Formula Zero

ISN'T it time they hurried up and resolved their dispute, the two feuding partners in Maruti Udyog Ltd? Check the company's sales figures for January 1998. Quite unprecedented. Sales of the Maruti 800, the best-loved Indian car of all time, the small car that changed a nation's lifestyle, dipped last month, compared to the figure for January 1997. The 800 sold 17,652 units in January 1998, down around 1,000 from last year. The Maruti Esteem too met a similar fate. January sales were 1,565 cars, compared to a target of 1,900 with heavy dealer discounts, compared to 1,629 sold last January.

The competitive scenario in the Indian car market has been poised on the brink of sweeping changes for some time now. The January statistics could be the first sign that a slow metamorphosis has begun.

The reasons could be several. Industrial stagnation, which Maruti has been majestically immune to till now, may be catching up with the company. As far as the Esteem is concerned, Daewoo Motors' slashing the Cielo prices by a quarter may have had some effect. As for the 800, the announcement of several new small car models at the Auto Expo last month—Hyundai's Santro, Daewoo's d'Arts, and above all Telco's all-Indian car—may have got buyers to postpone car purchases. Add to this, the free fall of second hand prices. For Rs 1.5 lakh, you can pick up a perfect-working-condition Esteem, and for Rs 3.5 lakh, a p-w-c Cielo.

Yet, at what is possibly the company's most critical time, the two partners of Maruti—the Government of India and Suzuki Motor Corporation—remain eyeball-to-eyeball, with neither willing to blink first on any of the issues they disagree about.

Only the two resident Japanese directors of Maruti attended the company's January 31 board meeting. The February 5 meeting too found the other Japanese directors absent, even though Suzuki top brass—Y. Saito and K. Saito, directors on the Maruti board, and former director J. Sugimori—were in Delhi. As a result, the board could not take up vital issues. Post-board-meeting, Maruti announced it reached an agreement with Suzuki on technology transfer. But this pertains to the current Maruti engines, a non-disputed issue. The only step forward was the government agreeing to take action about settling the issue of royalty payments to Suzuki for supplying technology.

The two sides' arguments and counter-arguments have looped around one another to form the mythical snake swallowing its own tail. Suzuki refuses to discuss supplying new technology to Maruti—and Maruti needs it badly with all the new rival models set to hit the roads by year-end—since Suzuki has not been paid its royalty since April 1, 1997. The government says it will pay up as soon as the royalty agreement beginning 1997-98 is signed, but there's a precondition to that signing: Suzuki must agree to start making Maruti gearboxes in India within two years. Suzuki flatly refuses to make gearboxes in India, preferring to bring them in from Japan. Stalemate.

Suzuki has complained to the International Court of Arbitration in London over the government's appointment of R.S.S.L.N. Bhaskarudu as managing director, since it did not consult Suzuki, as it is bound to on every major decision. The government says this was its turn to appoint an MD for a five-year period. Suzuki challenges the government muscling in to appoint the Maruti chairman too, since according to the agreement, one partner is supposed to appoint the MD, and the other the chairman for five years. The government says it had the right to appoint its chairman in 1992, but decided to do so only in 1995, so the Indian chairman's term should end in 2000.

To complicate matters, current Maruti chairman, Probir Sengupta, is no longer the secretary, heavy industries, who has usually been the government-appointed chairman of Maruti. He is now petroleum secretary, and there's a new heavy industries secretary, P. Shankar. So does Suzuki speak to Sengupta or Shankar? The Japanese have finally decided on the latter, and Suzuki's No 2, Y. Saito, has quietly met Shankar several times over the last month. But no light at the end of the tunnel.

Apparently, the government is willing to give Maruti's chairmanship to Suzuki, provided Suzuki withdraws the Bhaskarudu-related arbitration case, and transfers gearbox technology to Maruti. No, says Suzuki, on both counts: we want Bhaskarudu out. Well then, see you in court in London, says the government. OK, says Suzuki, let's then run Maruti by a four-member committee, Bhaskarudu and executive director (marketing and sales) Jagdish Khattar, and two Japanese nominees. No, says the government. Anyway, we're confident the arbitration court will rule in our favour, replies Suzuki. But, small catch: the government is not bound to accept the court's ruling if it feels it will go against the "public good", a term of extremely malleable meaning.

At the centre of all this sits a short tubby quiet man with twinkly bright eyes: R.S.S.L.N. Bhaskarudu, the man Maruti calls its MD, and the Japanese refer to as the "acting MD". And he's supremely confident it'll be resolved in the next month or so.

WHY does Suzuki dislike Bhaskarudu so much? So much that it's facing off resolutely against the government of a country in which its cars have an incredible 82 per cent marketshare? Who's this man? His career is illustrious. Joining public sector giant BHEL in 1962 as one of its first engineer trainees, Bhaskarudu rose fast and may have been on the way to BHEL's chairmanship. But in 1983, Maruti CEO V. Krishnamurthy convinced him to literally cross the road—Delhi's Kasturba Gandhi Marg—and take charge of setting up the Maruti plant. In 1988, he became a Maruti director, and in 1990, CEO R.C. Bhargava recommended his name for the joint managing director's post. The government rejected that on the plea that it would set a bad precedent in public sector undertakings.

Finally in 1993, after the government had diluted its holding to give Suzuki an equal stake in Maruti, and the company was no longer public sector, Bhaskarudu became joint MD. And last year, he took charge of the MD's office over loud protests from Suzuki.

Suzuki's antipathy towards Bhaskarudu may have its seeds six years ago when the government and Suzuki were talking about turning Maruti into a 50:50 joint venture from a 74:26 one. Bhaskarudu felt the government did not need to allow Suzuki an equal stake since apart from the technology—which could be bought easily against a payment—the country was capable of running Maruti profitably. And Suzuki was already being paid a royalty for the technology. Though Bhaskarudu did not speak against the deal, his opposition did not go unnoticed by the Japanese.

The next misstep in the mating dance came in 1992, when Bhargava was scheduled to retire. Bhaskarudu told Suzuki president Osamu Suzuki that he was willing to be considered for the managing directorship. The Indian saw nothing wrong in this, but to the Japanese mind, this could have been an unforgiveable crime: Bhaskarudu was seen as putting his personal ambitions ahead of his company's interests.

Since then, allege Suzuki sources, Bhaskarudu has been plotting with friendly bureaucrats against Suzuki and is to a large extent responsible for turning the government against Suzuki. Apparently, among other things, Bhaskarudu brought to the notice of the Indian government alleged cases of over-invoicing of imports from Suzuki to Maruti of over Rs 300 crore, something Suzuki has vehemently denied as baseless.

Many think that as far as arbitration goes, Suzuki has a stronger case. But no one believes that Suzuki will be able to oust Bhaskarudu. "Public good" apart, records show that arbitration cases, on an average, take anything between 18 months and three years to be settled, so the dispute could stretch to the end of the millennium. Besides, Suzuki has made a fatal mistake of turning it all into what looks to the public finally as a war between a giant Japanese corporation and one Indian manager. Guess which side the public—and government—sympathy will be on?

Suzuki could do well to learn from the BAT-ITC dispute. All other issues forgotten, it turned into a fight between a giant foreign corporation and one Indian manager. The Indian manager—Y.C. Deveshwar—won, and BAT appears quite happy with him, 18 months after the matter came to flashpoint. Bhaskarudu's—like Deveshwar's—capabilities have never been in doubt, and of course, any CEO would want his company to do well under him, and that can happen only when the foreign partner is happy.

Meanwhile, the dies for the Maruti 800 are wearing out.