Rid of government control, Maruti is shifting gears to launch new models, up marketshare and cut costs.
Prior to May 2002, such a decision was unthinkable. For, the dealers, most of them appointed due to their political clout, would have run to one of the Bhawans in Lutyens’ Delhi asking for help. And one call would have been enough to scuttle the termination. Obviously, things have changed dramatically after the Indian government diluted its stake in the joint venture to below 50 per cent, and allowed the foreign partner, Suzuki of Japan, to take control.
Today, Suzuki calls the shots. The government is not really involved in the day-to-day functioning. The fact is that Suzuki is transforming Maruti into a professional company that is solely driven by the profit motive. Says Saito, "The decisions are now taken purely according to business considerations." What this also implies is that a new Maruti is emerging, totally different from the one we have come to know.
To begin with, the look of its boardroom has changed. Along with Saito, there are four top-ranking Suzuki executives who sit on the 12-member board; the government-appointed nominees have come down from five to one. Moreover, the Japanese are handling the key functions: while Saito heads the marketing team, joint MD S. Takeuchi oversees operations at the Gurgaon factory, and M. Osada, who has just joined as executive director, is in charge of engineering, research and new models.
Along with Jagdish Khattar, MD and an old Maruti hand who always had Suzuki’s support, the Japs are finally making a difference. "Suzuki is now free to bring in new technology and make Maruti a more robust competitor," says K.K. Swamy, joint MD, Toyota Kirloskar Motor. He is right. Saito has confirmed that Maruti will acquire full model-development capability by 2007. This means new models based on indigenous R&D will roll out of its Gurgaon plant.
At the moment, Osada, the chief architect of Wagon R, is gearing up to give the existing models a facelift. He’s busy working with the first batch of engineers that Maruti had sent to Japan for training. "The results of these will be seen this year itself," says Khattar. Very soon, the R&D work will be beefed up by the return of 20 other engineers from Japan. They are part of a team that is currently developing a new model for the Indian market at Suzuki’s facility in Hamamatsu.
Developing new models here will enable Maruti to drastically reduce its response time to the changing market dynamics. It will also ensure a high indigenous content from the beginning, thereby bringing costs down. A strong R&D is imperative for Suzuki’s export plans for Maruti. While the company has identified Japan as the global hub for big cars, and Hungary for mid-size ones, it is India that is expected to supply small cars across the world.
Already, Maruti’s Alto is doing well abroad, selling 17,746 units in April-July 2003, against 5,299 in the same period last year. In the Netherlands, the Indian-made Alto is the highest-selling small car with an 18.7 per cent share of the market. Explains Khattar: "Exports are important in keeping up the volume. Since we can produce more without increasing the fixed costs, a rise in volumes adds straight to the profits."
Meanwhile, Takeuchi, cooped up in the Gurgaon plant, is implementing a three-year programme to effect a 30 per cent cut in production cost, a 36 per cent reduction in in-house warranty cost, and a 50 per cent rise in productivity. As that Maruti spends over Rs 5,000 crore on raw materials a year, a 5 per cent reduction alone will add a whopping Rs 250 crore to its bottomline. If the margin can increase by Rs 1,000 on each car, it will boost profits by nearly Rs 40 crore on a volume of 3,62,000 cars—Maruti’s sales figure last year.
The fact that this programme was personally vetted by O. Suzuki, worldwide chairman, comes as no surprise. Maruti happens to be Suzuki’s biggest operation outside Japan, accounting for about 10 per cent of the group’s net profit. Besides, India’s potential is huge. The current car penetration in the country is six per thousand households. Even if it were to rise to 12, which is the figure for Pakistan and Sri Lanka, the growth will be nothing less than robust.
Already, Suzuki’s decision to waive royalty on the old models and cut the cost of Japanese components by 10 per cent has reduced Maruti’s overall cost by Rs 180 crore a year. It shows on its net profit of Rs 123 crore in the first quarter, a 10-fold rise since last year. "Cost-cutting is the mantra for all automobile manufacturers. The selling price is determined by the market. All we can control—and reduce—is cost," says Swamy.
The dealership network is also being revamped. For instance, after the Bhasin episode, 22 dealerships have been terminated in the last 12 months. But 30 new outlets have also come up; half of them have been set up by new dealers. Decision-making has become faster. Now, they just require a single sheet under the Ringi system—so named because the few signatures required for an okay form a ring along the periphery of the sheet.
Khattar says he is all set to launch an assault on the top 10 cities that account for nearly 50 per cent of all the car sales in the country. This is where Maruti has lost marketshare after competition came in the late 1990s. Since a market already exists in these cities, Maruti is planning to eat into the rivals’ share so that it can grow even if the overall pie doesn’t expand. The target: to increase Maruti’s share from the current 56 per cent to 60 per cent. (Saito can be seen wearing a badge that reads "Challenge 60")
Yet, it will not be a cakewalk for Maruti—the competition is sharpening its fangs too. A top executive of a rival manufacturer points out that "not a single model of Maruti is the leader in its segment except the 800. The large number of models it uses to establish supremacy in the fast-growing B segment (Wagon R, Alto, and Zen fighting Santro, Indica, Palio etc) creates confusion among consumers and dealers. And it has failed to make a success of any of its big cars." An unruffled Khattar says he would rather have the consumer confused among Maruti’s offerings so that she is unable to think of the other models. Well, too much of a good thing can’t hurt the customer.