VECV to invest 288 cr; to become global engine manufacturing hub

Maggi did it for noodles. Xerox did for photocopying. And Volvo has done it for luxury buses. In India, it has, at least.

If it is a luxury bus that you want to go inter-city travelling in, you don’t quite mention the term ‘luxury bus’ anymore. You simply say that you want a ticket for the Volvo and then go on to state your preferred time of departure. That is how synonymous Volvo has become with transport solution at the premium end of inter-city transit spectrum.

Volvo can rightly be credited as being one of the first to recognize the enormous potential of the Indian market and their efforts applauded for launching high-end buses much to the relief of a lot of Indians who preferred a comfortable, efficient and safer option to travel in, if they were offered one.

In much the same way, Royal Enfield (famously called Enfield by most), has done absolutely the same thing to the world of motorcycling. Mature markets like USA, Europe and Japan have the concept of segregating the motorcycles of different capacities and nature into segments like Sports, Super Sports, Super, Cruiser etc.

India, let’s be honest, despite of being a big and extremely challenging market for motorcycle makers, isn’t as mature. So, there is no such concept of differentiating motorcycles into Sports bikes or Superbikes. Okay, it is also because we simply don’t have sports and superbikes as readily available as, say a commuter. We get 100cc, 125cc, 150cc, 180cc, 200cc and 250+cc segments. And anything with an engine capacity of 150cc or more is termed as ‘performance’ bike here. So it is not surprising that the concept of Cruiser bike was never really well established in India at all.

But that was only till Royal Enfield decided to do something about it. India, though maturing as it takes each step, is still a very sensitive market. Therefore, it does not make sense to go bonkers and come out with a million cee cee engine producing a volcano of power. And it is here that Royal Enfield managed to pull a trick. They offered something that no other bike maker was offering – the concept of cruiser bikes.

With the heritage behind it and the brand basking in the glory of history, Royal Enfield established itself as the father of cruiser bikes in India. It became the Harley Davidson of India. Indians didn’t use the term ‘cruiser’ when talking about that segment – they simply started calling it Enfield.

So what’s the connection between Volvo and Royal Enfield here? Sorry for going a bit off-topic, but it is the Volvo-Eicher JV that I wanted to talk about. You see, Royal Enfield is owned by the Eicher Group and Volvo is a strategic partner of the group, hence the connection – however vague that is!

Volvo Group and Eicher Motors Limited formed an alliance in July 2008 and formed what is called VE Commercial Vehicles Ltd (VECV); VE of course being Volvo-Eicher. For the uninformed, the company includes the complete range of Eicher trucks and buses, Eicher’s components and engineering design services businesses as well as the sales and distribution business of Volvo trucks within India.

In a global first initiative, VECV has announced an investment of Rs 288 crore  in its Pithampur plant for the production and final assembly of the Volvo group’s new global medium-duty engine platform.

Volvo is the number one player in the segment of heavy duty trucks globally, and is now entering the medium duty truck segment. VECV is already producing about 40,000 engines per year at the Pithampur plant and with the new investment, the annual production capacity is expected to be beefed up by additional 85,000 engines.

The new medium-duty platform comprises 5, 7 and 8-litre engines in configurations from 215 to 350 horsepower. The engines are based on the Volvo Group’s new PSS engines and will be manufactured to cope with emission requirements according to the Japanese PNLT (Post New Long-Term), the US EPA 2010, as well as Euro 3, 4, 5 and Euro 6. The 5 and 8-litre engines will be produced and assembled in India while the 7-litre engine will be produced and assembled only in Japan.

Interestingly, Eicher grew by 95 percent last year and with this new announcement, expects solid growth as the engines will start to roll off by 2013 and Eicher’s own heavy-duty trucks will also derive power from these engines.

Back in 1998, the Asian region contributed a meagre 5 percent to the commercial vehicle sector. But the figure has since risen to as high as 25 percent, as of Q1, 2010 and India is posed to become one of the most crucial players and a profitable market in the CV segment.

Volvo aims at achieving 80 percent local sourcing level from low cost countries like India and Thailand and is already sitting at 15-20 percent sourcing from India.

According to Par Ostberg, President, Trucks Asia, Volvo Group and Chairman, VE Commercial Vehicles, “This investment by VECV in its Pithampur plant gives the Volvo group a complete facility in India for manufacturing  and assembling the new medium-duty engine which will be introduced in the Volvo group’s trucks and buses worldwide over the next few years. Additionally, these engines will also be used for Eicher’s range of heavy-duty commercial vehicles. ”

Siddhartha Lal, MD & CEO, VE Commercial Vehicles, added, “VECV has been entrusted with building the medium-duty engine for Volvo group’s global requirements at our facility in Pithampur. This is possibly the largest such project in India and certainly the most technologically advanced – as we will be producing base engines capable of Euro 6 emission norms. This will catapult VECV into one of the largest commercial vehicle engine manufacturers in India and will give us capability well beyond any of our competitors. The very high quality and durability requirements of the Volvo group, such as a million kilometer duty cycle for such an engine, will allow us to also give the Eicher brand heavy-duty customer a level of reliability and asset life that is unparalleled in India. This will be another large step towards our vision of becoming a leading CV player in India and other emerging markets by driving modernisation in commercial transportation.”

According to Peter Karlsten, President, Volvo Powertrain, “A global manufacturing hub at VECV’s Pithampur plant is an excellent example of how the Volvo group can leverage it global presence to reduce costs for engine manufacture while making maximum use of its industrial strength. VECV already has a robust supply chain network and with this new development, VECV becomes integrated with the Volvo Group’s global supply chain.”

Leif Johansson, CEO, Volvo group, added, “With the medium-duty engine platform, the Volvo Group will now have an engine platform that combines the latest in Japanese technology with India’s highly competitive production cost. Asia is an increasingly important market for the Volvo Group, with excellent growth prospects and this investment means that we will have even better possibilities of developing products adapted for this part of the world, thereby allowing us to capitalize on this growth.  By gathering base engine production in India, it will be possible for us to meet the Group’s need for cost-efficient medium-duty engines in Asia, while also contributing to an increase in our competitiveness in the medium-duty segment in other markets.”

As a concluding statement, Siddhartha Lal said, “The medium-duty engine project exemplifies a perfect fit for synergies between VECV and the Volvo group. With this development, VECV will become one of India’s largest and the most technologically advanced engine manufacturer. With the production of base engines for Euro 6 requirements, VECV will be future ready for the year 2020 and beyond. ”