Read the August issue of Fixed Ops Journal, the parts,
service and collision magazine from Automotive News.

Delhi: Life after a monopoly

Indian automaker struggles to adjust to a free market - and surprises critics

Raj Chopra receives a visitor in his Delhi, India, auto showroom, a lavish place with leather upholstery and Italian marble floors. His left wrist sports an $1,800 blue sapphire watch, a trinket purchased during a trip to Rio de Janeiro, Brazil. Chopra's store - Competent Automobiles, in Delhi's trendy Connaught Place shopping mall - is Maruti Udyog Ltd.'s biggest dealership. Chopra's staff speaks fluent English and Hindi, and the women are dressed in purple saris.

Chopra made his fortune selling the Maruti 800, a no-frills $5,000 car that remains almost unchanged since it was introduced in 1983.

For most of its existence, Maruti enjoyed a virtual monopoly in India. Now, in the wake of government deregulation, Maruti must fend off foreign competition. After Ford Motor Co., General Motors, Fiat Auto S.p.A., Hyundai Motor Co., Daewoo Motor Co. and others entered the market, some observers expected Maruti to collapse. Indeed, the company lost money last year for the first time. Even Chopra acknowledges that he is struggling.

In the face of foreign competition, Maruti's 221 dealerships are discounting their cars. And Chopra does not like that one bit. 'Are we not playing with the products?' he asks. Chopra claimed price-cutting among Maruti dealers 'is spreading like cancer. It's harmful to the company.'

Welcome to the Darwinian world of free competition. Now that its monopoly in India has broken up, Maruti is struggling to adjust to a market where price wars and overcapacity are facts of life. To Maruti's credit, it has confounded critics who expected the company to wilt under the pressure of competition.

ambitious plan

The Indian automaker is pursuing an ambitious plan to modernize every aspect of its business. First, the company spent $424 million to upgrade its technology and create a more diverse lineup of cars. Next, Maruti introduced modern management techniques, such as Internet communication links with its suppliers.

Now that Maruti has new products and more efficient factories, it is focusing on its dealers. The company has launched Project Vistaar, a plan to offer car insurance, consumer loans, corporate leasing and used-car sales. The word Vistaar is a Hindi word that means 'expansion.' By encouraging dealers to offer a broad array of services, Maruti hopes to make money throughout the life of a car. It is a popular concept in the auto industry. Ford, for example, has redefined itself as a provider of customer services.

Will it work? It is too soon to tell, although Maruti has won back some market share - 62 percent in the quarter ended March 31 compared with 50 percent nine months before. The only alternative to Vistaar is a costly price war. On Chopra's desk is a photo of the man who devised this comeback strategy, Maruti's managing director, Jagdish Khattar.

former bureaucrat

In a country famous for its impenetrable bureaucracy, it is no surprise that Khattar is a former bureaucrat. When the pig iron industry was deregulated in the early 1990s, Khattar drew attention for his efforts to encourage Indian entrepreneurs to upgrade their technology. His ministry colleagues described Khattar as hardworking and brilliant, and he soon acquired a mentor.

R.C. Bhargava was Maruti's managing director, and in 1993 he convinced Khattar to join the company.

As it turned out, Khattar's close ties to his mentor nearly destroyed his career. In 1992, the Indian government allowed Suzuki Motor Corp. to buy a 50 percent share of Maruti. Three years later, the government and Suzuki accused each other of hindering Maruti's modernization.

After a new political party came to power in 1996, the government purged Maruti's senior Indian executives, who were considered too close to Suzuki. At the time, Maruti was making record profits, but it did not matter. Bhargava survived the purge, but he could not protect his protege. Khattar lost his seat on the board, and Bhargava eased him into a lesser assignment at an assembly plant.

In 1998, he got a break. After the Bharatiya Janata Party won the election, Suzuki Chairman Osamu Suzuki made an agreement with the Indian government. With Osamu's personal support, Khattar was named Maruti's managing director in 2000.

The pact came just in time. The government had dismantled Maruti's monopoly, and foreign rivals were moving in. Small cars such as the Hyundai Santro, Daewoo Matiz and Tata Indica were grabbing market share. In 1999, a price war broke out. For the first time, Maruti cut prices on its popular 800 and Zen models by 5 percent to 12 percent. After competitors retaliated, Maruti offered additional equipment on its models at no extra charge.

New models

To compete, the company needed new models. Maruti enjoyed the assistance of Suzuki, a company that specialized in low-priced minicars. But Maruti still had to match the quality of foreign-made cars. Maruti's first effort was not successful. In 1999, the company launched a retro-looking Zen. It failed.

Next, Maruti launched the Baleno, its first product aimed at India's premium segment. Then Maruti introduced the Wagon R, a versatile vehicle designed by Suzuki. To accommodate its expanded lineup, Maruti opened a third assembly plant, boosting annual production capacity to 350,000 units.

With an expanded model lineup, Maruti's market share began to climb. But the financial news has been bad. For the year ending March 31, Maruti said it lost $53 million. Given Maruti's huge investment in new models, that was no surprise, and Khattar downplayed its significance. 'We see this as an investment for the future,' he said.

PROJECT VISTAAR

To cut its losses, Maruti has launched an aggressive campaign to find more local suppliers. And to boost profits, Khattar pressed ahead with Project Vistaar.

The strategy behind Vistaar is simple. Approximately 3.3 million Maruti vehicles are on India's streets. The company hopes to reinforce customer loyalty - and make more money - by offering an array of consumer services.

Khattar is counting on Vistaar to restore Maruti's profits in 2002. His job may depend on it. Khattar is nearly halfway through his two-year term.

The Indian government wants to sell its stake in Maruti, but it is not completely clear who will end up owning it. Suzuki already holds a controlling share and does not want to buy the rest of the company.

On the face of it, the plan looks simple. But India has a dismal record of privatizing its government-owned businesses, and it is unlikely that Maruti will be privatized without delay.

Next year, Osamu Suzuki will decide whether to keep Khattar. If Project Vistaar returns Maruti to profitability, it may not matter who buys the government's share. But if profits are elusive, Khattar may need a new job.

E-mail writer Punnoose Tharyan at ptharyan@vsnl.com

0

Shares

ATTENTION COMMENTERS: Over the last few months, Automotive News has monitored a significant increase in the number of personal attacks and abusive comments on our site. We encourage our readers to voice their opinions and argue their points. We expect disagreement. We do not expect our readers to turn on each other. We will be aggressively deleting all comments that personally attack another poster, or an article author, even if the comment is otherwise a well-argued observation. If we see repeated behavior, we will ban the commenter. Please help us maintain a civil level of discourse.

Newsletters