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BW Businessworld

The Second Coming

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Success is like a greasy pole. Just when you think you have made the top perch all your own, down you slip. Piaggio Vehicles (India) had managed to go a nose-wheel ahead of rival Bajaj Auto in three-wheeler sales for two fiscals in a row; in FY2009 and FY2010, the Italian firm sold 144,606 and 180,797 units, respectively, compared to Bajaj's 135,470 and 176,041. However, it turned out to be Piaggio's 15 minutes of fame. The old warhorse from Pune has responded in kind — in FY2011, its figures were 205,603 against Piaggio's 202,591. Again, in FY2012, Bajaj sold 202,979 units of three-wheelers against Piaggio's 184,362 (see ‘Losing Power').

FY2012 was a bad year for the three-wheeler market as a whole. Society of Indian Automobile Manufacturers (Siam) figures show sales dipped by 9.11 per cent year year on year in March 2012. While sales of passenger three-wheelers fell by 4.50 per cent to 406,236 units, those of the cargo segment grew by 6.31 per cent in this period to 107,015 units.

Down A Different Road
Piaggio is wired differently. Until 1998, every time you stepped into an ‘auto', it was a ‘Hamara Bajaj'. No one gave Piaggio, a rank outsider, a shot at whizzing past the leader. So it decided to play in cargo three-wheelers, the type used to deliver goods to stock up your nearby grocer.

Says Ravi Chopra, chairman and managing director, Piaggio Vehicles (India): "We created history with the Ape brand. Then, only a few hundred cargo vehicles were made by Bajaj, which had a monopoly in three-wheelers." What went in Piaggio's favour, says Chopra, was "Bajaj didn't have the product or technology. We created the market, we owned the market, we grew the market and we sustained our leadership".

When Piaggio came in, three-wheelers ran on petrol. Piaggio brought in diesel; it ensured a "value for money" proposition. Fuel efficiency, lower operating costs and high earnability made ‘Ape' a winner. Siam data shows it grabbed a 43.20 per cent market share in the first four months of calendar 2008 compared to 37.60 per cent in 2007; for these two years, Bajaj's share was 38.95 per cent and 42.89 per cent, respectively. In 2009 and 2010, it was cargo three-wheelers that propped up Piaggio's numbers. In 2009 and 2010, Piaggio's cargo sales were at 42,139 and 50,659; Bajaj came in with 10,197 and 11,548 units.

GOING STEADY: Bajaj sold 202,979 units of three wheelers in FY2012
Courtesy: Bajaj Auto

But the latest Siam figures show the ground beneath the company has shifted. Piaggio sold 58,043 units in FY2012, against the preceding fiscal's 61,549; Bajaj sold 7,838, up from 4,357.

So why did Piaggio lose pole position? "We fell behind the competition primarily because we did not have a suitable product and a solution for the three-wheeler segment using alternate fuels, which are largely dependent on permits in different states," admits Chopra.

Non-issuance of permits hit Piaggio's leadership in diesel three-wheeler sales in Tamil Nadu (TN). From 8,000-10,000 permits every year, it is down to zero now. In Andhra Pradesh (AP), the Telangana crisis led to lower government spends, impacting buying power and jobs in rural areas. Piaggio used to sell more than 3,000 units a month in AP; it is under 2,000 units now. TN and AP accounted for nearly 13 per cent of Piaggio's total three-wheeler sales.

Three Versus Four?
In FY2012, Piaggio witnessed a fall of 8 per cent in cargo vehicle sales for the first time in the four fiscals. The gap in three-wheeler sales between Piaggio and Bajaj stands at 18,617 units; up from the 3,012 units in FY2011. "Our strategic direction proved to be right in both FY2011 and FY2012. Despite negligible cargo sales, we are market leaders in three-wheelers," says R.C. Maheshwari, president-commercial vehicles at Bajaj Auto.

Experts believe the growth in 4-wheeler small commercial vehicles has dented the 3-wheeler industry; cannibalisation has also led to a decline in 3-wheeler sales in the last fiscal. It is a slugfest out there. Bajaj plans to launch its ultra low-cost 4-wheeler RE60, which was showcased at Auto Expo 2012; Piaggio has Ape Truk, Ape Truk Plus and Ape Mini. They also have to share space here with Tata Motors, Ashok Leyland and Mahindra & Mahindra.

20 kmpl is the average mileage of a fourwheeler cargo vehicle
Courtesy: Piaggio

Yet, Chopra sees it as a temporary phase. Maheshwari agrees: "Though 4-wheeler commercial vehicles have created the market for inter-city transport (cargo), 3-wheelers will witness growth due to their popularity for intra-city usage." Better return on investment, more mileage and lower maintenance costs will ensure three-wheelers survive. A three-wheeler gives you, on average, around 30-35 kmpl; a four-wheeler about 20-22 kmpl.


Focus On Strengths
Bajaj has chosen to focus on the three-wheeler passenger segment. It has nine offerings — RE 2S, RE 4S and Mega Max — in the passenger segment to Piaggio's two — Ape Extra, Ape City. "In the two fiscals, we sold a lower number of three-wheelers because we did not fight in the cargo segment... We shifted our focus to passenger vehicles. The declining cargo segment does not figure in our business plans," says Maheshwari.

"Three-wheelers are increasingly becoming passenger transport vehicles. Positioning of the brand is a big advantage for Bajaj, which is already a popular brand in the two-wheeler business," says Abdul Majeed, partner, Price Waterhouse.

"We created and owned the market, and we sustained our leadership"
Ravi Chopra, Chairman & MD, Piaggio Vehicles (India)

Chopra agrees on the potential of the alternate fuel-based three-wheeler passenger segment, but adds: "As of now, we are not playing in this market." Piaggio is more keen to regain its leadership in the cargo segment. It will roll out a fuel efficient, low-emission and compact three-wheeler powered by alternate fuels in July-September 2012.

Though lower in priority, it is also working on the launch of a small-body passenger 200 cc three-wheeler using alternate fuels by July 2012 to enhance volumes of the Ape. A state-of-the-art, fuel-efficient engine is also under development for powering this new vehicle.

Piaggio also has an eye on exports to Africa, Latin America and Sri Lanka. At present, exports are about 25,000 units per annum. "We hope to substantially increase export numbers with the arrival of the new small body petrol, CNG and LPG vehicles", says Chopra. The firm, which also owns well-known two-wheeler brands such as Vespa, Aprilia, Scarabeo, Moto Guzzi, Gilera, and Derbi, has the capacity to produce 1,000 three-wheelers a day at its plant in Baramati. It can produce 216,000 units of three-wheelers, 53,400 units of four-wheelers and 100,000 petrol engines per annum. The facility also houses a new two-wheeler manufacturing unit for the Vespa.

Among Piaggio's plans for the future are light commercial vehicles (4-wheelers) with capacities of half tonne, less than one tonne and 1.5 tonne. Can it get back atop the greasy pole?


(This story was published in Businessworld Issue Dated 02-07-2012)