corporate tells Formula One management that he can build an F1 track in India if they want to add India to their race calendar. F1 says "Why not!" and schedules the F1 Indian GP for end-October. So this Indian corporate (JPSI) goes about building an F1 track without any support from the Indian government (unlike other new F1 tracks built recently).

Scene 1:
(Sometime around 22nd August 2011)
JPSI: We have finally bagged Airtel as our title sponsor and we are now selling tickets. The cheapest one is for Rs. 2.5k and the costliest is Rs. 35k.
Indian F1 fan: LOL! Good one!
JPSI: No no, I'm serious! Rs. 35k is for the main grandstand while for Rs. 2.5k you get access to the picnic stand.
Indian F1 fan: Rs. 2.5k for sitting on the grass with no shade. And if I am from outside Delhi, add to it the cost of travelling to Greater Noida and back and staying there for three days. Sounds like I'm blowing one month's pay-cheque on this.
JPSI: Don't be silly. The tickets will be sold out in 7-10 days.

Scene 2:
(Around mid-September)
JPSI: But Formula 1 is a sport!
Sports Ministry: Looks like an entertainment event to me.
JPSI: But you have recognised motorsports as a sport.
Sports Ministry: So?
JPSI: So F1 is the pinnacle of motorsports. It is like saying cricket is a sport but the cricket world cup is an entertainment event.
Sports Ministry: How dare you bring cricket into this! Now you will pay an import duty when the F1 equipment reaches India and you will be refunded the duty back when it is exported out after the race.
JPSI: Ok Ok... So, you will just keep my money for some time and return it later.. I can live with that...
Sports Ministry: Not the whole thing. We keep 2% of the duty for the effort.
JPSI: Thats fine. I'm screwing the fans on the ticket prices anyway. Since the entire equipment is worth Rs. 150Cr, I can pay 2% of it from the ticket sales.
Sports Ministry: Only Rs. 150Cr for 24 F1 cars + their spares + the entire pit garages with equipment + entire race control equipment?
JPSI: (surprised at the Ministry's knowledge of sports) Sir, you scratch my back and I scratch yours.. Wink, Wink!
Sports Ministry: Hmm.. We'll see about that...

Scene 3:
(Around 19th October, less than 15 days to go)
JPSI: Good News! The media blackout of the track ends today. Today we take all media personnel on a lap of the track.
Media: The track looks good. What about the stands? Will they be done on time?
JPSI: Yes. We still have some work left on the stands. Hopefully, it will be done on time. Doesn't matter if it isn't, who cares for those suckers anyway!
Media: How are the ticket sales going?
JPSI: We are very positive. We have sold 70% of the tickets already.
Media: Ticket sales have been open since almost two months and you have sold only 70% of the tickets! Of the 18 stands, only two of the stands look fully booked. Will we see a full house on the Inaugural F1 Indian GP which is less than 15 days away?
JPSI: Oh! That reminds me. We now have a special offer. If anyone wants tickets only to the Sunday race, we are offering grandstand tickets at Rs. 15k (from Rs. 35k for all three days), normal stand tickets for Rs. 4k (from Rs. 12.5k) and picnic stand tickets for Rs. 3k (from Rs. 6k). Please quote me on this, "We had kept aside these tickets expecting extra demand".
Indian F1 fan: Yeah right! You want us to believe that you are dropping prices because there is extra demand.
JPSI: Whatever the reasons, cheaper tickets are now available. How about coming to the race?
Indian F1 fan: What is the point now? The trains are booked, airlines have jacked up their prices and don't even get me started with the hotel rates. All the best for the GP, I will be watching it at home.

Scene 4:
(Around 21st October)
Indian Public: How could JPSI get tax exemption reserved for sporting events when the Sports ministry itself doesn't consider F1 a sport? I am going to the Supreme Court..
JPSI: Oh crap.. No No, please don't go there... Let us settle it amongst ourselves.
Indian Public: Sorry, I have already filed a PIL. See you in court!
Supreme Court: JPSI, we will not stop you from conducting the event...
JPSI: Thank you sir. Thank you! Thank you!
Supreme Court: ... But, you will have to keep 25% of your ticket sales as a deposit with us till we give our decision on the taxation issue.
JPSI: WHAT!!! (and collapses on the floor)

Disclaimer: I am not against the organizers. I appreciate their courage to bring F1 to India and build a track here without official government backing. But, they really got the ticket prices wrong. It seems to me that there is a high chance that the Inaugural F1 Indian GP will not be a full-house. Unless they pack the stands with school kids. (Did I hear someone say CWG?)

October 06, 2011

We Don't Dig the "Family Look"

Imagine that your behind is being pampered on the plush seats of your crore-plus Audi A8. At a signal, a bike comes up and knocks on your window asking "Boss, how much average do you get on the A4?". Whack! You feel like you have been slapped. You grumble, 'How dare the moron mistake this for something less than half it's worth?"

Premium/luxury cars owners want their cars to stand out, and rightfully so. Heck, it is worth more than what most of us would earn over a lifetime. But, the "Family Look" of the recent generation Audis and BMWs robs them of this thrill.

A "Family Look" is not when the Maruti Swift and Swift Dzire are similar till the rear doors. In fact, both are based on the same vehicle and the similar look saves on costs. The "Family Look" is when a common design given to models (across segments) of a brand such that the cars are instantly recognisable as being from that brand's stable.
Like, BMW's "Kidney Grille", Audi's "Bulgarian beard" or even VW's recent "Scirocco" look.

The "Family Look" is purely for visual recognition. No costs are saved since the dimensions of the grilles, bumpers and front lights vary across the models (since they usually belong to different segments).

Now, this is what greets a prospective Audi and BMW sedan buyer in the respective showrooms.
The Audi A4, A6 and A8 sedans

The BMW 3-series, 5-series and 7-series sedans

I would pity the guy if he was looking for the A8 or 7-series. As a matter of fact, he wouldn't even be able to identify the sedans without a salesman's help. The uncanny similarity with their smaller siblings actually acts as a deterrent for the potential A8/7-series buyer. On the other hand, the A4/3-series buyer would be ecstatic the their models look similar to the elder and more premium siblings.

While this design strategy could increase the sales at the lower end of the premium spectrum, it is probably being done at the cost of the high-end models. The potential A8/7-series buyer would most likely prefer the Mercedes S-Class or the even Jaguar XJ (which, by the way, looks like it is from a different planet than the Germans).

Would it surprise you if I said Mercedes-Benz sells more S-Class' here than the corresponding flagships from the other Germans?

October 02, 2011

Toyota & Honda, Meet the Real Mr. Competition

Toyota and Honda have been selling cars in India for more than a decade. But in spite of their experience, I believe that we won’t see the Toyota Etios/Liva and the Honda Brio doing too well in about a year from now. And I just have two reasons for that.

The Competition
When Toyota and Honda entered the market, they only had to compete with each other. Then the Skoda Octavia came along. The terrific fuel economy of the Octavia diesel almost finished off the Japanese. Honda responded by bringing in the new City at a lower price point while Toyota managed to introduce a diesel engine much later than they would have liked. In the end, Toyota got busy with the Innova (and Corolla got the step-motherly treatment) while Honda was content with the City being a premium compact sedan with steadily declining sales.
In the Rs. 4-6L price segment, the biggest guys are Maruti and Hyundai. They probably account for two out of every three cars sold in India and they haven’t got there by being lucky. In fact, Toyota & Honda are facing these heavyweights for the very first time, and they do not even have the Home advantage. The Japanese would be competing against brands that are synonymous with frugality and low-maintenance. While the premium image of the Japanese translates to high maintenance costs and low fuel economy. Heck, almost everyone I know recommends nothing but a Maruti or Hyundai as a first car. Also, considering the sales and service network that Maruti and Hyundai have, Toyota and Honda might want to resort to black magic to succeed in this price segment.

The Buyer
Toyota and Honda have only interacted with buyers in the Rs. 10L (more or less) and above range. Typically, these are not first-time car buyers. They would have owned a car before and would be looking to trade up. And the premium Japanese brands made a lot of sense.
On the other hand, the Rs. 4-6L segment (where the Liva and Brio are coming) is a completely different ball game. These are mostly first-time car buyers. Their primary priorities generally are good fuel economy and low-maintenance. In this price segment, the premium image of the Japanese brands would imply high maintenance costs and low fuel economy. While I don’t deny that there will be buyers looking for a premium brand in this price segment; let’s face it, they would be too few to matter.

I believe the Japanese would not succeed for the same reason a Maruti or Hyundai does not do well above the Rs. 10L range – brand hierarchy. Indians typically form a hierarchy of brands in their mind and associate each brand with particular qualities. These perceptions are very hard and costly to modify. In order to change their perception, the Japanese would most likely have to sacrifice their high-end customers. Undoubtedly, a very tough choice to make.

October 01, 2011

The VW-Suzuki Spat: Should we be Concerned?

They might look like the neighbourhood couple squabbling on the front porch and washing their dirty linen in public. But make no mistake; the outcome of this deal is bound to have tremendous implications for the Indian car market.

Are VW and Suzuki fighting?
In December 2009, VW (with the consent of Suzuki) bought a 19.9% stake in Suzuki to facilitate “closer technological alliance” between the two automakers (like a marriage, if you may). Cooperation discussions went on all through 2010 and nothing concrete ever emerging. Finally, in June 2011 Suzuki went ahead and extended an existing engine sourcing deal it had with Fiat. This did not go down well with the big German and it publicly accused the little Japanese of infidelity. The humiliated Jap filed for a divorce and asked the German bully to tender a public apology. And that’s where things stand now.

Duh! Why should we care?
Well, we actually should. VW has this pet target of being the world’s largest carmaker by 2018. It already has a huge presence in China, Brazil and Russia. The only big emerging car market where it does not have a major presence is India. And that, mi amigos, is sole reason why VW did the deal in the first place. The deal was that in return for VW’s diesel, electric and hybrid powertrain technologies (which Suzuki needs for its international ops) Suzuki would give them access to Maruti’s “frugal engineering” and compact car technologies.

What happens if the Alliance works out?
If the VW-Suzuki alliance does works out, we would immediately see Maruti using VW’s diesel engines instead of the current ones whose technology is sourced from Fiat. On the other hand, VW would most likely get their hands on Maruti’s low-cost small car platforms. Which means we could see VW and Skoda branded small cars which share their underpinnings with Maruti’s A-star and Ritz. Needless to say, Maruti could end up losing significant market share to VW. But, the added economies of scale could bring down the costs of the cars which is never bad for the car buyer. Ones heart does go out for Maruti; for the parent’s benefit it would end up lending a helping hand towards its own market share loss.

Wasn’t there talk of VW taking over Suzuki?

Although the chances of it are very slim, it is worthwhile to examine the aftermath of such an acquisition. For starters, VW would instantly become the largest carmaker in the world, trumping Toyota and GM. Maruti, now under the VW umbrella, would have access to probably the world’s largest parts bin. It would be safe to say that the quality of Maruti cars would only improve. VW’s India strategy could then be to use Maruti as their lowest cost rural brand; Skoda a sub-premium rural-urban brand and VW a premium urban brand. All in all, an aggressive German carmaker would be controlling the largest share of the Indian car market and it would certainly do everything in its power to kill the competition.

I would definitely like to keep one eye on the VW-Suzuki developments. Because if the alliance breaks, things will go on as though nothing ever happened. If it works, Maruti could lose out but the car buyer could gain. But if VW takes over Suzuki, things could undergo a dramatic change; and it could be for the better or worse, who knows!