Maruti hits a speed breaker

These aren't the easiest of times for India's largest carmaker, Maruti Suzuki.

The labour issues at its Manesar plant have hit production just when demand typically peaks during the Diwali season. The huge waiting list for models, such as the Swift, may just disappear if the impasse continues, what with a host of attractive options available in the market.

Further, Maruti's top-selling Alto is soon going to be up against stiff competition in the form of Hyundai's Eon, which debuts this week.

SUZUKI'S PROBLEMS

Parent company, Suzuki Motor Corporation, has its own share of woes, thanks to the tussle with Volkswagen. Though it wants to exit from the partnership, its German ally is in no mood to divest its near 20 per cent shareholding in the company.

Within auto industry circles, the buzz is that Volkswagen is weighing the option of a hostile takeover, which could then make things quite tricky for Suzuki.

However, the Manesar worker strife is the bigger issue for the Japanese automaker, considering India is its largest global production base. Maruti has been dominating the landscape for decades now, and is still some way ahead of its nearest rival, Hyundai. However, the going may be a lot tougher during the next five years, with other automakers having gotten wise to the mantra of cost-competitiveness and building a big retail base in smaller towns.

Apart from Hyundai, the likes of Toyota, Honda, Ford, General Motors and Volkswagen are much bigger global players than Suzuki.

To some of them, India came on the radar far more forcefully after the 2008 global crisis, when they realised that their survival hinged on this market, along with China, Russia and Brazil. Most of these companies are now working out aggressive global platform strategies, which will ensure that their costs are kept in check, while the big numbers continue to roll out of their facilities.

EMERGING COMPETITION

Toyota, for instance, has India as the primary market for the Etios (sedan and hatchback) and has earmarked a substantial investment for the project. Yet, it has wasted little time in identifying supplier capabilities here for an entry into Brazil in the next couple of years.

Honda, likewise, will give India top priority for the Brio, but the car is already part of Thailand's eco car project and is tipped to enter Indonesia and Malaysia, too.

Both, Honda and Toyota have no illusions regarding the fact that neither is going to upset the Maruti applecart in a hurry. However, the more significant step has been taken by throwing down the gauntlet in the small car arena.

These are companies which are well-established in India, and have a loyal buyer base for their motorcycles (in the case of Honda) and premium cars. They are also ready to play the waiting game in the leadership stakes.

Hyundai, though, will be the most formidable force to reckon with, from Maruti's point of view. The Korean company has, during the last 15 years, been firing on all cylinders in India, since the time it launched the Santro. From a relatively unknown entity in the mid-1990s, it has emerged as Maruti's stiffest challenger, and will pull out all stops to ensure that its position only gets stronger in the years to come.

At one point, companies such as General Motors and Ford were perceived as slow movers, whose top priorities were the more profitable North American and European markets.

All this has changed now, with a stronger focus on an Asia-Pacific strategy, where markets such as China and India are critical. Similarly, Suzuki's bugbear, Volkswagen has literally unleashed a marketing blitzkrieg in India, which is creating as much news as its products.

“These are huge, cash-rich companies, which are now ready to play the small car game. They have access to the same low-cost, high-quality supply chain, which means Maruti no longer has the competitive edge. They are also bigger global brands, and have a stronger connect with India's generation next,” an industry veteran said.

LABOUR ISSUE

Given this backdrop, the last thing Maruti would have wanted is this labour issue, which has severely hit production schedules at its plants. Within industry circles, there are concerns that this has the potential to dent India's image across the globe. “When the country's largest carmaker is in the midst of a long, drawn-out labour crisis, it sends the wrong signals to global investors,” a CEO lamented.

It was also this issue (among many others) that prompted Peugeot to down its India shutters way back in November 1997. Its then ally, Premier Automobiles, also faced its share of labour problems at its Mumbai plant in the 1990s, which caused production schedules to go awry.

More recently, the Gurgaon-Manesar belt has seen tremendous worker unrest at Honda's two-wheeler plant, as well as in the facilities of some auto component manufacturers. “The region is like a volcano which can erupt anytime,” an official said.

What then are the options for Maruti in this volatile atmosphere?

Events during the last few weeks seem to indicate that the company has decided to act tough and will be in no mood to relent to any pressure tactics from a section of its workers. This will only mean that capacities across its plants won't be optimally used and numbers will be a lot lower than what were planned for the fiscal.

In the process, the danger of losing market share is very real, even though Maruti might retain the lead for some more years.

The interesting twist in the script could come if Volkswagen decides to make a serious play for Suzuki.

Nobody knows if this will actually happen, but for a company that already has top brands in its kitty, and is looking to be the largest global automaker by 2018, a Suzuki buyout might be just what Volkswagen needs to turn things in its favour.

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