Excerpts from the interview:

The industry is currently facing a lot of pressures due to escalating input costs. What are the cost control measures you are undertaking to mitigate this?

Steel prices have shot up by 25-30 per cent and aluminium by about 20 per cent. But you can pass on the increase only to a certain extent. So, we have started looking inwards, that is, towards quality control and cost reduction.

We have been following the ‘single vendor’ concept, meaning, for a particular part, you go only to one supplier. When you grow, he also grows.

When you give high volumes to him, the costs come down automatically. We hardly have hundred vendors supplying direct materials.

Second, we work very closely with the vendors, look at their processes and suggest improvements. We bring our technical experts from Korea, work alongside them and ensure cost reduction.

Third, we follow the ‘Just in Time’ policy to control our inventory levels. For materials we procure locally, we probably have inventory only in terms of hours.

Maybe for a few components like tyres, it is two or three days.

At times, some of our components are supplied 20-30 times a day. We have planned it in such a way that the suppliers are around us, so that we save on freight and interest costs.

We also have a strict control on overheads and are targeting a reduction of the same by at least 15 per cent. We are also looking at how to improve our process time and reduce wastage.

Beginning with Santro, you have gradually built a competitive portfolio in the compact car segment with the Getz, i10 and the soon-to-come i20. Would you like to be seen more as a compact car maker, than a player across all segments?

If you look at our global strategy, India has been made the hub for the small car. The Government’s auto policy too talks about making India a manufacturing hub for small cars. Moreover, India is predominantly a compact car market.

Naturally, there is more in this segment in terms of profitability and volumes. We are also concentrating on the mid-size segment, which is growing. Although we are very strong in the compact and mid-size segments, we have quality products in the other segments too.

What is the level of localisation for all your models?

We will be completing ten years in India this September. Ten years ago, if any MNC came to India, it would have involved a high level of import content and an MoU with the Government with a target of achieving, say, 50, 60, 70 per cent localisation.

Hyundai is the only company that did not sign any MoU, as we started with 70 per cent localisation.

Today, in Santro, we have about 95 per cent localisation; For Accent, it is about 85 per cent; and Verna 80-83 per cent. Even for the i10, we started with over 92 per cent localisation.

Did you have to spend more on selling and distribution costs last year, considering the slump in the industry?

We did increase our marketing efforts, but compared to the rest of the market, our ad-spend per car is much lower.

When we brought out a new model, the i10, we did not have any problems selling it, though it was launched during a period of slowdown. In the first six months of this calendar year, we are ahead by about 45 per cent compared to last year. So, the i10 has really helped us (in terms of volumes).

Have you seen a slowdown in demand or a build-up of dealer inventory?

There’s a bit of pressure because of oil prices and rising interest rates. We feel that although there will be a slight impact, a person who wants to buy a car, will buy a car. If he is not buying now, he is only delaying his decision. The input costs have gone up; interest rates which were previously at 10-11 per cent are about 15.5 per cent now. Inventory is piling up to an extent.

But we have to keep producing and can’t cut down. If the demand goes up, we can’t create capacity then.

Are your exports more profitable than domestic sales?

Domestic sales are definitely more profitable. But for exports, the profitability differs from one country to another. We sell to over 100 countries. In places like Africa, we make good profits but in other countries we need to lie low because of competition.

The only disadvantage we have in exports is the exchange rate fluctuation. For nine months of last year, we had problems due to the appreciation of the rupee. Although it is slightly better now, we cannot live with this kind of anxiety forever.

Unless we are in a SEZ, there is no specific fiscal support to boost exports like what is being given for the IT sector. Though not in terms of tax concessions, there can be other support in terms of subsidy, etc.

In fact, the Government did come out with a target-plus scheme a couple of years back. It really helped us. If your export is more than certain percentage of last year, then, you are eligible for certain duty-free imports. That suddenly was withdrawn. Otherwise, I can’t say that margins are very high in exports but because of scale, we are able to do it. I don’t know if it is possible for other manufacturers.

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