DAD, A BUNCH OF SUVS JUST ROBBED US!!!

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The Outlander’s launch in India has reignited the debate whether SUVs really have the wherewithal to run the full mile in present day conditions. The ever cynical Karan Mehrishi of 4Ps B&M refuses to die, er, a believer...

Along with defibrillation, Cardiopulmonary Resuscitation is an emergency procedure that is left for the last, when all else has failed. Not that I have ever been trained in CPR [though I do end up giving a few heart attacks to the men in my life... I mean those who’ve travelled in my car, geez], but there was no better a metaphor I could find to logically justify Mitsubishi’s launch of the Outlander in India. Well, if you thought the Lancer was the hottest babe to hit the east of Govindpuri [extn, if you please], Jack, pack your bags, the shuttle to Mars is about to leave... and I have space for just one more!

Yes, yours truly was one of the ‘Incredibles’ forecasting many years back that Mitsubishi’s Lancer launch would pole-vault it to the number one position in India! If I was wrong, they were wronger, and the Lancer the wrongest! But perish the thought Schumacher, for when Mitsubishi launched the super smooth designed Outlander in India on October 3, 2008, there was a similar resurrection of sorts doing the rounds. CPR is what I call it! This was/is the product that could rewrite Mitsubishi’s history... and future in India! And all in one go! There, I said it, as I had said it in the past. The visions of my past great glory and greater forecasts came rushing back. For the only small issue with the Outlander is that, well, er, it’s an, umm, SUV! Phew... That wasn’t so hard, was it?!

Try as hard as I may to believe to the contrary, the fact is that the SUV market globally has taken a hit worse than what Bachchan’s gut did in Coolie [I know, the simile sucks; kill me and burn my SUV down]. But first, some facts about the Outlander, and then some more about the SUV conundrum I’m facing paradoxically.

Along with its tenth generation Lancer range, the Outlander is an important pillar of Mitsubishi’s global turnaround strategy. As per its global aspirations, even the 2.4L MIVEC engine is a product of collaboration with Hyundai and Daimler. India is a rapidly growing market and can give Mitsubishi an avenue of expansion, but strangely, Mitsubishi has steered clear of volumes! At a price range that starts from Rs. 2.2 million, the Outlander will be positioned in the E segment and will be part of the newly formed SUV bandwagon. The Mitsubishi will compete with able competitors like Honda CR-V, Hyundai Tuscon, Chevrolet Captiva, Ford Endeavor and its own half brother Mitsubishi Pajero 2800. So far so good... Bachchan’s gut from here.

According to claimed figures provided by Mitsubishi-HM officials, the company sells no more than 250 units of its three prominent SUV models in a month. The company expects to sell no more than 100 units of even the Outlander in a month’s time. The competition is in a no better situation. As per SIAM data, falling to 1299 units, the sales of market leader Honda CR-V declined 12% in April-August 2008. The same fate was destined for Suzuki Grand Vitara and Hyundai Tuscon that recorded a sales decline of 47.6% and 79.6% respectively.

But what has confounded my genetically inherited cynicism [well, I’m overworked, underpaid, underweight, don’t have an SUV, and need a ‘brake’ goddammit] is that I see no hint of worry amongst the manufacturers. “The Indian market is evolving and there is a niche market where people are sporty and have an outdoor lifestyle. From next year onwards, things should start looking up,” said R Santhanam, MD HM- Mitsubishi.

Manufacturers are believers in the cult-view that even though the volumes are low in the high end SUV segment presently, there is a great scope for margins in the long term. With raw material prices like that of steel and rubber declining, players claims SUVs could indeed become – god save the BCG matrix – future Cash Cows.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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With competition on the rise, American Express has to re-think its strategies in India.Ratan Lal Bhagat writes...

When IIPM comes to education, never compromise

Wall Street could never have had a worse nightmare... But it saw one in broad daylight and became Fall Street in a matter of a few days! Giant after giant tumbled, and all in the white collar zone fled for cover... First the Fannie Mae and Freddie Mac episode happened. Then Lehman Brothers filed for bankruptcy. This was followed by AIG being bailed out. Next, Merrill Lynch was sold off and then followed Morgan Stanley’s and Goldman Sachs’ announcements that they would transform into commercial banks! Banks like Citi and HSBC are still hanging on, all thanks to their retail presence. In the face of all this, there is a giant who feels extremely uncomfortable, a giant by the name of American Express Banking Corporation (AEBC; it was known as AMEX prior to 2008) which sold-off its global retail banking arm to Standard Chartered during September 2007 for a mere $860 million! So does it make AEBC more susceptible to the ongoing bushfire, considering that it has a huge risk credit card business model in place? One primary reason why there still are survivors in this financial mess is because the survivors had invested in emerging nations like India, where high growth rates and low credit and default rates insulated them from becoming history. The story of American Express Banking Corporation (AEBC) is one of them...

Resilient and determined to fight the on-going battle of survival, this banking giant managed to find its way into the Indian sub-continent decades back. India soon became a huge hub, especially for its credit card and travel-related services. And the country soon proved to be a major engine of growth for AEBC globally.

But all things aren’t as rosy as the previous paragraph reads... Even in the country, AEBC has faced many obstacles – like the small urban consumer base (considering that as per World Bank, 47% Indians live below poverty line), increase count of defaults, intensified competition et al. So what is the future for AEBC in India and its strategies to achieve the imagined?

We caught up with Rob Hennin, Country Head, India, American Express Banking Corp. (read interview) and other officials in this American banker’s India unit to discover more about how it plans to grow, using India as the epicentre

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Don’t let a card test your intellect!

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With consumers failing to put a pause on consumerism despite rising interest rates, it becomes all the more essential for credit card users to be prudent in use and payment of dues to avoid a fatal debt trap that can wreck their financial health, says sunanda roy

“Oh, they are so essential these days.” Well, those were the words of an executive of an online portal when he was asked what he thinks about the usage of plastic money. He even showed some 2-3 credit cards of different banks and equal number of debit cards on the flip side of his wallet to prove that he is not lagging behind others in the use of plastic money. Definitely, plastic has transformed itself from a mere status symbol to a very essential commodity in recent times.

Both the volume and the value of transactions on credit cards are on rise like never before. As per the Reserve Bank of India’s Annual Report for financial year 2007-08, total value of transactions made on credit cards during the year amounted to a mind-boggling Rs.579.58 billion, up 40.1% from Rs.413.61 billion, the total amount spent by credit card holders during FY 2006-07. The total number of credit card transactions too have jumped from 169.5 million to 228.2 million, registering a whopping 34.6% growth as against a measly 8.6% growth in the previous financial year. A mere look at these figures clearly justifies the fact that the ideology of cashless shopping is roping in more Indian consumers than ever. In recent months, banks have been able to tempt more people to use more of their credit cards, simply by putting in place schemes like cash-back, discount purchases, free air tickets and so on.

Rabindra Gupta, a modern day executive says, “It makes your life really easy. You cannot carry cash in your wallet always; but with a card you can just swipe and shop whenever you feel like.” As per a banking analyst, “While simplicity of making payments is one of the primary drivers for growth of credit cards, growth of e-commerce has also stimulated its usage. So much is its utility in the modern times that it has become an integral part of our lives.”

But while the dependency on plastic money has made our lives easier, it is also driving toward a fatal debt trap. The best as well the worst part of using a credit card is you can buy today and pay later. And you can get your hands on a product even if you don’t have sufficient money with you. Now for the worst part, which many of us don’t take seriously, is that you tend to defer your payments and in the process incur huge amount of penalties and other charges. As a result, consumers end up paying an obscene amount for something which is higher than what they should have actually paid.

How the sharp increase in the usage and average spend through credit cards has led to piling of outstandings and payment defaults can be well understood, in fact, from the latest RBI statistics. According to the RBI Report, outstanding on credit cards went up by a massive 87% to Rs.265.96 billion by the end of May this year.

To be fair, another reason that has contributed to this large credit card outstanding is the surge in interest rates recently. Correspondingly, the financial load on existing and new consumers of personal, car or home loans has gone up, condensing their disposable income. But clearly, this has not put paid to their already high aspiration level and therefore conspicuous consumption. With the result that plastic money usage and defaults in payments have seen this alarming rise. Amount due on these people now constitute a major chunk of the huge credit card outstanding at present. What’s more relevant is the fact that if these people do not pay up in the near future, this debt trap will continue increasing.

To stay away from such chaotic situation, banks are now encouraging more and more borrowers to convert their credit card dues into personal loans in a proposal to stave off defaults prompted by inflation and rising rates. For a consumer with a large credit card debt, such a scheme is not bad. Because, dues under a credit card debt after the initial interest-free period draw interest rates to the tune of 18 to 38% per annum, where as personal loans are still hovering at rates starting from 14%. According to Robin Roy, Associate Director, PricewaterhouseCoopers, “The darker side of the story says that in the course of using a credit cards one keeps on postponing the payment. But while it’s a personal loan, there is a fixed repayment schedule. You are compelled in some kind of discipline.” This, for sure, will help you move out of the vicious circle of the debt trap. To err is human, but to recover from it is definitely intelligence. And in today’s world of high consumerism every one, who uses a credit card, has to show some of that intelligence to be safe and sound in terms of their financial health and planning.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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The idiot box is feeling the heat of the number three race.

When IIPM comes to education, never compromise

The idiot box is feeling the heat of the number three race. The crown is passing hands almost on a monthly basis. A battle or two is won by every new channel. But who will eventually win the war? Pallavi Srivastava investigates...

‘Everything is transient and it’s unwise to hold onto things, as tomorrow they simply may not be around’ is what Lord Krishna preached in the Bhagavad Gita. Centuries later, the fight for the number three general entertainment channel (GEC) crown on the Indian teletube is becoming equally transient. After the launch of three new GECs – 9X, NDTV Imagine and Colors, GEC rankings are changing on a fortnight to fortnight basis. So what is it that is making viewers so volatile? Why are new channels unable to sustain their high TRPs (grabbed in the first flush of their launch)? And does that means that in the long run the GEC equation will just keep shuffling between Star, Zee & Sony?

Sample this: In May 2008, 9X was at number three with a channel share of 11% while NDTV Imagine and Sony lagged behind with a 9% channel share. In July 2008, NDTV Imagine led the number three race with 10% channel share, 9X followed with 9% channel share, Sony’s channel share was 8% and the newly launched Colors had 4% channel share. In August 2008 (from 1st August till 25th August), Colors jumped to number three with 12% channel share. Sony, NDTV Imagine and 9X followed with 9% channel share each (as per aMap ratings).

The numbers clearly indicate that every time a new GEC is launched it replaces the existing number three. But unfortunately the neonate is not able to sustain it for long and loses to another new kid on the block. Anooj Kapoor, Business Head, SAB attributes it to the novelty factor. “If there are three apple sellers in a market and the fourth one comes and shouts that I have different apples, a lot of people would want to taste his apples. But when they realise that his apples too are just the same, they return to the original three.” In between the hullaballoo created by new channels, veteran Sony has started regaining its lost TRPs, thanks to some innovative programming and some star value (a la Salman Khan in Dus Ka Dum). So much so, the second week of August saw Sony outshine 9X and NDTV Imagine, both in terms of GRPs and channel share.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Curbing Inflation

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...a power packed punch from RBI

Ever since the inflationary beast crossed RBI’s tolerance level on March 1, 2008, there has been no looking back. As a matter of fact since then inflation has surged by over 84%. In fact the Central Bank has finally accepted that curbing inflation is its prime objective and has been taking a series of measure to limit the beast. As an antithesis to the efforts, the beast has been galloping at a faster pace and is pegged at a 13 year high at 11.42%; it is evident that the public’s ‘tryst with inflation’ continues.

The two recent measures, increasing the repo rate (rate at which the central bank lends to banks overnight) and CRR (cash reserve ratio, proportion of deposits that banks are required to keep with the central bank) by 50 basis points (bps) will have its impact on the corporate houses as well as individuals. As a measure to anchor inflation, the hike in CRR will suck Rs.200 billion from the market and help in restraining demand. For banks already struggling with high borrowing costs, the added burden will only lower its earning from each loan. Amid tightening monetary policy, it is the individuals and the banks that are the worst hit; individuals will either have to increase their loan repayment period or else bear the brunt of increased lending rates. And for the banks the difference between the interest earned from loans and the amount paid to depositors will further narrow down. “The CRR and Repo rate hikes are larger than expected. These will increase the costs for banks who in turn are expected to raise lending and borrowing rates in the days to come. Higher rates are expected to impact both consumers and corporates,” Dipen Shah, VP, PCG-Research Kotak Securities tells 4Ps B&M.

Banks have already started raising their prime lending rates (PLR); SBI has increased its BPLR to 12.75%, Union Bank to 13.25% ICICI to 13.50% et al and others are considering similar moves. For an individual who wants to settle the loan repayment in time, it means an increased EMI (for instance, for an amount of Rs.2 million for a period of 20 years the EMI at 12.25% would be Rs.22,371 while in the present scenario it could be as high as Rs.24, 147). Further, corporates too need to rethink on their capex plans for the cost of working capital and long term debts are likely to move northwards. In such a scenario it’s only those who have surplus cash who can benefit by higher interest rates on their savings; but considering the double digit inflation the fears of negative interest on the surplus looms large.

However the question is, will the RBI continue tightening monetary policy? Tushar Poddar, VP Asia Economic Research, Goldman Sachs, avers, “The RBI will wait and watch inflationary trends over the next several weeks, particularly signs of pass through to broad based inflation and broad money growth, before raising rates again.” Well, as everyone battles with inflation RBI’s next review of the monetary policy will be worth watching.

Gyanendra Kashyap

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
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