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STRATEGY Can This Man Fix Bullet? Siddhartha Lal is young, ambitious, a bike freak, and the only son of Eicher promoter Vikram Lal. But that may not be all he'll need to revive Royal Enfield's declining fortunes. By Swati Prasad
It's half past two on a Wednesday afternoon and Siddhartha Lal is seated in his corner office, trying to pull out a number from his palmtop to prove a point. A delay in getting to the right file makes him nervous. He fidgets with the keyboard, stops to scratch his head, goes ''oops'' when he clicks on a wrong icon, and when he finally finds the data, his boyish face resurfaces from behind the palmtop screen, beaming. It's easy to see why the 28-year-old Lal is part-nervous and part-excited. For one, the subject under discussion is the future of Bullet-the best-known and flagship motorcycle marque at Royal Enfield Motors (REM). His critics say that Bullet doesn't have one, and Lal has set about to prove them wrong. What's worrying, however, is that two CEOs prior to him have tried and failed in the past decade. Worse, Lal is one of the three children of Vikram Lal-the promoter of Eicher, one of whose divisions REM is-who in December 1997 had hit the headlines for stepping down as the CEO of Eicher and promising to allow only professionals to run the show.
By appointing his only son as the CEO of REM, Lal Sr has sort of reneged on that promise. The only way the son can help his father save face-and ensure his own future in Eicher-is by delivering the goods. But even for a self-confessed motorcycle enthusiast (he did Europe on a Bullet five years ago), turning around a brand fast going downhill may not be the easiest of things to do. ''Equations in the industry are rapidly changing, and for a line of motorcycles that is not tuned to the market's most critical needs (of fuel efficiency and easy riding), survival is going to be very very difficult,'' says a Mumbai-based auto analyst. False Starts In an industry that sold more than two million motorcyles last year, REM has a negligible one per cent share. Last year, REM also posted its worst ever loss since Eicher acquired the business in 1994. The young CEO, however, is looking at the brighter side of it all. ''The good thing about the losses is that the mindset of our employees has changed drastically,'' says Lal. ''I could convince everyone that we have to change the way we do business. And they have confidence in me.'' Considering what's ahead, that may be the easiest part of Lal's work. REM needs help on almost all fronts: brand, technology, manufacturing, finance and marketing. For many years, the brand Bullet evoked images of machismo and raw biking power. Under assault from slicker and more fuel-efficient motorcycles, the brand retains its aura, but has lost its clarity of appeal. Agrees Santosh Desai, Executive Vice President, McCann Erickson: ''To survive, all brands must find new ways of communicating their core values to an ever-changing audience. Bullet has not done that. In fact, Bullet has been out of mind of the buyer, and out of the market, for a long time.''
Not surprising, considering that REM's product pipeline has produced just a trickle. Between 1994 and April 2001, it rolled out only four new models: Bullet Machismo (1994), Taurus Diesel (1995), Lightning (1996) and Machismo a-350 (1999). While Taurus had to be discontinued because of emission problems, Lightning has only sold 1,268 units since, although in comparison Machismo a-350 has done well with a count so far of 6,030. In anticipation of a sharp increase in sales, REM went ahead and invested Rs 38 crore in a second motorcycle plant in Jaipur to produce another 13,000 motorcyles a year. The other one in Chennai had double that capacity. But by 2000, it was clear that the investment was a mistake. Today, the Jaipur unit is shuttered and produces no return on investment. At a time when the bottomline is bleeding, a dead investment must hurt like hell. Cutting The Drag Which is why Lal, who prefers to repair his Bullet Machismo on his own, has been busy cutting costs ever since he took over. He has disbanded casual labourers and slashed executive strength by 30 per cent (most have been transferred to other Eicher divisions). The savings: Rs 2.50 crore per annum on employee costs alone. That apart, Lal has managed to shave 5 per cent off materials costs, resulting in savings of Rs 1,000 per bike. He's even done away with discount schemes without affecting sales volumes. On the contrary, he claims to have increased realisation by a quarter. Encouraged by such results, Lal is now moving to consolidate his gains. REM's 250 suppliers, who got together in May for the first time, are being helped with quality initiatives, with an understanding that a chunk of the savings will be passed on to REM. Simultaneously, Lal is dumping unviable suppliers in favour of larger suppliers. For instance, seats are now to be sourced from Tata Johnson, sheet metal from Iris, and motorcycle frames from India Meters. ''I have realised that you don't spend more by going to the (top) suppliers. Rather, you save more,'' says Lal. Over the coming months, more and more of components is to be outsourced. As of now, only 30 per cent of the parts that go into a bike are made in-house. By November, REM will manufacture only the powertrain (comprising the engine and transmission). The rest will be supplied by vendors. The idea being that REM itself should be free to focus on more critical aspects of the business such as product development and marketing. ''That's the trend in the automotive world, and it's good that REM is following it,'' says Satish Ramanathan, Vice President, ICICI Securities. If Lal's blueprint is anything to go by, he has a busy calendar ahead. At least for the next two years, one new model is expected to roll off the Chennai factory every six months (See Bikes In The Pipleine). In the works are a cruiser a la Bajaj Auto's Eliminator, a street bike, and a high-powered motorcyle with a 600-cc plus engine. By 2002-03, Lal wants sales to climb to 33,000 from 24,000 last year, and by 2003-04, touch the 50,000 mark. As a prelude, the company has cleaned up its logo, hired a new agency (RMG David in place of Sistas, Saatchi & Saatchi), and despite the losses, put together a new advertising campaign: Make Way For The Bullet. ''We hope to bring Bullet back to the consideration set of buyers,'' says Lal. Speedbreakers Ahead Just the same, a number of questions stare Lal in the face. The biggest, of course, relates to money. Developing a new motorcycle, industry experience reveals, could cost anything between Rs 2 crore and Rs 20 crore, depending on the amount of changes made in the basic platform. Even if rem is able to rustle up that kind of money to invest in new models, there's no guarantee that the sales graph will jump north. Then, there is the issue of technology. REM is one of the few players which does not have a technology partner. Instead, it has an arrangement with AVL of Austria for engine design; transmission design is sourced from Criterion Engineers, UK; and Fritz Egli (with whom Lal worked for a while) does engine tuning for Bullet. Marrying discrete technologies is not only complex, but also expensive. Lal argues that there won't be any problem, given REM's experience at handling such integration. Also, he says, the company has done market research and found out what prevents most people from buying a Bullet. The main culprits: gear shift on the right side, and the tough kick-start. Therefore, all future offerings from REM will have gear pedal on the left side and the rear brake on the right. Here, Lal could be treading on tricky ground. Whatever appeal the brand has as of now rests on its ''rugged'' image built over the last five decades. Any new technology that does not gel with the typical Bullet image could lead to a flight of the loyal customers, without any new joining the ranks. ''If I were Lal, I'd launch technologically superior bikes under a new brand,'' says R.L. Ravichandran, marketing chief of Bajaj Auto, who himself owned a Bullet for 18 years. Lal's answer: Bullet Clubs in nine cities and branded accessories (ranging from leather upholstery to jackets), which seek to grow the Bullet ''family''. Exports is another option he is exploring to beef up volumes. ''When people abroad think of India, the name that comes to their mind is not Maruti, Tata, or Bajaj, but Bullet.'' Sure, Phil Spender, Ford India's erstwhile CEO, did take a Bullet with him when he moved to America. And there may be other vintage bike enthusiasts. But it is unlikely that their numbers will run into lakhs-a reason why REM exported only 1,000 bikes and not more in the first half of this fiscal. Says Atul Sobti, Senior Vice President (Sales and Marketing), Hero Honda Motors: ''Siddhartha Lal is young, and it is good that he is motivated. But emotions need to be tempered with some rationality.'' Indeed, balancing passion with profits may prove to be Lal's most difficult ride to date. |
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