Kerbed Drive

IN the beginning was a market small and stagnant. Then the rising son said: "Let there be a small car," and lo! the Government of India and Suzuki Motor Corporation begat Maruti Udyog Ltd. And Maruti Udyog begat lakhs of cars and changed the market beyond recognition and made moneys for its parents. Yet the parents fought and accused each other bitterly of harming the son. And Suzuki quoth that the new guardian for the son was not so good at all, and the government was wrathful. And it spake thus to Suzuki: "I shall keep both chairmanship and managing directorship of Maruti with me. Go ahead, thou punk, and make my day." And there was much beating of breasts in the kingdoms of Nippon and Hindoostan.

Strangely enough, after all the teeth-gnashing and craw-thumping and high-moral-ground assaults, most questions still remain unanswered about the high-speed pile-up at Maruti Udyog Ltd (MUL). Why is Suzuki Motor Corporation (SMC) so stubbornly opposed to the appointment of R.S.S.L.N. Bhaskarudu as MUL's new managing director? Why have both the partners taken such a hardline stance against each other? What is really at stake here?

As soon as the MUL board appointed Bhaskarudu as managing director on August 27, SMC president Osamu Suzuki reacted angrily. When the government held firm, SMC filed a petition at the Delhi High Court and also at the International Council of Arbitration. The court gave the two 50:50 partners time to resolve their difference, but hectic parleys over the September 20-21 weekend failed to produce a compromise formula. The next day, the court dismissed SMC's plea. The partners met a few hours later for the company's Annual General Meeting (AGM).

SMC knew the government would push through Bhaskarudu as managing director via MUL chairman (and government nominee) Probir Sengupta's casting vote. To prevent that, SMC nominees moved a no-confidence motion against Sengupta. The chairman would not be able to vote on this motion, since he would be an interested party under the Companies Act. This would lead to a deadlock and Bhaskarudu would not be confirmed as managing director. But Sengupta refused to let the resolution be put to vote and Bhaskarudu was through.

As soon as Bhaskarudu became managing director, SMC became eligible to appoint its own man as MUL's chairman. Or so SMC thought, since the 1992 MUL agreement states that the two partners would alternately appoint chairmen and managing directors of MUL for five-year periods. In 1992, SMC nominated R.C. Bhargava as managing director, and believed that it would nominate the chairman in 1997. But. The government did not nominate a chairman till 1996 (Bhargava held that post too), when, after the two partners fell out over MUL's expansion plans, it appointed T.R. Prasad, then secretary, heavy industries, to the post. At the September 22 AGM, the government took the stand—and pushed it through—that since its chairman had taken over only a year ago, under the terms of the agreement, he had four years to go. That is, Prasad's Udyog Bhavan successor Sengupta (or anyone the government nominates) should stay chairman till 2001. This cunning manoeuvre has immediately given a numerical advantage to the government on the MUL board. And a clear "don't-screw-with-us" message to SMC.

Three days after the boardroom rout, SMC officials told Outlook that Bhaskarudu was the only bone of contention between the partners. Bhaskarudu, they said, was not competent to lead India's fourth largest private sector company. At the AGM, SMC men lit into the managing director-designate with 18 questions on issues like sundry debtors, doubtful deposits, foreign currency risk control, labour relations. Bhaskarudu failed to answer any of these.

Counters a top industry ministry official involved in the MUL affair: "According to the current agreement, the managing director should have at least three years experience in MUL. We considered all eligible candidates in MUL and Bhaskarudu was the most suitable for the post. He was the seniormost, has been joint managing director for the last four years and has extensive experience in production engineering, projects, procurement and vendor development. There is no way anyone can prove that Bhaskarudu is not fit for the post." As for the 18 questions, he says, all of them related to the period when Bhargava was MD, not Bhaskarudu, who had, at the AGM, followed the normal practice of advising SMC that detailed replies, which required compilation of voluminous information, would be sent to the Japanese shortly.

It's hard to believe that Bhaskarudu is so spectacularly bad that he will, on his own, be able to ruin the country's largest car maker with an 80 per cent marketshare. The real reasons could be elsewhere: in Suzuki's own strategic necessities, and in the Indian market situation. While SMC's global sales have been falling—it dropped by 6.8 per cent in 1996-97—MUL's turnover has risen 18 per cent. SMC's worldwide profits were a meagre Rs 1,072 crore from all operations including motorcycles, cars and engines, while MUL's profit before tax is Rs 800 crore. MUL is critical to SMC's overall health.

The Indian market too is changing fast. After 13 years of unchallenged leadership, MUL faces threats from giants like General Motors (13 times larger than SMC), Ford (11 times), Daewoo (5 times) and Honda (three-and-a-half times). Then there's Telco, which aims to launch Indica next year squarely positioned against the Maruti 800, whose technology is, after all, 25 years old and could be made to look dowdy by the new cars on the block. Maruti Esteem is already under pressure from Daewoo's Cielo and Ford Escort. SMC needs to move fast. And it feels that at this critical juncture, it must have management control of MUL, as it understands cars better than the government.

But while it worries about market conditions, SMC has also found that its business interests are under attack from inside MUL. The company has begun—and apparently Bhaskarudu has been instrumental in this—the practice of floating global tenders. This is a big blow to SMC's stranglehold on MUL's technologies. In the last 12 months, MUL invited global bids for car presses and paints. The difference between the bids MUL received and SMC's offer was apparently Rs 350 crore. The government now suspects SMC of overpricing its exports to MUL all these years and is even threatening a CBI probe into the matter. SMC may be fearing that with Bhaskarudu as managing director, its say and importance in the Maruti scheme of things will be further eroded.

In fact, as soon as he took over as managing director, Bhaskarudu announced plans to launch a diesel version of the 1000 CC Zen in December. The engine will come from French car maker Peugeot. The Zen will be followed by a diesel Esteem, again on a Peugeot engine, and then maybe a diesel Gypsy which has immense potential. And SMC's profits come not only from MUL dividends but also from supplying MUL, and from the ancillary units.

Bhaskarudu has announced that vendors will be reviewed and some whose quality has not been up to the mark will be weeded out. Most of these component suppliers have Japanese partners who are close SMC associates worldwide. So a chary Suzuki turned livid when Bhaskarudu's name was rammed through.

SMC says it was informed of the government's choice only half-an-hour before the August 27 meeting. It alleges that SMC president O. Suzuki had come to India in July to discuss the issue of a new MD with the industry ministry and executive vice-president Y. Saito came twice in August, but there was no "effective" consultation. Earlier, the ministry had removed Jagdish Khattar and K. Kumar, both professionals, and originally nominated by the government as whole-time directors, and replaced them by two ministry officials as part-time directors. (It's no secret that the government sees Khattar and Kumar as more SMC's men). This, say SMC brass, gives them reason to believe political factors were jeop-ardising the operation of MUL and leading to unnecessary delays in decision-making.

SINCE 1995, there have been various attempts to foster partisan individualistic agendas overriding the concerns for Maruti's future," accuses SMC. "Issues like signing of the licence agreement, location of site for capacity expansion, technology for the future needs of Maruti, growth plans, were delayed for no valid reasons." The Japanese feel that the spirit of the joint venture agreement has been violated by the way Bhaskarudu was named on August 27, and confirmed on September 22 in gross contradiction of international business practices. Not only has the government 'foisted' the managing director on its partner, but usurped the position of the chairman as well. SMC's contention is that just because the government chose not to appoint a chairman from 1992 to 1996, it can't have the right to let its chairman stay on till 2001. SMC points to clause 5.4(a) of the original 1982 agreement under which both partners' concurrence is mandatory for any important corporate and policy decision. And the managing director's appointment is clearly an important decision. The government's contention: that this clause has been superceded by the amended 1992 clauses 5.1 and 5.2 which give the partner the right to appoint managing directors and chairmen by turn.

Whatever the real business reasons behind the fracas, the issue was fast degenerating into an ego hassle. Add to that industry minister Murasoli Maran's sudden swadeshi tilt. The man who has cleared more foreign investment proposals than any minister in independent India has, in the last fortnight, said he would block ICI's acquisition of 9.1 per cent of Asian Paints, and then given the MUL battle a 'foreign devil' tinge.

Thankfully, after a week of tough talk, both partners appeared to figure out that all this would end up only hurting a fine company and neither could do without the other. The loss of MUL would be irreparable for SMC. And though Maran said that if SMC opted out of MUL, there were enough global firms who would happily replace it, he surely realises that a new partner would still see MUL go through a period of uncertainty. Besides, after this imbroglio, few partners would like to come in with less than a controlling stake. As it is, the MUL issue blew up at the most inopportune time possible, just weeks after Maran visited the US to drum up foreign investment, and even as Gujral and Chidambaram were working the aisles in Washington and New York. On the eighth day after the war went public, both sides were talking of out-of-court settlements and keeping options open. But will they be able to suppress their egos?