The automotive industry is gearing up to be BS 6 compatible in a few years. It will be a jump from BS 4 and can also impact market demand. In an exclusive interview to T Murrali of Autoparts Asia, Anuj Kathuria, President – Trucks, Ashok Leyland, explains the challenges involved in the new developments and how the company moves forward foreseeing market trends. The excerpts:-
Q: What innovations does Ashok Leyland make to manage the emerging BS 6 emission norms?
Kathuria: The entire country is working for a cleaner environment. The government is taking the lead in bringing stricter emission norms. For the commercial vehicles BS 4 is already mandatory and is going to be pan India from April, 2017. It is said that we will skip BS 5 and go directly to BS 6. While it is welcome we know that no country has gone from Euro 4 to Euro 6 in three years. We are going to try for that.
There are two parts to it. One is the availability of fuel and the other is technology. There is another dimension that is more India-specific. It is the cost of technology, the acquisition and operating cost. The other thing we need to take note of is that the Indian incumbent players are a little behind in technology compared to the other international players who are setting up shops in the country. We are ready and would try to do it in the best possible way to suit Indian conditions.
Q: What would be the average price difference between the pre and post-BS 6 vehicles?
Kathuria: It depends on which after-treatment you are thinking of – which vehicle, which application, what HP – it’s a combination. So giving one figure is not possible but the impact will be less than five percent. The change from BS 3 to BS 4 may not be that high but definitely BS 4 to BS 6 will be a big thing. There will be more pre-buy but we will have to wait and watch as it is coming in stages. Buses are now BS 4 in most States; the smaller LCVs will also go in for this change. BS 3 will be phased out. The entire impact will not show up in one quarter or so. Some States will go for BS 4 in April and some in October; some like Tamil Nadu and Andhra Pradesh will do in April 2017. Till then, at least the haulage vehicles will all be on national permits.
Q: Will ESC and ABS work in tandem with the complete vehicle system – in the tractor and trailer. In that case would you supply this as one unit, how do you plan it?
Kathuria: Both options are available. In some cases we partner with the trailer manufacturer and supply the complete unit. India being a very price sensitive market, many of the operators have their own trailers. It also depends on the applications for which the trailer is used. Today, many of them are coming up with the side-walled trailers because then they can put a container or carry some market load. If the ABS is on the tractor but not on the trailer it may create a challenge.
There was a time, about 10 years ago, when the trailers were not even having the matching brakes of the same braking power. If you can get a cost-effective solution on the tractor, it can be horizontally deployed on the trailer.
Q: This will be an option or a standard?
Kathuria: It has to be an option because the customer would like to configure it according to his needs.
Q: Do You use alloy wheels?
Kathuria: Alloy wheels are to showcase that we can bring down the weight further but the standard version would be coming with the normal wheels.
Q: Coming to the larger picture, the industry is recovering from one of the largest recessions. Last year (2015) has been good for the MNC segment. But the suppliers say that it is only replacement demand and no new purchases are happening. When do you think there will be improvement with new purchases?
Kathuria: What you say is only partly correct. There were two years when the total industry volume had fallen to almost 50 percent of the peak in 2012. Now the demand is being driven by certain projects that have kicked off. People are having the confidence to replace their fleet and there will be future demand. Most of the fleet operators are replenishing their vehicles; some are doing it to have a new fleet before the BS 4 comes in. Some other segments have also opened up. But nothing much has happened on the infrastructure front. This year has been good for demand and we expect 2016-17 also to be good as it would be the last year to get BS 3 vehicles for the haulage.
Q: When will LCVs recover?
Kathuria: It is difficult to say.
Q: What is the major reason for that? Is it oversupply?
Kathuria: There was a phase when LCVs grew very rapidly but now it has reached its saturation level. If it sustains it’s good. Take for example hub and spoke. It’s yet to mature in India as with hub and spoke certain segments may disappear. In the Middle East market where hub and spoke is in a matured form, it’s either the tractor-trailers or L-series and S-series. The medium 16 tonners and all that are not there. India being heterogeneous it may not happen that fast.
Q: Talking about the impetus for growth, one is the pre-buy. Will there be any other growth drivers from this year?
Kathuria: One of the key factors would be infrastructure. We are expecting something better than 2015-16. If construction and mining projects open up faster, they will naturally drive growth. The other thing that can drive growth is the restriction on 10 to 15 years old vehicles. This would help the replacement cycle. This has started in some States, in some pockets. In Delhi there is a fine on polluting vehicles. So the good news is that there is concerted and focused effort from the government to create cleaner environment.
Q: What could be some of the impediments for growth?
Kathuria: There will be some impact of the global slowdown in demand. How it will impact India, we will have to wait and watch. Drop in oil prices would aid initially but its effect on a continuing basis has to be seen; 2008 had nothing to do with India. The US was the first to get affected and the last to recover. Generally when a global slowdown happens, people become a little conservative in their approach.
Q: The CV industry has been facing a cyclical trend – ups and downs in demand. Do you have something for AL to insulate it from the vagaries of this trend?
Kathuria: We have a slightly different approach on this. Rather than insulate we do a better forecasting and understanding of the market so that it gives us a longer lead-time to respond and plan. On one side we are working on that and on the other side we are looking at how to reduce our response time and make our operations more nimble-footed so that we can respond faster to changes in the environment.
Q: Can you elaborate?
Kathuria: We have run a programme called PRISM for our frontline team. It’s ‘Practical Improvements in Sales and Marketing’. This has given us a deeper and sharper insight into how we collate the demand; how we understand the entire country in terms of micro markets and sub-segments, what are the other parameters like customer behaviour etc. Already we have started seeing results from PRISM on how to use the data and do lot more analytics to get a better understanding of the entire market. While we have to be efficient, we have to be effective. We also have to reduce our response time.
Q: The entire supply chain has to be tweaked accordingly; this intent has to buckle it down. How do you do it?
Kathuria: It is identifying our suppliers who will play a vital role in this and partnering with them we have a concept called ‘point of origin to point of use.’ Suppliers should be next door with a satellite plant or an ‘intelligent’ warehouse where some value addition can be done. Our MRP (Material Resource Planning) finally gives out schedules to the suppliers. Earlier SAP would do it on a weekly basis but today with MRP I can do it every day. So every day real-time schedules are going out; this gives maximum response time to the supplier. Most of this is in place today so we are able to respond much faster to opportunities that come from the marketplace. Our fulfilment of demand has become that much better.
Q: How flexible can the vendors be?
Kathuria: We don’t expect the vendors to do everything; we partner with them. We have a classification for our vehicles: runners, repeaters and strangers. The suppliers are given a sharper understanding of what is a runner
model, what will be the changes he can expect in this.
We are working towards a modular approach, trying to remove the long tail in the part numbers so that the supplier has to deal with a limited set of part numbers and his variants are also brought down to a certain level. So it has been a journey where a combination of different levers had to be synchronised.
Q: Earlier you had only limited number of products, now you are present in many segments. You are also giving customised vehicles; there are more varients in every model; You are pulled apart on one side by customers demanding variety, and on the other side by the cost. How do you really manage?
Kathuria: There are trade-offs but it has to be smart trade-offs. When you consider cost, 80 percent of the value will be in 20 percent of the part numbers. There you have more customisation and you don’t have to worry on cost. That’s why we are working on a modular approach. Going forward we will be having a complete modular programme on the entire business.
Q: Will the modular concept will apply across all units?
Kathuria: Ideally yes. We will get there, but we will start only with trucks as the volumes are more.
Q: Anything to do with the dealerships?
Kathuria: Everything, right from the way we design, configure, produce, source, distribute and reach to the end-customer. It’s a complete end-to-end process.
Q: How do you inculcate this into new product development?
Kathuria: There are several ways to do it. We are still to get to that level where we can say this is the one we have chosen for ourselves but that work is in progress.
This should happen in the next six months or so.
Q: What’s the update on the capacities? Are they fully utilised now?
Kathuria: Overall industry capacity is way beyond the demand. Everybody has created capacity so we should not expect higher capacity utilisation. We should be very efficient so that our break-even is quick.
Q: You will be happy with the present capacity for the next 5 years?
Kathuria: Capacity is something that has to be understood with the products you have to deliver. It is not only about numbers but it is about the mix, which has to be tweaked when required, with facilities to handle high-strength material.
Q: What is the difference you see in the Indian CV industry and the global plants?
Kathuria: Their power-to-weight ratio and operating conditions are generally very different from India. Even an 8-T vehicle would be powered by an 180hp engine. Their road conditions are better and it’s a more homogeneous market. Their standards on reliability, capability etc. is very high. The consequential impact on vehicle off road is low. We need products that can withstand the conditions here. The international market has also segments like first-hemisphere markets and some which are similar to Indian markets so it makes a lot more sense to focus on India-like markets.
Q: How do you see the capability of vendors in India evolving?
Kathuria: My view on this is that they have been catching up very fast. They are almost there. Many of these suppliers are international players and some of Indian origins are also venturing into international markets. They have understood that if they have to sustain profitably over the long-term, quality is the only way forward.
Gone are the days when the suppliers talked only about cost. OEMs are also now changing the focus; suppliers’ nomination and selection criteria is also undergoing change. Earlier it was cost focused but now it is beyond cost. We look at quality, reliability and technology. Earlier, there were tighter internal controls in the OEMs; now OEMs also want to partner with the bigger suppliers, the Tier-1s. So there has been an evolution in this.
Going forward, I feel that there will be very little difference between international suppliers and ours. Technology today is accessible either through technology partnering or joint venture – it is available for everyone.
You have to be a keen business man to understand which technology will work for you. You can’t do a cut and paste of the technologies that work in Europe and expect it to work here. It has to be adapted to Indian conditions with the frugal approach – this is very important. There has to be an Indigenised way of looking at it especially from the price sensitivity point of view; price sensitivity will remain in the Indian context.