Bajaj Auto ups stake in KTM to 25 pc; to go for more- Automobiles-Auto-News By Industry-News-The Economic Times
Bajaj Auto ups stake in KTM to 25 %; to go for more
14 Dec 2008, 1143 hrs IST, PTI
NEW DELHI: Two and three-wheeler major Bajaj Auto Ltd has increased its stake in Austrian sports bike maker KTM to 25 per cent and is planning to
go for more.
The Pune-based company had last year announced acquisition of 14.5 per cent stake in the Austrian firm for about Rs 300 crore. It was further increased to 20.9 per cent earlier this year.
Confirming the development, BAL Managing Director Rajiv Bajaj
said that the company had increased its stake in KTM to 25 per cent "a couple of months ago".
Asked if BAL is likely to increase it more, he said, it is "going up further" without specifying details.
Bajaj also declined to comment on the valuation of the fresh stake acquisition in KTM citing confidentiality.
Last November, the two companies had entered into a 'wide-ranging cooperation' arrangement besides BAL picking up the 14.5 per cent stake from open market.
Under the agreement, the companies planned to jointly develop high-efficiency bikes, sourcing for production and assembling of KTM bikes in India.
The jointly developed bikes would be produced at BAL's Chakan facility for export to Europe under KTM branding and the commuter version of the bike on the same platform could be sold in India under the Bajaj badge.
The companies were working on developing two platforms in India for motorcycles, which are expected to be commercially launched in the market by 2010. They have invested 35-40 million euro on the development of the platforms.
The agreement also envisaged BAL marketing KTM bikes in South East Asian countries, besides India.
Besides, the Austrian company was considering an alliance with Bajaj to bring its premium motor racing cars to India.
FROM KTOOMS PERSPECTIVE...
KTM Outlines Plan for North America
Sep 5, 2008
By: Guido Ebert
KTM expected to sell about 95,000 units worldwide for its fiscal year ended August 31. The OEM sold 90,306 bikes in the 2007 fiscal year, up 7 percent from 83,985 units sold in 2006.
It's been a busy year for KTM. In August 2007, KTM North America, Inc. announced it would take over Husaberg distribution in North America; in September, the OEM showed its first two ATVs and announced construction of a new facility in Graz, Austria, to produce the X-Bow automobile; and, in November, the company unveiled its 1190 RC8 sportbike at the EICMA show in Italy and announced India's Bajaj had bought more than 25% of KTM.
Then in 2008, KTM announced that, while revenues were up, earnings would worsen "due to the continuously weak U.S. dollar." The OEM said price adjustments and a selective product policy in North America would partially compensate the negative exchange rate influences. For its fiscal third quarter ended June 30, KTM Power Sports AG said that while worldwide revenue was up 10.4 percent compared to last year's third quarter, a depreciating dollar, greater R&D and facility expenses, and higher supplier costs combined to bring third quarter earnings down 70.3 percent in the comparable periods.
Jon Erik Burleson, president, KTM North America, Inc., says the Austrian brand's dealer-related goals in this new fiscal year include cleaning up existing floor stock and further establishing presence in the on-road category.
Burleson and Hubert Trunkenpolz, managing director, Sales & Marketing, KTM Power Sports AG, recently met with Dealernews to discuss plans for KTM's new business year. The conversation was edited for brevity and clarity.
What are KTM North America's main goals for 2008/2009?
Burleson: I think we need to concentrate on our ready-to-race brand philosophy and build on the asset of the KTM brand — building the brand as a premium European on- and off-road motorcycle manufacturer.
We'll do that in two phases: 1) by rebalancing the market so our motorcycles are being sold in a market without discounts or anything like that; and 2) by taking that next step with our dealers regarding how we develop our on-road motorcycle dealer network, our on-road motorcycle client base and our overall activities in the on-road market.
How do you plan to accomplish those goals? Does 'rebalancing the market' pertain to dealer stock?
Burleson: Regarding the first point, I think the number one issue, in a market like this, is to adjust your market expectations and your sales expectations to what you believe the premium segment of the market has in it. It's always good to have one less of a product than what the market wants if you want that product to maintain a good demand at the price you sell it for.
On the streetbike side of the business, we have to get into the lifestyle, and we have to do that with our dealers — it's about dealer commitment, and about dealer staff commitment. For us, it's really going to be key to find those KTM dealers on the street side of the business that really embrace the street side of the business, and give them the opportunity to really make a good business model out of KTM street product model line. And those are likely not to be the total count of dealers we have for off-road.
What does the product pipeline look like? Enough machines? Not enough machines?
Burleson: There's definitely a healthy supply of '08s; '07 and back is quite clean. I think, compared to our competitors, the pipeline is very clean. Models for 2009 have just started delivering, but our general feeling is that we should have a pretty spot-on matched production to what we think demand is going to be this year while also enabling that '08 product to move its way through the pipeline.
What kind of programs does KTM have to aid dealers in moving machines?
Burleson: Discounts and the devil begin with the same letter for a reason — discounts aren't something we like to go after.
On the street side, I want every street-qualified dealer to have a demo — at least one demo — because demos are what moves retail product forward. In off-road, we do have to have very good retail financing offers. We've got 5.99% for 48 months on anything over $10,000. And, as a small incentive to help push the '08s through, we have a no/no financing program through our GE Funancing card that offers no payments and no interest until March 2009. So, while we do have a couple of offers, you're not going to see us with $1,500 rebate ads and things like that because that's more damaging to the brand than almost anything else could be.
What has KTM had to do with pricing, due to the currency exchange rate, raw materials costs, etc.?
Burleson: We had to determine where we felt our product positioning needed to be, and what the market quantities could be, and so we re-priced '09 quite a bit. There's quite a bit of a price increase from '08 to '09.
I thought that was a step we needed a little confidence to do, and now that we've made it, I reflected on perhaps not having enough confidence in the value of the asset. People are willing to pay a good price for a good product. And I really believe in our product; we know KTM is a solid product, so our pricing is definitely at a place where we are at a significantly premium position to anyone else within the market.
MIC numbers show a slowdown in traditional ATV sales and in off-road. What do you believe is causing the slowdown?
Burleson: With our ready-to-race brand, one of the toughest issues has been fuel costs. To go race, you have to load up your truck, and your trailer, and if you've got only $1,000 or $1,500 in a weekend, to have $500 or $600 burn up on just gas is tough.
And land access?
Burleson: Huge issue. Land use is one of the critical issues for off-road motorcycling in the next decade. In the past it has been noise and emissions. It's going to be land use…general access.
Land use is something, unless we?re active as a company, we're going to get restricted more and more. So, this year, we're taking what we?re considering a proactive approach by underscoring land use rights. As a result, we've asked the AMA, Blue Ribbon Coalition and the Off-Road Business Association to come and offer a seminar on how to work with dealers to take the land-use issue from a national level down to the local level. We have an army of orange-bleeders selling our motorcycles, we need an army of orange-bleeders protecting our rights to ride those motorcycles.
Burleson: This year you'll see us go a little bit more online in our advertising, as well as on various insertion pieces in many of the major magazines. We'll have one that focuses off-road, one that focuses on street. We don't want to show up as a page of advertising next another page of advertising next to another page of advertising. I want something to show up that's orange. I want something orange that's tailored to the customer — an informative piece that calls your attention to the brand and gives the consumer a teaser to go to either our Internet site, a micro site, or even using it as the springboard for going into the dealership. So it'll be a pretty big departure from our usual advertising program.
How has the weak dollar impacted business for KTM?
Trunkenpolz: Tremendously, because in the first three quarters we lost €21 million in profit, so it has been a tough issue. A big part of Europe is also already in recession. It's a sad thing; the entire globe is in a critical economic situation.
On the one side, we cater to the premium customer who can afford a motorcycle; on the other side, a motorcycle is not something you necessarily need to survive. But since our customers are really quite brand loyal and desire that top-level product, I think we may be suffering less than others.
What's going on with Bajaj — the Indian firm that purchased about 25% of KTM earlier this year? Numerous India-based news outlets report the two firms working on a scooter, small car and trike.
Trunkenpolz: (laughs) None of that is correct. It's 100% wrong. We?re working on 125cc and 250cc projects and that's it. I also want to stress: The rest of our production will remain in Austria — we will not move any production from Austria to India because it would be totally contrary to our otherwise premium strategy.
Why did KTM hook up with Bajaj?
Trunkenpolz: The strategic partnership we have with Bajaj is essential to us. Asia and India will be a tremendous market, and so we feel we have to be there to take advantage of that. And, if you want to be there, you need a partner. Otherwise you'll never make it in that market.
Finally, you mentioned the X-Bow automobile. You've told me it's coming to the U.S.
Trunkenpolz: We want to sell it in the U.S.
Burleson: The car has offered a huge brand impact for us in the States already. However, as Hubert has mentioned, our biggest stumbling block is to address the liability issue. When you look at the car, there are some issues that you have to prepare for in this market.
Trunkenpolz: We've passed European homolugation. It's racecar homolugation, so you can't produce a million of them, but that's not our intention. We've also placed some purchasing restrictions on the car: We do not sell it to anyone under 24 years old, and every customer must attend a five-hour driving course.
Would KTM dealers in the U.S. sell the product?
Trunkenpolz: For sure. It's a 100% KTM product.