Maruti’s swift moves

Rashmi pratap | Updated on September 12, 2014 Published on January 31, 2014

In safe hands Maruti Suzuki’s 80-year-old chairman,RC Bhargava addresses a press conference at thecompany’s corporate office in Delhi Shanker Chakravarty

Skid row? Employees at Maruti Udyog’s plantin Manesar participate in a nationwide strike,which brought production to a grinding halt inJuly 2012 V Sudershan

Growth spurt Despite a 5.7 per cent dip in overall sales of passenger vehicles in India in the first nine monthsthis fiscal, Maruti has surged ahead of the rest of the industry at 1. 74 per cent sales growth V Sudershan

Man in-charge Kenichi Ayukawa was appointed MDand CEO of Maruti Suzuki, India, last year Kamal Narang

Maruti defies the slowdown and overcomes internal strife to regain market share

Maruti Suzuki’s managing director Kenichi Ayukawa has been visiting the auto giant’s manufacturing plants in Gurgaon and Manesar on a regular basis since he took over last April. Other top officials at the company are also frequent shop floor visitors. Top on their agenda is understanding the pulse of the workers. In November, families of blue- as well as white-collared workers together celebrated Diwali at the company’s stockyard in Gurgaon. And union members are now visible at major events like the inauguration of the diesel engine plant in September last year.

Labour relations are a top priority for India’s auto market leader. In 2011, the company lost substantial market share after a strike in its Manesar plant. In 2012, things took a turn for the worse. Clashes between workers and management turned violent. Over 100 people were injured and Awanish Kumar Dev, the general manager of human resources died. The shutdown resulted in losses of ₹70 crore per day and knocked off 7 per cent from Maruti’s market share, bringing it to an all-time low of 38 per cent during FY12.

“We lost some market share because of what happened in Manesar as production was stopped for almost a month. But another cause of losing market share was preference for diesel cars, and two years ago we just didn’t have enough diesel cars,” says Maruti Suzuki’s 80-year-old chairman RC Bhargava.

Bhargava’s defence of the events at Manesar is that a faulty recruitment process is to be blamed. Maruti had hired some companies to get regular workers at Manesar and some contractors for providing contract workers. “We were not able to apply what used to be our normal standards of recruitment. We had no knowledge about their background. This, in fact, resulted in a fair number of people, who were not suitable for industrial work, coming into the company,” he says.

After the Manesar incident, the company terminated services of about 500 people who were involved in the rioting. Now, Maruti has taken over the recruitment process completely. “We are following our own standards of recruitment including verifying educational qualifications and antecedent of interviewees. So we have, I believe, a much better quality of manpower in the factory,” Bhargava adds.

Putting the past behind them, Maruti acted swiftly to set things right. “We intensified communication with workers to make sure that there are no problems. Now, Manesar and Gurgaon workers are at a similar level of working and relationship with the management,” he says.

What also helped the company regain market share (41.3 per cent now) was the commissioning of its diesel engine plant in Gurgaon. The company had a long waiting list for diesel cars and could not meet the demand due to lack of capacity. “We got some diesel engines from Fiat and also started making our own engines. And that gave us a big volume of cars. We lost market share because we didn’t have capacity,” he adds.

But according to outsiders, the company has been doing a lot more to check costs and keep the sales growing at a time when industry sales have fallen in the last year. It has invested in procuring locally many auto components, earlier imported from Japan. High localisation content in its vehicles has resulted in lower costs despite the depreciation of the rupee.

“Maruti has redoubled its efforts to accelerate localisation — local sourcing of raw materials and consumables. They have been able to leverage the experience of suppliers who were using certain raw materials for other OEMs, and quickly localised based on that feedback,” says Ashok Taneja, MD at Shriram Pistons and Rings that has been supplying components to Maruti for over 20 years now. Maruti has asked its over 250 vendors to use more local materials like steel alloy. Besides, there is emphasis on using local machine tools and designing components and dies in India. It has helped the company cut import component as a percentage of sales from 26 per cent in FY12 to 19.5 per cent in FY13.

That apart, a robust pipeline of products and the success of Swift and Ertiga have aided the car maker. “While the overall market has been shrinking, Ertiga and Swift Dezire are becoming stronger. So Maruti’s sales have been better than the industry,” says VG Ramakrishnan, managing director at Frost and Sullivan, a consultancy firm.

According to the Society of Indian Automobile Manufacturers (SIAM), total passenger vehicles sales in India have fallen by 5.7 per cent in the first nine months this fiscal. For Maruti though, sales in this period have grown by 1.74 per cent to 7.55 lakh, defying the overall industry trend.

While Tata Motors has been steadily losing market share, Mahindra & Mahindra has not been able to introduce any new products that could become a bellwether for the auto maker. Volkswagen has not brought in any new models in the last two years, leaving the ground open for Maruti to conquer further. “Wagon R and Alto refreshes have also caught up well in the market,” adds Ramakrishnan.

Shriram Pistons’ Taneja believes another factor working for Maruti is the creation of a new market, which possibly did not exist earlier. Maruti’s marketing team has been targeting niche segments like Nagpur Orange Growers’ Society or school teachers, to create demand and increase the size of the market. “As a result, people who are not natural car customers have made up their minds to buy cars,” he says.

Bhargava gives the credit to his marketing team for selling cars in a slowdown, in not only rural areas but also niche segments like turmeric farmers in Tamil Nadu or leather entrepreneurs in Kanpur. “The thrust into rural areas has been very successful. That has helped us grow sales,” he says. A dedicated team for rural markets helped Maruti grow sales by 18.5 per cent in FY13, making it 28 per cent of total domestic sales.

Overall, Bhargava is happy with the way things are moving in the company. “We are recovering market share and our sales are better than last year.” Maruti’s market share has come back to 41.3 per cent in the first nine months of this fiscal and is expected to improve. But Bhargava is unwilling to make any guesses. He will let numbers do the talking in the next few quarters.

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Published on January 31, 2014
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