An interview with Stefan Pierer, CEO of KTM of Austria, the man behind one of the most coveted motorcycle brands told CNBC-TV18 that despite tough conditions in Europe, the company has reported good sales figures, meeting their sales target of 100,000 units in the current year and have expanded its reach in the emerging markets.
Pierer further stated that their alliance with Indian motorcycle major Bajaj Auto allowed them to improve their footprint in the Indian market. The company has been able to utilize the cost effective mass production techniques of Bajaj to offer bikes at competitive prices.
Here are highlights relevant to American business executives
Q: Let me start by asking you about how the year has gone by for you? It is looking very strong despite the fact that we have seen tough times in Europe, you have managed to beat expectations, you have grown it over 30 percent for the month of October and you are targeting 100,000 units in terms of the number of units you will be able to sell in 2012. Are you on track to meet that?
A: We are precisely on track. It is becoming the best year ever in KTM and we are touching 100,000 units. The sale is around Euro 610, a very good result. The big growth rate is coming from Asia, Southeast Asia and especially India.
Q. Would you have been able to do the 100,000 mark without the alliance with Bajaj? Has Bajaj in that sense really been the growth driver for KTM when it comes to volumes?
A: Yes absolutely. Never ever would we have got this chance to sell motorcycles in these areas without the alliance with Bajaj. Due to our alliance with Bajaj we can combine the technology of KTM with very cost efficient mass production techniques of Bajaj. Therefore, we could create entrance bikes, small displacement bikes and real KTMs for a competitive price.
Q: What has been the experience now? This partnership has been on since 2007, you are actually manufacturing here in India and you are now selling in India, you are also exporting from India to the rest of the world. In terms of value engineering, in terms of how you can actually bring cost down and in terms of development and design because you are working very closely with the Bajaj team, what is the experience like?
A: It started more than five years ago. There was the first meeting with Rajiv Bajaj. In the first meeting itself the chemistry worked very well. We appreciate each other and we built up a really strong trust base. Based on that personal relationship to bring the strengths of the company together, including the CEOs, the R&D people, production and quality people, they like to come to India and vice versa like to work together.
Q: Do you think you have started a trend because there have been conversations between BMW and TVS, if one is given to believe what one hears at this point in time? Do you believe that the Bajaj-KTM alliance in a sense has started perhaps a trend of actually seeing companies like BMW and other global motorcycle brands tying up with an Indian partner?
A: We have created this trend and it is not unusual that somebody is doing a very successful thing and others are starting to copy it. I think it is part of the business.
Q: So, what have you heard? Is BMW going to tie up with TVS?
A: I have heard about it and it is well-known. It is not the same as Bajaj and KTM because it is always based on the relationship between the main decision makers. The culture must be a little similar. If you have a huge group like a car manufacturer and a small little company, let’s see what’s coming up.
Q: Would the priority though for the Indian market at this point be at the higher end as opposed to the lower end displacement?
A: We will focus more on the higher end, especially keeping the brand content of KTM very sharp. That means it is ready to race and it is always the best performing engine. It is a very good design which looks different to the others, that’s our style of selling motorcycles and we are not up to the Indian situation, but we still want to target higher growth.
Q: How soon can we see the next KTM-Bajaj launch for India?
A: Next, we expect a full flared 390cc and may be a 200cc motorcycle. We are also thinking to make one step lower, below 200 cc.
Q: The common platform approach that you have adopted, which is working very well for this alliance is something that others are beginning to talk about as well. What has been the big learning for you as far as this common platform approach is concerned?
A: What I have learnt from Bajaj is to look very specifically on every detail, to see that the usage of the part is maximum across different platforms. As a high performance manufacturer, you are always looking at the best highest performance and sometimes losing a little bit to cost efficiency. So, that was the learning from this side where we are benefiting very much.
Fortunately, when we decided to make the engine platforms, we were the first. We recognized after the outcome of the crisis that we are facing issues worldwide, especially in Europe. The power two-wheeler is becoming a commuting and transportation item in Europe again. The displacement between 125cc up to 400cc will come in the future as a common transportation item.
Q: When we talk about value engineering, that impacts margins significantly as well. What kind of margins are you likely to enjoy given the fact that you now have this alliance which is working very well and something that you can leverage on?
A: The biggest advantage for KTM is that still we are selling 10,00 units. For a model, it is outstanding, but for Indian circumstances it is nothing. To achieve a competitive price level we are sharing the platform. The same platform is used in Pulsar which has 10-15 times the quantity and that’s the big benefit for KTM. On the other hand, the technology what we brought in gives the Pulsar the capacity to compete successfully against Japanese competition.
Q: Specifically about the Indian market, I understand you have sold about 9,000 odd of the KTM in India this year. What is the expectation now given the fact that we are going to see more launches as well from you?
A: We can reach 10 times the size that we have right now. As far as I have learnt, it is a very price sensitive market.
Q: What is the target that you are working with for instance for 2013?
A: For 2013 we expect around 35.000 units coming out of the production in Pune which is spread out in all the emerging markets, in Europe and including India. But what is my vision? It is a clear vision. Within the next 3-4 years, I want to have 100,000 coming from the Pune production of Bajaj.
Q: Hopefully, 100,000 units split equally between export market and the domestic market here?
A: That’s obviously the outcome then. For KTM as a whole, it means 100,000 produces in Austria, high performance, off road and on road models and 100,000 units are coming from Pune.
Q: You are sitting in India and it is inevitable whenever you talk India, you talk China as well. Any plans to look at China?
A: In China I am very careful because for me the culture doesn’t fit with my culture. So, as a race brand I want to win. If you go to China, you can just get the second place and that’s not what I like.
Q: This seems to be avery clear understanding between you and Bajaj that at the backend you may share a common platform, but at the frontend they are two very distinct brands and they are going to be managed very differently as well. That perhaps is one of the attributes of the success of your strategy.
A: Yes. It didn’t mix up. We were discussing very often whether we can we use double branding, this and that, but it is clear that KTM should stay very sharp and very clear. The Pulsar has a clear profile and it shouldn’t be mixed up. We think we have all the instruments to compete very successfully globally against Japanese brands.