New Delhi: When advertising professional Suman Basu, 38, bought his second car a month ago, he didn’t opt for a model produced by Maruti Suzuki India Ltd, the country’s biggest car maker.
Basu’s choice was the Fluidic Verna sedan made by Hyundai Motor India Ltd; he wanted to stay loyal to the South Korean car company that also makes the Santro hatchback, which he bought in Allahabad in 2000.
“Back in 1998, there was a lot of excitement among the people when Hyundai opened its first showroom in Allahabad,” recalls Basu, who was then a newspaper journalist. “There used to be a queue outside the showroom. People just wanted a glimpse of the car. I was one of them.”
Basu’s attitude is symptomatic of the situation Maruti is confronting in a market it dominated for almost two decades after rolling out its first car, the little Maruti 800, in 1984. Consumers in Asia’s third largest economy are so spoilt for choice today they don’t automatically look to vehicles made by Maruti.
Losing out: A Maruti Suzuki showroom. The firm’s market share has dropped from 82% in 1997 to 39.5% in the first half of the current fiscal. Pradeep Gaur/Mint
The attractiveness of the Indian auto market and intense competition saw Maruti’s market share whittle down from 82% in 1997 to 45% in 2005, and 39.5% in the first half of the current fiscal, when the company was also beset by labour strife at its plants in Gurgaon and Manesar in northern India, and an appreciating yen that has made imports more expensive.
Second quarter profit fell 60%—the biggest drop since the third quarter of 2008-09— to Rs240.44 crore, largely due to a production loss at Manesar (valued at Rs850 crore) because of the labour unrest and foreign exchange fluctuations. In July-September, the firm’s vehicle sales dipped 20% to 252,307 units.
The appreciating yen also impacted the royalty payment to its parent Suzuki Motor Corp. It grew from 5.5% in the September quarter last year to 6% this year.
Much of Maruti’s troubles stem from competition that has steadily intensified since the launch of the Santro and Tata Motors Ltd’s Indica at the 2000 Delhi Auto Expo.
“Maruti was the only company in the mass segment till 1997 and with the advantage of being an early mover, it penetrated deeper in the Indian market and became a synonym for a car,” said Pradeep Saxena, executive director at TNS Automotive, a marketing research firm. “However, the arrival of the likes of Hyundai and Tata did not signal an end to Maruti’s dominance, but showed the market is going to grow and other companies can also do business here.”
Although market share fell, the market itself became bigger, helping boost sales. Maruti sold 1.1 million cars in 2010, up from 325,000 in 1997. In the same period, the Indian auto market expanded to 2.5 million cars from 450,000.
In 1998, Maruti sold a handful of vehicles—the 800, the Zen, the 1,000, which was replaced by the Esteem, and the Omni van.
Market dynamics were changing. Santro’s tall-boy image clicked with Indian customers. It provided fierce competition to the Zen.
“Although people were risk-averse, there were some who thought Santro was a stylish car,” said Saxena. “The company did two things that worked well for the car. They brought in Shah Rukh Khan as brand ambassador—that helped them in getting a place in the people’s minds—and the power steering, which was not at all a demand in that segment.”
Maruti was slow to react and the Santro was an instant hit. To counter it, Maruti started selling the WagonR in 1999 that struggled at first.
“The WagonR’s bread-box shape did not immediately cut ice with the Indian consumer and the car saw slow sales initially,” said a former Maruti official, who did not want to be named.
Around the same time, Ratan Tata’s ambitious Indica was launched, creating a different segment altogether. It was more spacious than a Zen or an 800 and had a diesel version with a cost of operation similar to that of Maruti cars.
“Because of the Indica, Tata captured a huge chunk of the taxi market, which otherwise would have gone to a Maruti or a Hyundai. And the taxi segment is not a small segment,” said Saxena.
Shashank Srivastava, chief general manager (marketing and sales) at Maruti, agreed. He said not having a diesel engine was, in hindsight, a mistake when the Indica was launched. “However, not much could have been done as there was a lot of uncertainty regarding the government selling its stake,” Srivastava added.
A tussle over control between the government, which held a significant stake in the company, and Japanese parent Suzuki, which wouldn’t be resolved until 2000, also meant delays in introducing new models and diesel technology. Suzuki ultimately acquired a majority stake in 2007.
“Alto and WagonR would have come earlier had there not been an ambiguity over the stake sale,” said Srivastava. “The market was expanding and we did not have new models.”
In 2004, Maruti, along with Suzuki, announced an investment of Rs7,000 crore in capacity expansion. It planned to set up a new car assembly unit with a capacity of 250,000 units a year, a diesel engine plant with a capacity of 300,000 units annually and further expand the existing plant in Gurgaon. A new research and development unit in Manesar was also proposed.
The company managed to maintain an average of 45-47% market share till 2009, when several other car makers entered the small-car segment.
“You have to understand that the market has grown from 17 brands in early 2000 to 104 in 2009, and we also introduced a lot of them,” said Srivastava. “We had a stable market share as the companies were expecting the Indian market to graduate to a sedan market. That did not happen and we continued our strategy to strengthen our presence in the small-car segment.”
The second half of the decade saw several new models from Maruti, but it was the Swift, launched in 2005, that changed perceptions about the company. The contemporary car with cutting-edge styling brought life to an ageing line-up.
While the Swift posted good numbers, Maruti failed to match the design appeal of new cars such as General Motors India Pvt. Ltd’s Beat, Volkswagen AG’s Polo and Ford India Pvt. Ltd’s Figo.
These companies, with made-for-India cars, have their eyes set on the small-car market that accounts for 70% of the total. At present, these companies together command a 12-15% market share.
“With the focus shifting to India, the global car makers try and match us on every front. In terms of network, they are everywhere. The localization level has increased tremendously, that helped them to become cost-competitive,” said Srivastava. “Above all, there is a major demographic shift in terms of people making a purchase decision in their early 20s. They look for a change.”
With India emerging as one of the hottest destinations for global car makers, Maruti has its task cut out to maintain its position. It plans to invest up to Rs18,000 crore in Gujarat. This will allow the company to move out of the troubled Gurgaon-Manesar industrial belt with its labour woes that in recent times has contributed to the fall in market share. Since 1 January, the Maruti stock lost 20.84% against a 13.67% fall in the benchmark Sensex.
“This is a very strategic move from the company,” said Nikhil Deshpande, research analyst at Mumbai-based brokerage firm PINC Research. “It will not only give it proximity to the ports in Gujarat, but also stand out as an option in emergency situations like the one at Manesar right now.”
Moving out of the National Capital Region for the first time, the company has approached the Gujarat government to buy up to 1,400 acres in Mehsana district.
The Gujarat factory will take up the company’s production capacity to 3 million units by 2015 from around 1.4 million at present.
“The idea is not to set up the plant immediately, but to act according to the changing market dynamics,” R.C. Bhargava, chairman of Maruti, said on Saturday. “One thing is clear that we need plants beyond Manesar and Gurgaon. We don’t want to put all the eggs in the same basket.”
Maruti plans to launch at least seven models in the next two-three years as it bids to regain market share. The predominantly small-car maker is looking to expand in other segments as well—such as larger sedans, utility vehicles and small sport utility vehicles—although it will continue to unveil more small cars.
“We will be launching at least two-three new cars every year, apart from the usual upgrades,” said Srivastava.
The company also wants to double its dealer network to 2,000 outlets across 800 cities by 2015, and wants to be present in all places with a population in excess of 50,000. At present, Maruti has 970 outlets covering 643 cities—almost three times that of second-placed Hyundai’s 340 dealers in 224 cities.
Maruti is also actively looking to poach talent from the Western auto hubs such as Detroit, the US. It has also hired a Japanese human resource expert to supervise overseas recruitment.
The company last year hired a veteran designer who has “worked with the Big Three (General Motors Co., Ford Motor Co. and Chrysler Group Llc) in the US. He has been a great help to our designers”, said I.V. Rao, managing executive officer (engineering) at Maruti. “Another person—a model maker with General Motors— has brought in a different perspective and a lot of valuable knowledge.”
But winning back consumers may not be easy.
Hyundai fan Basu, for instance, is unwilling to buy Maruti cars. “Other than the Swift, all the other cars are dated and the build is very fragile,” he said.