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Wednesday, Oct 23, 2002

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Maruti's hour of reckoning

N. Ramakrishnan

Flanked in all segments of the passenger car market by aggressive competitors, Maruti's position as the country's largest passenger car manufacturer is under threat. Maruti aims to fight back by becoming more efficient, cutting costs and taking on competition. It hopes the small frame of the Maruti 800 will help it stay the course, says N. Ramakrishnan, who presents an inside account of the Maruti gameplan.

THIS is Mr Yuichi Nakamura's second stint as Joint Managing Director of Maruti Udyog Ltd. And, the changes that he has seen from the time he was here earlier in the mid-1990s and now gives an idea of the transformation that has taken place in the car market.

"The situation has changed so much between then and now," he says. And, to emphasise his point, adds: "When I left Maruti in 1995, the back orders were as much as 80,000-85,000 cars. There was six months waiting time for customers. The major marketing job at Maruti then was not to sell the vehicles but to deliver them. That time it was a seller's market."

That was the time when there were just a handful of car manufacturers with Maruti aclear leader. Now, there are over a dozen, including big guns like Toyota, Honda, Ford, GM and Hyundai. Maruti continues to be the leader, but is aware that it cannot take its position for granted.

Hyundai Motor India Ltd, the fully-owned subsidiary of Hyundai Motor Co of Korea, has been aggressively targeting the small car segment, the segment in which Maruti and its parent, Suzuki Motor Corporation of Japan, are also strong with a number of models. Not to be left behind is Tata Engineering, whose model, the Indica, is gaining in popularity. Fiat India Ltd, through its Palio, has attempted to carve a niche for itself in the upper-B segment of the market.

The competition has become tougher, says Mr Nakamura. And, it is this that is forcing Maruti, in which Suzuki recently increased its stake to 54 per cent, to become more efficient, cut costs and take the competition head-on. Maruti's plant at Gurgaon in Haryana, bears testimony to this.

Messages on efficiency improvement, Kaizen — Japanese for continuously carrying out improvements — are much talked-about at Maruti. . Emblazoned on one wall is the message: "Let us avoid the three Ms — Muri for inconvenience, Muda for wastage and Mura for inconsistency."

Mr Jagdish Khattar, Maruti's Managing Director, admits that it is competition that is forcing Maruti to continuously cut costs and improve efficiencies. How else could the company have turned around in 2001-02 after making a huge loss the year before, especially in difficult market conditions, he asks.

The Indian market has become like other markets, says Mr Nakamura and adds that Maruti has to change and work as the leader. Maruti has to produce a good quality car at a lower cost, he avers. As Mr Khattar explains, Suzuki's involvement, after it increased its holding in Maruti, is more intense. Suzuki is focussing more on engineering, product development and manpower training. "They have given us a roadmap and asked us to draw an action plan to be implemented over the next three years," he says.

Suzuki, according to him, will also take a closer look at Maruti's finances, with two or three analysts already having visited India for this purpose. Maruti is now a subsidiary of Suzuki and the Japanese parent has to consolidate the accounts in its balance sheet. This means that Suzuki's involvement in Maruti will be greater as whatever happens at Maruti will have a bearing on Suzuki's share prices, he points out.

What does this mean for Maruti? A more aggressive and mean Maruti in the market — onethat will not hesitate to take competition head-on even if it means price cuts, as in the case of the Maruti 800, and massive discounts in the case of B segment cars like the Zen, Alto and the Wagon R. When the competition cuts prices of its cars, why should Maruti remain silent, ask company officials.

Maruti is also convinced that despite all the noise being made by its competitors about the B segment cars — this segment includes the Santro, the Indica and the Palio apart from the three models from the Maruti stable — becoming the entry level, the Maruti 800 will continue to remain its bread and butter model. Therefore, says Mr Khattar, Maruti will not be unduly worried if the other manufacturers bring in cars in the C and D segment. Maruti, Mr Khattar explains, is quite willing to cede the C and D segments to its competitors. However, it will do what it takes to maintain its share in the A segment — the Maruti 800 and the B segment. Even in the C segment, where Maruti has the Baleno, the company will aggressively indigenise the car and then take on competition with competitive pricing.

Maruti's critics and analysts, however, point out that the company has been slow in responding to competition and in bringing in new models. For instance, when most of its competitors were switching over to multi-point fuel injection system, Maruti still stuck with the carburettor injection. It was forced to go in for the MPFI after the courts mandated tighter emission norms for the metros, they say.

Likewise, because of the strained relations between the two joint venture partners — the Government of India and Suzuki Motor Corporation — there was a stage in Maruti's life when new models were not being introduced, especially when a number of multinational companies were aggressively bringing in products and chipping away at Maruti's market share. Maruti also did not beef up its presence in the diesel segment, even though the Zen came with a Peugeot TUD5 diesel engine. Even the Esteem was fitted with a Peugeot TUD5 diesel engine variant only a few months ago, when a competing brands like Ford Ikon was available with diesel engine option right from its launch.

Maruti's defence for this delayed response to the diesel market is that it expected the price differential between petrol and diesel to either narrow significantly or be wiped away after the administered pricing mechanism was dismantled. This has not happened and Maruti, according to company officials, is weighing its options for diesel technology. Suzuki does not have diesel technology. "Technology can always be got at a price," responds Mr Khattar.

However, according to industry experts, Maruti is expected to gain considerably from the international alliance involving General Motors, Suzuki and Fiat. GM has stakes in both Suzuki and Fiat. It is believed that Maruti will get a 1.9 litre diesel engine for the Baleno, to begin with, from the Fiat stable.

Another complaint against Maruti is about its sales and service network. Having the largest network of sales outlets and service workshops in the country did come with its problems; especially because of Maruti's original parentage. Company officials are candid enough to admit that there was pressure from the Government earlier to award dealerships. This legacy had to be countered and Maruti, according to the officials, is now prepared to wield the stick.

Responding to this criticism, Mr Khattar points out that there has been a change in the attitude of the older generation Maruti dealers. They have realised that they either have to upgrade themselves to the standards being set by the more enthusiastic new dealers or perish. Recently, five-six Maruti dealers closed shop, including prominent ones like Allied Motors in Delhi and Union Motors in Tamil Nadu. The number of dealers now stands at 182 from 188 a year ago. The message is clear: deliver and the company will stand by you. "The company will not go out of its way to support dealers who are not performers," say company officials.

All this does not mean that Maruti will be content with what it has now. Efficiencies are being constantly improved and product development takes place simultaneously. It will be 18 to 24 months before the efforts on product development are visible, explains Mr Khattar, who prefers to be described as "surefooted" rather than aggressive.

Despite a string of new launches in the last three years, the product mix, according to industry experts, is losing its ability to excite and wean away customers from the competition. Although Mr Khattar would like to describe the Esteem as "familiar, but not out-dated", this entry level mid-size car has lost considerable ground to the likes of the Accent, Ikon and the Corsa. And, with other manufacturers expected to bring in cars in the already crowded B segment, Maruti will be hard pressed to hold its market share.

It is here that the products from the Suzuki stable, like the Ignis or the Aerio and the Grand Vitara, all expected to be launched in the next year or two, will help Maruti fight the competition more aggressively. However, there is a feeling that Suzuki is intentionally delaying the launch, as it wants to rework the price of the underwriting commitment of the IPO it has agreed upon at the time of disinvestments, according to company insiders. Suzuki has agreed to underwrite the issue at Rs 2,300 per share, a price which looks far-fetched in today's market conditions. "Suzuki now feels that it has committed a blunder by agreeing to underwrite the issue at that price. Now, it wants to cite the diminishing market share of Maruti and re-work this price," says this source. He cites the fact that despite the intense competition in the market, Maruti is going slow on its new launches. Though it seems difficult for Suzuki to get the government to re-write the agreement, it may not be impossible either. Mr Khattar, after all, was earlier on the other side, as a bureaucrat.

(With reports from Vipin V. Nair in New Delhi)

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