Eicher Motors Ltd: Royal Enfield Comeback
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[pic 1][pic 2] EICHER MOTORS LTD: ROYAL ENFIELD COMEBACK MADE LIKE A GUN… GOES LIKE A BULLETINDEXIntroduction:Senior managers at Eicher Motors faced a tough choice; to shut down or revive the loss making Royal Enfield – their motorcycle division one final time. For that they wanted to modernise the bikes to appeal to a wider customer base. But existing customers wanted their Bullets just the way they had always been. By modernising, Royal Enfield risked losing traditional fans without possibly gaining any new customers. The case study details how it met the challenge.Just one person stood up to the board, insisting Royal Enfield should get another chance. He was Siddhartha Lal, a third generation member of the Delhi-based Lal family, promoters of the Eicher group of companies. “The board agreed to give me a chance,” says Lal. “It was not because of its confidence in me, but because the business was doing so badly it could hardly get any worse.” “Instead of being a mediocre player of 15 business, being a market player of 2 business is worthy” Lal stated. Thus the company dissolved 13 of its 15 products and focussed wholeheartedly on two, which included the revival of Royal Enfield business. History of Royal Enfield:The Royal Enfield motorcycles is one of the oldest living automobile franchise in the world. It is known as the tough beast, the ultimate warrior and the ever ready thing to go to places on. Royal Enfield was founded back in 1893 by George Townsend & Co. England with the motorcycles officially rolling out in year 1901 where it took the world by storm. The World War 1 and 2 witnessed this invention at its peak. One of the most revered brands in India has been the Royal Enfield Bullet. Owning and rising one wasnt just a matter of pleasure, for most it was a symbol of attaining manhood. Such is the aura of the brand, one of its riders who crashed his bullet into a tree on the Jodhpur highway got immortalised as Bullet Baba as per the Economic Times 2000 article. But many don’t know that Royal Enfield was originally a British company, which shut shop in 1971. In early years of 1950 decade the Enfield motorcycle company was merged with the Madras Motors so as to serve the demand, to supply motorcycles to Indian Army post independence. Till than the engine parts were imported from England and assembled in India. The bike maintained its legacy but the demand slowly started fading as the Japanese companies came into Indian market. This motorcycle enjoyed the crown until Japanese companies such as Yamaha, Suzuki and Honda came into practice. With most of the facilities around the World being shut down or not practiced any more, the good old Royal Enfield found it hard to survive. Till year 1990 the vintage motorcycle saw the worse and the production decreased drastically, but in 1994, the Eicher Group acquired both the company as well as the brand. Since then, the brand has taken many strides.
Why Eicher Motors wanted to shelve Royal Enfield: [pic 3]According to the financial reports, it can be seen that in comparison to the year 1999, the profit the company garnered from operations before tax was negative in 2000. Few of the reasons were the underutilization of the Jaipur plant with high overhead costs. The companys total capacity was 39,000 units per annum at its plants at Chennai and Jaipur, but it was producing a little over 2,000 units a month. Manufacturing at the Jaipur plant, which had a capacity to produce 13,000 motorbikes, got under suspension and was expected to resume operations as soon as the Chennai plant achieved full capacity utilisation. With losses mounting for years, the company was seriously contemplating on shelving the motorbike and concentrating on other sources of revenue. Another reason was the low fuel efficiency and high maintenance costs that gave a certain pull back to the Royal Enfield motorcycles. Moreover, as applying automation and changing the parental design would had resulted in diminishing the rich history this motorcycle has built over the past century, the Royal Enfield Co. found it hard to sustain with automation techniques evolving every day in the vehicle industry. From the inconvenience of orthodox gear lever alignment (with gear lever on right side and the rear brake on the left side), to the daunting kick start problem (needed strong legs to start this motorcycle), it was true when they said that a Royal Enfield is not for everyone. Though the bikes had diehard followers, there were also frequent complaints about them – of engine seizures, snapping of the accelerator or clutch cables, electrical failures and oil leakages. Many found them too heavy, difficult to maintain, with the gear lever inconveniently positioned and a daunting kick-start. The whole crux of the problem was that despite the bike’s cult following, the motorcycle division was bleeding badly. The only way out was to appeal to a wider base by making product more reliable and creating a bigger customer base. Industry Analysis:Through Porter’s Five Forces, we can see that the motorbike industry is very attractive.Competitive Rivalry:Rivalry among the competitors was very strong in the industry. Intensity of rivalry on the basis of price, quality, durability, and many other aspects of different manufacturers are the most important factors when purchasing a brand.For example, once the economy was sufficiently opened up to allow the Japanese invasion with cheap, lightweight, unspeakably low-powered but miraculously fuel-efficient motorbikes, all local manufacturers such as the Yamaha RD350 and the Yezdi were in serious trouble.