Vespa looks both ways: China, India

Italy—During a recent meeting with engineers and designers, Piaggio SpA Chairman Roberto Colaninno mounted the back seat of a cherry-red Vespa with his legs dangling over one side of the scooter.

"The ladies sit this way," Mr. Colaninno said, demonstrating how women in India typically ride side-saddle on the back of a scooter to accommodate their floor-length saris.

For months, Piaggio designers in India and Tuscany had been retooling the design of the red scooter, which Mr. Colaninno informally calls the "Indian Vespa." As Mr. Colaninno spoke, an engineer offered to add a fin-like footrest to the scooter's left side.

Redesigning the Vespa to appeal to different markets is a big part of Piaggio's plans to push deeper into Asia, the world's largest scooter market. In India, Piaggio will invest €100 million ($129 million) over the next three years to double production capacity. The strategy calls for Piaggio to produce Vespas locally by the end of 2012, after a 15-year absence. It also involves re-engineering a new line of tiny trucks and three-wheel "tuk-tuks" that keep India's economy humming along.

In Vietnam, the company is beefing up the factory it opened a year ago to produce a new generation of Vespas for Vietnam, Malaysia, Indonesia and the Philippines.

Piaggio is also taking tentative steps to enter China, the world's single-biggest scooter market by deliveries. In August, Piaggio will begin selling the MP3, its three-wheel, high performance scooter, in showrooms across China, Mr. Colaninno said. The Vespa will be shipped to China soon, but delivery dates haven't yet been set, nor has the price.

Piaggio's shift toward faster growing-Asian markets aims to offset sluggishness in Europe, where a deep recession and limping recovery have undercut Piaggio's revenue. Squeezed by the sovereign-debt crisis, governments such as Italy are now withdrawing incentives that helped Piaggio and other manufacturers survive the worst of the recession. Piaggio's European revenue declined 4.9% over the first five months of the year to €444 million, compared with the same period last year. In Asia, revenue increased 74% to €200 million.

Growing car traffic, Mr. Colaninno said, will spur sales of scooters that can easily weave between cars that have begun to choke Asia's streets and park in tight spaces.

"Now you have the problem of the traffic, [which] is going to be very, very heavy," he said.

The barriers to entering China, India and other emerging Asian economies are high. European scooter and motorcycle makers have traditionally struggled to match the cutthroat prices of Asian rivals. Piaggio must compete against better-known Japanese brands including Honda Motor Co. and Yamaha Motor Co., as well as domestic manufacturers, such as India's Bajaj Auto Ltd., that churn out low-priced scooters with few frills. China accounts for more than 40% of the motorcycles and scooters sold world-wide but generates only 15% of the industry's revenue.

The Vespa, with a swan-like body molded from steel rather than the low-cost plastic used by rivals, is "too much of a higher-end product" for markets like China, said Alessandro Falcioni, an analyst at UniCredit.

Mr. Colaninno, who is also chairman of CAI Alitalia SpA, is considered a maverick industrialist. In the late 1990s he engineered a buyout of Telecom Italia SpA in what was then Europe's largest ever hostile takeover. After selling out of the telecommunications operator, he invested €100 million though his Immsi SpA holding company to buy a controlling stake in Piaggio.

At the time, Piaggio was burning through cash and struggling with massive debts. The Vespa, in particular, had disappeared from most markets during the late 1980s and early 1990s, because its steel body was considered too costly to make.

Mr. Colaninno retooled Piaggio's assembly lines so that any kind of scooter could be produced in Pontedera. Today, the plant can churn out 50 different versions of the Vespa as well as high-tech scooters such as hybrids and the MP3, which has three wheels for stability but can tilt on an axis like a two-wheel scooter.

In Piaggio's design studio, at the center of the sprawling Pontedera plant, designers carve prototypes out of synthetic wood that are then scanned into computers.

One Vespa prototype, painted in bubblegum blue, had a sleek space-age silhouette. Mr. Coloninno worries that the unconventional design hadn't tested strongly with focus groups in some European markets. "Maybe it could work in Los Angeles," he said.

For now, Piaggio will export Vespa and MP3 scooters produced in Italy to dealerships in Shanghai, Beijing and other Chinese cities in order to test the market. Given the competition, Piaggio is aiming to target the high-end market there. Those scooters will carry European-level price tags.

The Vespa LX 125 sells for about €3,380 (about $4,300) in European markets, while the latest MP3 models retail for about double that price.

If China responds well to the MP3, Piaggio could begin to produce it there within the next three years, significantly lowering the scooter's price, he said.

Piaggio is already at work bringing down the price of the Vespa in India, which will be sold there by the end of 2012. Mr. Colaninno said a Vespa scooter will cost about $800 to produce in India, about half of what it costs to produce a similar model in Italy. Models are expected to be competitively priced in the Indian market.

The Indian Vespa's engine won't have a fuel-injection system and isn't designed to meet emissions standards in Europe and North America. The scooter is fitted with drum brakes instead of disc brakes, making it easier to change tires that frequently get flattened along India's patchy roadways.

Designers narrowed the Vespa's floorboard so the feet of riders, who tend to be shorter in India, according to Piaggio's market research, can easily reach the ground.

A similar design challenge, he said, has recently cropped up in Vietnam where more women have begun to wear high-heel shoes. "You need to pay attention to the ergonomic design in relation to the people you're targeting," Mr. Colaninno said. "And now with the heels...we have to modify."