Bajaj Quadricycle RE 60 and Tata Nano: Lessons of Technology-Business Nexus

Bajaj Auto Limited (Bajaj), India’s largest two-wheeler manufacturer, has secured limited Government approvals for its quadricycle, code named RE 60. The four-wheeler RE 60 vehicle is powered by a water-cooled, 216-cc, single-cylinder engine which can develop 20 HP. This is about 40 percent more than the power generated by 175 cc powered three-wheeler and about the same in power as 200 cc powered three-wheeler, historically manufactured by Bajaj in India for domestic and export markets. RE 60 sports a metal-polymer monocoque body and weighs 400 kg, has a turning radius of 3.5 meter and can reach a top speed of 70 kmph. It can seat the driver and three passengers and run 35 kilometers on a liter of petrol. Lest RE 60 should be misunderstood as a mini-car like Tata Nano, it is not so as it is just half as powered as Nano. Tata Nano is powered by an air-cooled two-cylinder engine which produces 37 HP. It has an all-metal body and weighs 635 Kg.

Bajaj has positioned RE60 quadricycle as an alternative to its three-wheeler. RE 60 has four wheels instead of three wheels that Bajaj’s all-pervasive three wheeler of India has. RE 60 is intended by Bajaj to eat into Bajaj’s own market for three wheelers, of which Bajaj is, undoubtedly, the world’s largest manufacturer. The company sells approximately 225,000 three-wheelers per annum and records growth rate of around 11 to 12 percent on a compounded basis, according to the statistics of Society of Indian Automobile Manufacturers (SIAM). Analysts expect Bajaj’s quadricycle to be priced anywhere between Rs 1.5 lakh (USD 2500) and Rs 2 lakh (USD 3300) while a Bajaj three-wheeler auto rickshaw’s ex-showroom price in Delhi is Rs 1.35 lakh (USD 2250). Having invested Rs 550 crore (USD 92 million) in developing the platform and creating the capacity to produce 5,000 of the vehicles every month, the price is nearly that of India’s cheapest and proper mini-car, Nano at Rs 2 lakhs (USD 3300).

Industry response

The Indian car and other two-wheeler manufacturers have taken up cudgels against RE 60 quadricycle on the grounds that it is unsafe compared to a passenger car. They want the Indian government to lay down norms as stringent as those applicable to cars. Bajaj, on the other hand, maintains that the RE 60 is not a car and would not compete in the car market. Bajaj has been seeking less stringent safety standards for the vehicle on the basis that the quadricycle with doors and seat belts, et al, is a safer and more stable alternative to three-wheeler. It has a seating capacity of four passengers, with owner-chauffeur possibility as opposed to three wheeler carrying capacity of only three passengers (that too tightly packed) with sole chauffeur mode. RE 60 has also a better ground clearance compared to the three-wheeler. It is noteworthy that RE 60 has the lowest carbon emissions, better than a three-wheeler or a Nano.  

To be sure, the concept of a quadricycle is not new. It has always been there in the European Union; however, only 23,800 quadricycles were sold in Europe in 2011. The three main traditional markets for quadricycles, France, Italy and Spain, have seen their sales fall from a high of 29,000 in 2007 to just 18,000 in 2011. The vehicles are used either by the elderly or those not old enough to qualify for regular driving licenses. They are also used as golf carts and recreation vehicles. That said, such use which may be well suited to the European road conditions, regulated traffic intensity, and driving discipline may not be appropriate in India given that those factors are much worse in India. Just because quadricycle is a convenient mode for select applications in Europe it need not be so in India.   

European regulations

Quadricycles are European categories of four-wheeled microcars defined by limitations in terms of weight, power and speed. Two categories are defined: (a) Light quadricycles, category L6e and (b) Heavy quadricycles, category L7e.  Light quadricycles (L6e) are defined by Framework Directive 2002/24/EC as: "motor vehicles with four wheels (...) whose unladen mass is not more than 350 kg, not including the mass of the batteries in case of electric vehicles, whose maximum design speed is

not more than 45 km/h, and (1)whose engine cylinder capacity does not exceed 50 cm³ for spark (positive) ignition engines, or (2)whose maximum net power output does not exceed 4 kW in the case of other (e.g. diesel fuelled) internal combustion engines, or (3) whose maximum continuous rated power does not exceed 4 kW in the case of an electric motor.

These vehicles shall fulfill the technical requirements applicable to three-wheel mopeds of category L2e unless specified differently in any of the separate directives. Therefore, in many European countries such as France, Italy, Belgium and the Netherlands, light quadricycles can be driven without a full motor car (category B) or motorcycle (category A) driver’s license, and in some countries without any license at all (being vehicules sans permis). However, in more recent years there has usually been at least a requirement to obtain a basic road safety certificate (e.g. BSR and ASSR1 in France, analogous to CBT in the UK) along with at least a provisional A1/B1 class license, meaning only older drivers (typically those who came of legal driving age before 1998) retain permission to literally drive such vehicles "without a licence".

Quadricycles (L7e), also referred to as Heavy quadricycles, are defined by Framework Directive 2002/24/EC as motor vehicles with four wheels other than those referred to (as light quadricycles), whose unladen mass is not more than 400 kg (category L7e) (550 kg for vehicles intended for carrying goods), not including the mass of batteries in the case of electric vehicles, with a design payload not more than 200 kg (passenger) or 1000 kg (goods), and whose maximum net engine power does not exceed 15 kW. These vehicles shall be considered to be motor tricycles and shall fulfill the technical requirements applicable to motor tricycles of category L5e unless specified differently in any of the separate Directives. Bajaj RE 60 quadricycle falls under this category. The European regulations also illustrate the tenuousness of quadricycle definition and compliance requirements.

France was the first country to define technical standards and traffic rules for quadricycles. The French ministerial decree of May 29, 1986 legally defined the quadricycle as a vehicle included in the moped category, equipped with four wheels and a body. In 1992, the European Union published Directive 92/61/EEC which considered that quadricycles fell into the same category as mopeds. Framework Directive 2002/24/EC then refined this definition by distinguishing between light and heavy quadricycles (L6e and L7e categories). The European Commission  was set to revise this 2002/24EC directive in order to simplify legislation, to improve road safety and to set new standards for gaseous emissions. Furthermore, Directive 2006/126 (3rd Driving Licence Directive) establishes a common framework for light quadricycles driving licences. It imposes the same requirements for light quadricycles as for mopeds, including the driving age, for which it recommends 16 years as a minimum. The transposition deadline of the directive was 19 January 2011.

Unlearning Nano?

As we consider Bajaj Auto’s initiative to indigenously design, develop, manufacture and commercialize its RE 60 quadricycle, several issues of strategic technical and business considerations arise. The first and foremost is whether the lessons of Nano have been learnt by Bajaj. As we know, Nano was a socially relevant innovative design initiative by Ratan Tata to replace the risky family travel on two-wheelers by a relatively safer, elegant and affordable small car full family travel through Nano small car. Unfortunately, the technical sensation and social initiative that Nano represented did not translate itself into enthusiastic acceptance by the target customer-families. The reason, probably, has been that the typical two-wheeler user nurtured a dream, and even esteem value, in terms of catapulting to a full-fledged “middle class” car than graduating to a specially designed low-end transport solution that Nano represented.   

Bajaj must keep in mind that the auto-rickshaw owner/driver of India may similarly consider catapulting into a full-fledged taxi through an Indica or sedan (or even a Nano) as his dream and of greater esteem value than just graduating into the quadricycle of a boxy design that could be as costly as a Nano but not as safe and powerful as a passenger car. This threat is indeed real, given that the Indian market is flooded by several attractive models of entry and mid level small cars, hatchbacks and sedans. The design concept of RE 60 which probably originated seven to eight years ago is now far less relevant in the rapidly maturing Indian automobile market and rapidly upgrading social stratification. This example points to the need for business strategists to continuously validate what originally start out as innovative design concepts in terms of market relevance in rapidly changing environments.

 

Enduring design innovation

One way to insulate a company’s efforts from environmental volatility is by developing designs that are enduringly innovative. In the context of contemporary designs that are prevalent and are on the anvil in the Indian automobile industry, RE 60 is spookily designed to say the least. A three-wheeler loyalist may find the well-tested three-wheeler design more elegant compared to RE 60 to which the term contraption more appropriately fits. One may compare RE 60 design effort with the new Nissan Datsun entry level car, also designed and developed in India, and conclude that the latter is miles ahead in terms of design elegance and integrity. Design innovation must be durable and sustainable, capable of successfully piloting through at least the full design-manufacturing-commercialization cycle, besides offering the basic platform for launching successive generational improvements.

The other approach of design innovation involves an integrated value proposition rather than a hotchpotch of incremental benefits in different performance components. Seat belts and doors, addition of a wheel,  marginal improvements in torque and horse power, and increased ground clearance need not necessarily add up to becoming a radically new value proposition for the Indian automobile user, as a Maruti 800 car or a Toyota Innova multi-utility vehicle represented at their respective times of entry into the market. Bajaj must really reevaluate whether RE 60 offers such a value upgrade. Even as a low cost safe mini-public transport solution, other options such as Tata Ace and Magic passenger variants are available for the three-wheeler operators and users alike.

Strategy-technology nexus

There are several strategic pointers that could arise from RE 60 strategy of Bajaj, when fully executed (based on the author’s analysis of possible future outcomes as well). Fundamentally, technological innovation and business inventiveness must go hand in hand for strategic success. Secondly, it would be impossible to create new markets without a deft combination of product innovation and market positioning. Thirdly, incremental product enhancement may help in life cycle management but certainly not enable new product entry and market growth. Fourthly, product innovations should be sufficiently innovative to form the market and create a product family base. Fifthly, strategic plans of business must integrate technology plans that enable sustainable and durable product innovation. Sixthly, new product introductions must aim at creating a total value proposition of distinctive functionality. Seventhly, any product introductions which are based on tenuous regulatory options could face the risks of policy vagaries and industry collectivism.

Business strategists would do well to keep the above perspectives in mind as they develop business plans that are dependent on product enhancements and new product introductions. Product functionality and market segmentation would carry a nexus that would be difficult to perceive at the time of product conceptualization but could become patent as products and markets evolve. Repositioning of products could even be an option to consider as a retrospective strategy relevant for a new product-market equation. For example, Tata Nano mini-car could well turn out to be a better upgrade option vis-à-vis a three-wheeler than RE 60 as a quadricycle would. Probably, the marketers of Nano would find a final winning proposition from a stuck-in-the-middle RE 60 quadricycle, with Nano emerging as an effective, flexible and safe family transport solution!    

Posted by Dr CB Rao on August 3, 2013

      

     

 

 

 

 

The Indian Utility Vehicle Segment: Design Creativity for Market Opportunity

From a scenario, two decades ago when Mahindra & Mahindra’s (M&M’s) Jeep was the only utility vehicle of sorts available in India, the Indian utility vehicle (UV) segment has indeed come off age.  Tata Motors began work on this segment in 1989 with its Tatamobile which was followed up with Tata Sierra in 1991 and Tata Estate in 1992. The first real push towards UV acceptance with range expansion and design modernization came with Tata Sumo, introduced by Tata Motors in 1994. This was followed, again by Tata Motors, with Tata Safari which set new standards in design and styling, when it was launched in 1998. Mahindra & Mahindra followed up with its Scorpio and Bolero models, responding to Tata Motors’ success.

Maruti-Suzuki, which was the pioneer that transformed the India passenger car industry in the 1980s, has been trying its bow at family vehicles first with Omni in 1983 and later with Gypsy in 1985 and Wagon R in 1999. The utility vehicle landscape saw the introduction of Qualis by Toyota in 2000 to a disappointed and muted welcome but the segment  got quite a transformation when Toyota launched its replacement, Innova, in 2009. Toyota Innova has since become the king of multi utility vehicles (MUVs) on the Indian roads; it is the favorite of both cab owners and private families alike. M&M continued to build on its UV success with more modern XUV 500 and Xylo vehicles. Not to be left behind, Maruti Suzuki in 2012 introduced a 7 seater utility vehicle specially engineered for Indian families, called Ertiga, and positioned as life utility vehicle,which quickly reached the Top 10 car table within a few months of launch.

The growth in the MUV segment has opened up the market for import of luxury marquees in this class, lately. While Audi Q7 and Q5 as well as BMW X5 and X3 have been the early leaders in this segment, Toyota Prado and Land Cruiser, Mitsubishi Outlander and Pajero, Honda CR-V, Nissan X-Trail, Tata Motors Land Rover and Range Rover as well as Evoque and Mercedes GL have been the major vehicles imported as completely built units (CBUs). BMW has been the first to recognize the attractiveness of SUV profile for young upwardly mobile people and has designed Q3 as its small SUV with big thinking. Renault has not been behind with its Duster while M&M Quanto has been the indigenous answer taking advantage of lower excise duty for sub-4 metre class. The recent explosion of the MPV and sports utility vehicle (SUV) models is thus reflective of a structural change in the Indian automobile market.

Market dynamics

Worldwide, SUVs offer greater pricing and profit advantage, besides growth potential, for the automobile manufacturers, India would be no different. The developed markets have had a tradition of encouraging utility vehicles as vehicles of weekend lifestyle as well as a “drive-free” lifestyle that brings the weekend life to weekends.  Given the way families move in a flexible manner, balancing professional work and personal life, and with gender equality coming to the fore in coping with multiple responsibilities, the  utility vehicles and crossovers  are as near to each other in customer preference as standard sedans are. The rural needs are probably catered to by micro-truck, huge station wagon type vehicles which carry people as well as produce. In the Indian market, where evolutionary trends follow the developed markets, the potential is enhanced by an open acceptance of the utility vehicle concept by the rural population. The success of Tata Sumo as a bridge vehicle across the urban-rural divide has been an interesting development of the Indian market. The inability of Tatamobile, the first station wagon in India, to get positioned as the true rural “people-produce” vehicle is another validation of the need for a well-designed utility vehicle concept.

The cumulative production data for April-March 2012 shows production growth of 13.83 percent over the same period last year. In March 2012 as compared to March 2011, production grew at a single digit rate of 6.83 percent. In 2011-12, the industry produced 20,366,432 vehicles of which the share of two wheelers, passenger vehicles (cars and utility vehicles together), three wheelers and commercial vehicles were 76 percent, 15 percent, 4 percent and 4 percent respectively. With a population exceeding 1,300 million, with rural population within that exceeding 900 million, with increasing “suburbanization” driving urban expansion, with nearly 80 percent of passenger transportation needs being met by two wheelers and three wheelers, with punishing road conditions caused by poor road infrastructure, with joint families rather than just couples being the nuclear family norm, with festivals and family events dominating the social canvas, and with Indians being used to travelling with large baggage utility vehicles could see an explosive growth  in India. Currently, the total passenger car production in India is 3,000,000 per year approximately, of which only  ten percent is in the UV category. Population-wise too the UVs are a small fraction. However, if the trends described herein stoke a change in consumer preferences, the growth rate of the UVs, already double that of passenger cars albeit on a much lower base, could be treble that of the passenger cars.   

More models, less choice

The indigenous UV segment does boast of a plethora of models; Hindustan Motors Trekker,  M&M  Jeep, Marshall, Scorpio, Bolero, XUV 500, Xylo and now Quanto, Force Motors Force One, and Tata Motors Sumo, Safari and Aria, for example. In spite of this, in terms of design package and functionality, the overseas designed models, whether completely imported or partially made in India have a clear consumer appreciation, their sales being inhibited only by the high price of such models. Such models are General Motors Tavera and Captiva, Mitsubishi Motors Outlander and Pajero, Nissan X-Trail, Mercedes R, G, M and ML, Jaguar LR and RR, Hyundai Santa Fe, Ford Endeavor, BMW X1, X3 and X5, Audi Q3, Q5 and Q 7, Renault Duster and Koleos, Honda CRV, Toyota Fortuner, Prado and Land Cruiser and so on.  The price premium on imported/semi-imported models in some cases goes up to as high as 400 to 600 percent. Clearly, this should have provided the opportunity for the indigenous UV manufacturers to come up with products of greater design substance at an intermediate price premium. Tata Motors did make such an attempt with Aria as the first crossover vehicle in India but the vehicle has had a very lackluster reception due to certain design bugs and service inadequacies. On the other hand, Toyota with its significantly indigenized Innova is ruling the India roads, rural or urban.

The Indian customers in the UV segment are a varied and demanding lot. They demand of their preferred model the ability to seat seven or eight people and carry luggage too if it can be helped! Despite the largeness it entails, they expect the vehicle to navigate the crowded and narrow Indian streets comfortably. They expect the vehicle to straddle both the urban and rural roads safely, and be able to be comfortable on both long and short hauls. To the users, the vehicle must look elegant and also be rugged.  And not to be missed, the vehicles must be economical both on the acquisition price and running costs. The government also adds its own weight to the design criteria by insisting on Bharat IV norms (broadly Euro IV equivalents) in respect of emission controls. It is for no reason that Carlos Ghosn, the chairman and chief executive officer of Renault-Nissan termed the Indian automobile market one of the most challenging in the world.  While the Indian automobile industry has a huge UV opportunity, its ability to harness the potential would depend on design creativity.

Innovation of Innova

The form that design creativity can take for market leadership in India is well illustrated by Toyota’s Innova. As the name suggests, it is indeed a unique vehicle even in the global automobile industry. Despite retaining the same dimensional features as a 5 seater sedan car, Corolla (which has dimensions of 4540, 1760 and 1480 mm in length, width and height),  Innova as a utility vehicle (4585, 1760 and 1850 mm in length, width and height) has been engineered to accommodate 7 to 8 people with the requisite boot space as well as seating and cargo flexibility. As a result, it meets both the urban and rural needs, as well as intercity and intra-city traffic and drive conditionsof India nicely. By offering, in addition, diesel engine as a standard feature from early days of Innova’s introduction Toyota made sure that Innova also emerged as a vehicle particularly low on driving costs. The product profile backed by an impeccable service backup of Toyota ensured that Innova became the choice vehicle in the UV market, with a pricing that is attractively pitched between the homegrown MPVs (like Tata Safari and M&M Bolero) and the imported MPVs such as (Honda CRV and Mitsubishi Outlander). If smart dimensional packaging alone could deliver such differential positioning to Toyota Innova, more fundamental innovations  which are customized to the multi-purpose India user needs could lead to additional successes (Toyota sells around 80,000 Innovas ranking higher than any other UV in India and sharing the space as one among the Top 10 cars in India).  

Fundamentally, the ability to enhance the wheel base (for example, 2750 mm of Innova compared to 2600 mm of Corolla Altis) while reducing the front track and enhancing the rear track with comparable road handling and safety would be a vital benchmark of spatial engineering. There could be other innovations too, such as a switchable all-wheel drive option to make on-road off-road traction easy or a transverse mounted engine with front wheel drive to further economize on dimensions. Whatever be the innovations “less is more” needs to be the design mantra for UVs in the Indian market. It is important to maintain a minimum seating capability of  at least 7 passengers, with adequate luggage space, to make the UV a truly family vehicle in India, while optimizing all other performance characteristics like ground clearance, turning radius, gradient management, cruising speed, ride quality, road handling, vehicle and passenger safety, easy navigation, and interior comfort. This requires companies to adopt a three tiered approach to design innovation that optimizes exteriors, interiors and performance in one India-centric package. The Indian automobile manufacturers would need to consider if they will be governed by current market size and offer many “apparent variants” or a few “real options” customized for multiple needs. The former may succeed with a “mix and match” or “cut and re-form” approach which would be economical (as with Quanto) but would not drive the UV segment to its full potential. In contrast, a design strategy of developing the right form, comfort and performance combination on entirely different and discrete platforms like Toyota does (RAV4, Innova, Fortuner, Prado and Land Cruiser) could open up the UV segment in India to unforeseen growth

Future beckons

The Utility Vehicle segment in India, though growing at double the rate of passenger cars is still relatively small in India. As against 3,000,000 passenger cars produced in India, only 400,000 utility vehicles are produced. The UV segment, however, has the potential to outdo even the passenger car segment, given all the reasons discussed in this blog post. And the world statistics clearly lead the way too. The demand for UVs trebled over the last two consecutive decades, worldwide. Over 30 percent of the cars sold in the USA are UVs. Europe, a longstanding sedan market, is seeing a rapid market push for UVs. Indian automakers have, therefore, an unprecedented market opportunity in the utility vehicle segment, by whatever name it is called (aka, multi-purpose vehicle, multi-utility vehicle, sports utility vehicle, crossover vehicle, or even light utility vehicle). All that is required is design creativity, manufacturing versatility and marketing acumen on the part of the Indian auto makers that could reshape the Indian passenger transportation scenario, and also transform themselves into truly global players.    

Posted by Dr CB Rao on September 30, 2012