Leyland, Nissan forge $500 mn LCV venture

Carlos Ghosn's "frugal engineering" vision is finally finding fruition in India. Hinduja Group flagship Ashok Leyland and Japan's Nissan Motor Company on Monday formalised their cooperation agreements to foray into the fast-growing light commercial vehicle (LCV) market in India with a joint investment of around $500 million (Rs 1,970 crore).

The investment will be spread over two yet-to-be named manufacturing joint ventures to make LCVs and powertrains(engine and transmission units). A third joint venture company for technology development has also been formed. Tamil Nadu, Andhra Pradesh and Uttarakhand have been shortlisted to establish the LCV and powertrain manufacturing units.

The agreement was signed by R Seshasayee, managing director, Ashok Leyland, and Carlos Ghosn, president and chief executive officer, Nissan Motor Co.

Ghosn said the joint ventures reiterated his company's vision to emerge as a major global commercial vehicle maker. He pointed out that in the last six years, growth in the global automotive sector (passenger and light commercial vehicles) had come only from developing markets such as the Bric (Brazil, Russia, India and China) economies.

Global passenger car and LCV volumes (excluding trucks) are about 65 million units a year now. Of this, 41 million is contributed by mature markets such as the US, Western Europe and Japan, while developing markets contribute 24 million. In 1999, of the total volume of 54 million, mature markets contributed 40 million, with the rest coming from developing markets.

Ghosn added that Nissan's LCV business was expected to breach the half-million unit mark by the end of 2007. Clarifying the famous "frugal engineering" concept, he said, "What impresses us more in India is high skills, high knowledge and the ability to participate in the global economy, not just low-cost operations."

The vehicle manufacturing JV, which will manufacture products under the Ashok Leyland and Nissan brands, will have a 51 per cent stake from Ashok Leyland and 49 per cent from Nissan. In the powertrain joint venture company, Nissan will have 51 per cent and Ashok Leyland 49 per cent.

Production from the LCV plant is expected to commence by 2010. The Nissan Atlas F24 LCV will be one of the first vehicles to be rolled out, besides products covering applications in the 1.2-1.5 tonnes payload range (2.5 to 8 tonnes gross vehicle weight). This will effectively help the two companies enter a segment that is currently dominated by Tata Motors' best-seller Tata Ace, that offers a payload of 1 tonne."

"The sub-1-tonne market is rapidly graduating to above the 1 tonne category and that is the market we would like to target," Seshasayee said.

The output from the LCV JV, intended for both the domestic and overseas markets, is expected to go up to 100,000 units annually in the medium term. About 20 per cent of the production is expected to be earmarked for the export markets. However, export volumes will eventually be decided on market requirements.

"We have finally embarked on a new venture for LCVs. We are already expanding the production capacity of our medium- and heavy-duty vehicles. With all our expansion initiatives, we are looking at a sales turnover of Rs 30,000 crore by 2012 from the auto activities of the Hinduja group," Dheeraj Hinduja, co-chairman, Ashok Leyland, said.

The LCV range produced by the joint venture will be marketed under the separate brand names of Nissan and AL, with the former addressing the premium range and the Indian company selling the value-for-money range.

The Ashok Leyland scrip remained stable on Monday closing at Rs 40.30 on NSE, rising 0.62 per cent over the previous close of Rs 40.05.