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By sewing up a binding master co-operation agreement with Nissan Motor, Hinduja Group flagship Ashok Leyland has formalised its entry into the light commercial vehicle (LCV) segment. The partnership will entail an investment of $500 million, for the formation of three joint venture companies.

The alliance will lead to the birth of three companies. A vehicle manufacturing company with 51% by Ashok Leyland and 49% by Nissan. This will kick-start production in 2010 and will include new generation Nissan Atlas F24 light duty truck, in addition to a range of products covering applications from 2.5 to eight ton gross vehicle weight.
A powertrain manufacturing company, where Nissan will own 51% and 49% will be held by Ashok Leyland, to manufacture and assemble engines and other drivetrain components to be fitted in LCV products and for export. Third will be the formation of a technology development company, to develop LCV products and related powertrains, for the Indian and select global markets. This 50:50 JV company will be located in Chennai, where products developed, will be sold under the Ashok Leyland and Nissan brands.

Announcing this at a press conference, Ashok Leyland managing director R Seshasayee said crafting a strategic partnership, to make its foray into the LCV segment has been on the company’s radar for some time now. The company has been consolidating its position in the medium and heavy vehicle segments and the new partnership is expected to help address automotive adjacencies, especially in the critical LCV space.

“Nissan Motor is a very respected name, offering hi-quality engineering. We have been looking at several alternatives in the LCV segment and developing our own technology for that,” he said, adding that the Nissan tie-up will enable brand value to be shared that would be complementary in nature.
“We have had an extremely smooth sailing with Nissan. We have concluded this agreement for a lasting and a durable partnership,” he said, adding the pact will adopt the frugal engineering approach to churn out hi-quality products and ensure market penetration.

Expecting an extremely challenging task ahead for both companies, Mr Seshasayee said by 2010, tight targets would be in place from the investments and cost and pricing structure perspectives. The full-range of vehicles will position the company as a global player and it will be backed by support in all its adjacencies from Nissan.

In the medium term, production volume, for both domestic and export markets, is expected to grow beyond 1, 00, 000 units annually, he added.

Ashok Leyland co-chairman Dheeraj G Hinduja said after a 60-year focus on the heavy commercial vehicle segment, the company had been able to embark on its LCV foray, in line with its aggressive future corporate plans for growth.
The group has plans in place to expand capacities to 1.80 lakh units in the medium CV segment. By setting up state-of-the-art production facilities and nurturing the talent pool, the group’s global vision is to reach Rs 30,000 crore sales by 2012 for automotive hub activities.
Nissan president and CEO Carlos Ghosn said, “buoyed by the relationship with the Hinduja group, the three joint venture companies are aimed at pursuing opportunities in the commercial vehicle segment in India and export markets.“

LCV has acquired a status globally, with global sales rising 57% to touch 4.90 lakh units in 2006. It is expected to reach half-amillion mark in 2007, he said, adding Nissan is keen on building the momentum by having 8% operating margin in the segment.
Having robustness, durability and combined low-cost ownership in the vehicles is meant to exceed expectations at every level. By focusing on functionality and reliability, Nissan is banking on its partnering approach to work on a long-term basis in India.
“We are confident that this new pact will grow. Ours is a long-term investment and we are very encouraged by the opportunities for Nissan in India. The country’s potential for high skill, knowledge, offers opportunities for Indian automotive industry,” he said adding that frugal engineering will be the basis for solving problems in a methodical way.

Though a different approach using common technologies has worked in places like Japan and Europe, the Indian automotive sector has to achieve more with technology. A new perspective had to be created to its own engineering efforts, Mr Goshn said.

To a query, he said the growth was more promising in the developing markets of Russia, China, India and the Middle East, and that mature markets had become stable. “It is very strongly growing developing markets, where the market requires our presence,” he said, adding in seven years time, the global CV market has seen an addition of 11 million vehicles.

If mature markets accounted for 40 million units of the 54 million units sold pre-1999, the figure was 65 million units now, with developing markets constituting 21 million units, Mr Goshn said.

Regarding the location, Mr Seshasayee said Tamil Nadu, Uttarakhand and Andhra Pradesh were the short-listed destinations and it would take a few weeks to take a decision based on parameters like the concessions, logistics and market access for the products.

Asked specifically about its other partners, Mr Goshn said the LCV tie-up was an exclusive one with Ashok Leyland and it was ‘impatient’ to get it on-track by 2010.

Nissan has completed its land acquisition for its passenger car project with Mahindra and Mahindra. It is gearing up for the building phase, to commence commercial production by early 2010. Its third collaboration with Renault and Bajaj will focus on the under $ 2500 intra low-cost car project. The company does not have any plans for the heavy duty CV segment, he added.

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