NEW DELHI - It was not an auspicious beginning.
When the Indian government in August 1997 appointed R.S.S.L.N. Bhaskarudu to a five-year term as managing director of Maruti Udyog Ltd., its 50-50 joint venture with Japan's Suzuki Motor Corp., Suzuki refused to accept him.
Indeed, in a public statement, Suzuki Chairman Osamu Suzuki called Bhaskarudu 'incompetent,' and formally challenged the appointment before the International Court of Arbitration in London.
The attack on Bhaskarudu, a 15-year Maruti veteran who had been co-managing director since 1992, triggered protests over Suzuki's apparent high-handed meddling in Indian affairs, and calls in the Indian Parliament to throw Suzuki Motor out of the country.
But other, even more powerful explosions were in the works.
India's surprise detonation of a nuclear device in 1998 unleashed a tidal wave of criticism and sanctions from countries around the world, including Japan. Suddenly eager to placate a major foreign investor such as Suzuki, Indian policy-makers moved to settle the dispute with their partner.
The Indian government cut Bhaskarudu's term from August 2002 to Dec. 31, 1999, and it agreed to appoint a Suzuki nominee as a co- managing director of Maruti in July 1999. The Suzuki executive will succeed Bhaskarudu as managing director on Jan. 1, 2000.
He will take over a company that commands some 80 percent of the Indian market but which is now under attack from every quarter as international automakers flood the market with sophisticated new products.
Most worrisome: a direct attack on Maruti's bread-and-butter franchise, the under $6,000 car, by slick new models from Hyundai, Daewoo and local producer Telco.
Despite the tempest over his appointment, Bhaskarudu, a 59-year-old electrical engineer, remains unruffled by the hand dealt him. His focus, he told Staff Correspondent Sadananda Mukherjee in an interview in New Delhi, remains fixed on the job of protecting Maruti's market hegemony in the face of increasing competition from foreign and domestic makers.
Edited excerpts follow.
Growth in the passenger-car market slowed last year. What happened?
The slowdown reflected the general slowdown of the Indian economy. There was low capital investment in major projects and, in the market, a tendency to not spend on consumer durables. Only the small-car segment, up 8 percent, grew. The luxury segment fell 21 percent.
The big international carmakers are all in the luxury segment here. Why are they doing so poorly?
Well, first, the total market shrank last year. At the same time, there were several new model launches, price cuts and product upgrades. But contrary to the initial expectations of the foreign majors, the demand base for this segment is very small and will remain small.
When do you think things will start to improve?
New-vehicle demand is linked very closely to that of the economy, which was in a state of slowdown. But the economy appears to be stabilized, and I expect things to improve in the last quarter of this year. Steps taken by the government to boost the economy will have a positive effect by the beginning of October, and I expect the auto sector to follow quickly.
You've enjoyed a virtual monopoly in the small-car segment with the Maruti 800 but now face three formidable competitors - Hyundai, Daewoo and Telco. How do you plan to face the challenge?
We have been preparing for this moment for quite some time. On the supplier side, we have been consolidating vendors and winning cost savings and efficiency improvements from them. On the distribution side, we are expanding our dealer network to increase our reach to the customer. And we're upgrading our model lineup.
As you know, Maruti cars have been tried and tested by Indian customers for over a decade, and we are the industry's strongest brand. The market also is very price sensitive, and we are the pricing leader because no other manufacturer can match us on costs. Because of these advantages, I expect we will continue to maintain our leadership and exceed our past sales volumes.
Your market share currently exceeds 80 percent. Can you maintain that?
No, maintaining a market share of over 80 percent is not a realistic proposition. We'll continue to be the market leader in the passenger-car market, but our share over the next three years will fall and stabilize at around 55 percent or 60 percent. In the current fiscal year ending March 31, we expect our market share to slip to about 75 percent, primarily because of production constraints and the beginning of competition in the small-car segment.
However, we will continue to sell far more than our capacity because of our exports.
How big is the passenger-car market now?
The total market is about 450,000 units including 45,000 to 50,000 mid-sized vehicles and 360,000 to 390,000 units in the small-car segment.
Ever since the Maruti 800 was launched about 15 years ago, no new technology has been provided by Suzuki. Are you planning to bring in new models and technology?
With so many aggressive new players entering the market in every segment, we will have to introduce new models and the latest technology to remain competitive. Don't forget, Suzuki is a leader in the small-car segment, and we're working closely with them to decide the appropriate models for the Indian market.
How about the Wagon R ... any plans to bring it here? As you know, it's extremely popular in Japan and was the No. 1 selling car there in 1998.
It cannot be ruled out.
How much has Maruti paid to Suzuki in royalties and dividends since the partnership began production in 1983?
Royalty payments total 2.24 billion rupees (about $60 million at current exchange rates). The dividend payout totals 515.4 million rupees (about $15 million).
You have agreed to buy diesel engines from Peugeot for the new Zen (1.0-liter subcompact car). Do you plan to manufacture the engine here under license?
No ... engine manufacture requires large volumes to justify the high cost of the plant. We won't have those volumes. At this stage, the engines will be supplied by Peugeot.
How is your expansion program progressing?
Quite well. The first phase is just being finished. This will increase production capacity by an additional 100,000 units. Through kaizen activities, we expect total capacity to reach 500,000 units.