N. Ramakrishnan

Mr Arvind Mathew has taken over as Managing Director and President of Ford India at a time when the company is preparing to launch a premium mid-size car. The company, he says, is in turbo-charged mode. A post-graduate in mechanical engineering and an MBA with specialisation in operations and finance, both from the University of Michigan, Mr Mathew is confident that the new car will do well in the market. Before he was elevated as Managing Director, Mr Mathew was Vice-President and Executive Director, India Programmes Implementation and Supply, Ford India.

Excerpts from the interview:

Could you give us an update on what is happening at the company?

We are focussed on the new product, which we will launch later this year. It is a busy time trying to integrate the new model alongside building the existing products. We are reaching the stage where the manufacturing, purchasing and engineering teams are going through their ramp-up and then the marketing and sales side will take over. At the moment we are slightly in turbo-charged mode, building up to December.

Is it based on a totally new platform?

It is. Ford has the shared technology concept where you create various critical systems which then various brands — Ford, Mazda, Volvo, Jaguar — can take parts out from the parts bin, as it were.

The various brands can then tweak the exterior styling. Whatever the customer touches, sees and feels is tailored to the brand. We have taken the shared technologies out of a relatively new platform and created our own environment. The world will see the car for the first time when it is launched in India.

Is there a design behind why Ford has decided to launch it first in India?

I guess it shows the level of importance Ford gives India and the rest of the region. Asia Pacific is clearly an important region for Ford. And India is critical. I don't think other manufacturers have done that. Other manufacturers have brought out products that have been launched elsewhere and fairly quickly launched them in India. We have done a little bit of the reverse. I think it is to show Ford's dedication to India. Once we get comfortable with the product here, we will see what we can do with it around the region.

You have said that the car will come with petrol and diesel options. Is the diesel engine going to be made at the HM plant?

At the moment we will be importing the diesel while the gasoline engine and the transmission and the diesel transmission will be built by Hindustan Motors. Our strategy is to have at least 70 per cent localisation at the time of launch, if it is a volume car.

The Ikon, for instance, at the time of launch had 70 per cent localisation and is now 90 per cent. We will have the same strategy for the new car. There is only so much that you can do in a given amount of time. Our projections will be 70 per cent local at Job 1.

Will it be the same 1.4 TDCi (turbo diesel common-rail injection) Duratorq that the Fusion in Europe features?

Yes.

Then why are you not introducing it in the Fusion?

We have positioned Fusion as an urban vehicle. In large cities, we find that customers are not doing the high mileage type driving. The customers are fairly happy with petrol at the moment. We are going to keep Fusion with petrol. I think diesel is a great option if you are into high mileage. The diesel engine that we are bringing in is absolutely outstanding. It meets all the emission norms. We are pretty pumped up about that engine.

Where is it going to come from?

At the moment, it is going to come Continental Europe. It is not England.

Which means that you are not going to be able to leverage the Thailand FTA benefits?

In the short term, the car is for our own purposes. We can start looking around the region in the next six months to one year as to where we can send this car and then the FTA benefits will come in.

Are you saying that you will get FTA benefits if you send this car to Thailand?

Absolutely, as components. I can send components, engines, transmissions from here. I can send kits. Of course, the early harvest scheme only applies to engines and transmissions. On that one, I can book the low duty rate. The rest I cannot.

For Ford, Thailand is not a big sedan market. It is a big pick-up market...

Yes, it is a big pick-up market. But also a growing C car market. In Bangkok congestion is becoming a big problem and pick-up trucks don't help. You are finding that small cars are making a come back in Bangkok, not so much in the rest of Thailand.

There is market in Indonesi; China, obviously, we all know. We can leverage the free trade agreement as we can when South Africa has a free trade agreement with us, Brazil, Singapore. These are all coming over the next two to three years.

What kind of projections do you have for the new car?

At the moment our assumption is that we will support the volume in India first.

When we start to export it will be incremental volume with little or no incremental tooling. That is how we did the business model. We are fairly confident that this car will do fine just by itself.

You mean to say that your projection of going from 50,000 units in two shifts to one lakh units in three shifts is based on this assumption?

At the moment we can go without expanding the plant. We can satisfy demand from the local market from this plant and I can take this plant up to 65,000 without doing anything. If I have to go to 100,000 there are small bottlenecks in the paint shop. If the volume comes we will attend to that.

Who would be the target customers for your new car?

The car is a premium car. It would be in the top end of our C segment, mid-size segment.

This particular segment is definitely growing and there is opportunity for more refinement, more comfort and a good amount of fuel economy. The new car will address all these.

How is the market looking?

It was actually looking pretty good until July 26, when the rains started. The monsoons have taken their toll in the West, and a little bit in the North.

We are seeing a bit of a slowdown in those areas. I think it is a short-term phenomenon. In September we will be fine again.

What do you think the government should do to push car sales?

There a couple of things... The ones that have not switched over to VAT, as soon as they toe the line, that should be fine. The whole cascading of taxes just raises the cost of the vehicle. Also, making sure that our import duties are consistent with some of the biggest competitors, that is Asean.

We have got to compete as a country. Import duties, any unique taxes that States may put into place, we have to take a look at that. Longer term, the infrastructure needs to improve. We are going there, but we have seen a slowdown over the last year.

What happens if the Government does not cut excise duty?

I think we will stay at the same rate we are growing at right now, which is not as fast as the way China is growing. . India and China are the fastest growing markets. We are also seeing a general shift in purchase choice. It is going into the segments where we play quite well. We have seen that the biggest growth is really in the C segment. With disposable income increasing and financing schemes getting more aggressive, a lot more customers are moving into that segment.

But you have only the Ikon to take care of the growing segment...

We have got Ikon, Fusion, Endeavour and Mondeo. We are putting an incremental car into the line-up and when you look at the overall portfolio, with the cars that we brought in we actually created a lot of these segments. We don't like to go in and play in existing segments, just scrapping for the same kind of volumes. We try and create new segments, and when they grow we benefit. The Ikon is an excellent product. Customers still love the Ikon. As long as customers want the Ikon, we will give it to them.

Over the last two years, you were looking at the company's component sourcing strategy. What is going to be the strategy moving forward?

From an engineering perspective our focus has always been design for India and things that we design for are low cost of ownership; robustness, whether it is road condition, whether it is air-conditioning performance or water wading. You know in the Mumbai monsoon, it is the Ikon that actually went through the floods.

Since 1998 we have been developing the supply base from a young base into a capable one today. The supply base in India over these years has grown and some of them compete on the world stage.

The capability of the Indian supply base has been great, not just in engineering the parts, but in delivering them on time, they meet all the test requirements plus production.

There are a couple of building blocks that are absolutely critical to support India. One is the supply base. Our own people. Our people have done three back-to-back launches — Endeavour, Fusion and now this one. In terms of capabilities they have grown immensely.

What about Q1 certification for your suppliers? How many have got it?

We have about 140 suppliers; 55 per cent of them are in the South, 25 per cent in the West and the rest in Delhi. I have got 25 Q1, which is an internal Ford metric. To be able to compete and supply to Ford worldwide you need Q1 certification. It is like a stamp of approval.

Once you go to Q1 you don't have people coming to check on your quality, you self-certify. It is a level of trust that the company places in you. It is a fairly rigorous process you go through. You are monitored over three years. You have to get quality certifications, environmental certification.

On top of that Ford has its own metric that it tracks for three years — on quality and quantity. If you slip on any one, you are penalised. Over time if you consistently maintain the requirements you get awarded the Q1. We have 25 suppliers with Q1 certification and by the end of the year we will add another five. The minute they slip up, however, the risk could be that they could lose their Q1 certification. It is not as if you get it and you sit on it. It is monitored on regular basis. Once you get the Q1, you could supply to Ford anywhere in the world. And once you get into the global database, you are tracked.

What about the other brands in the Ford stable?

We have started putting the right building blocks in place. The other brands are keeping an eye on India and, if and when they decide to enter, they will leverage the building blocks. It is not as though they are not keeping an eye on India. But they will come in their own time.

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