New Delhi: Twenty-five years ago, Shinzo Nakanishi was part of the Suzuki Motor Corp. team that set up an automobile joint venture with the Indian government. That venture, then known as Maruti Udyog Ltd and now called Maruti Suzuki India Ltd, has grown to be the country’s biggest auto maker. Since 1983, Nakanishi has worked with Suzuki units in China, Hungary, Indonesia, Pakistan and Hungary before returning to Maruti in 2002 when the government ceded majority control to Suzuki.
In an interview with Mint, Nakanishi, now managing director of Maruti Suzuki, spoke about the Japanese auto maker’s India journey, the current slowdown in automobile demand, and the company’s plans for its popular Maruti 800 model. Edited excerpts:
Congratulations on completing 25 years. You’ve been associated with this project even before it became Maruti Suzuki and over the last 25 years...
I came here on my first visit in February 1982. At that time the project team was headed by V. Krishnamurthy, R.C. Bhargava and D.S. Gupta. I met Mr. Krishnamurthy and Mr. Bhargava and I said Suzuki is keen to be a partner in this project. At that time Suzuki had made an agreement with General Motors to start a small car business. If GM made a contract with Suzuki it meant that our expertise in small cars had been accepted by GM. Second, Suzuki was -- and is -- the number one manufacturer by sales of mini cars. In Japan, they are 660 cc cars and we have over 30% share. That was why the Indian project team showed interest. They then came to Japan in March and visited several places – Suzuki, Nissan, Mitsubishi and others. Out of that only Suzuki showed very keen interest.
Being patient: Maruti Suzuki’s managing director Shinzo Nakanishi.
Of course, our proposal was good. They were keen on the small car and we have an 800 cc engine. That 800 cc engine you could use in passenger cars, Omni vans and even with pick-up trucks. With one engine you could run three models.
Did you have any apprehensions on working with the government? What are the steps you took to avoid problems?
When we talked about the project, we said let’s follow the Japanese way. Even Mr. Krishnamurthy and Mr. Bhargava agreed because your people did not know how to produce cars -- they were coming from BHEL (Bharat Heavy Electricals Ltd) with zero knowledge on how to make cars. They said that we will rely on Suzuki (and) if you want to institute the Japanese management system, do it and we’ll follow it. Punctuality was one of the most important issues that we discussed and made them understand (the need for it).
All in all, your relations with the government have been fine over the years…
Right, right. The late Mrs. Indira Gandhi and late Mr. Rajiv Gandhi said we’re happy Suzuki brought its working culture here. This has been the best compliment paid to Suzuki.
Coming back to the present, car sales haven’t been good in the last few month. Did this downturn catch you by surprise? A lot of auomakers say they didn’t expect such a sudden downturn.
Last January we never though this would happen. We didn’t expect growth of 15-20%, but maybe around 10%. In April we were still thinking on the same lines, but sometime in June, July and August we felt the difference. Auto financing was declining ICICI Bank, HDFC Bank and other private financing companies came out of auto financing and the portion of vehicles purchased with loans was decreasing. Then in the last 2-3 months there has been a sharp decline. In September, we said we would be happy if we reach last year’s level. Now we’re thinking about how to catch up with last year.
Do you think that car sales would contract?
Yes, definitely. Look at Japan. Toyota and Honda are doing very poorly. They say we cannot foresee next year’s volume because the situation is changing day by day.
When do you think things will start reviving in India?
India is a little bit different from Europe, the US and Japan. We have had a slowdown; however, compared with Japan and the US, it is less and the government’s counter measures -- reducing petrol prices, interest rates and the CRR (credit reserve ratio at banks) and cutting excise duties -- will definitely help in improving the market. Right now I don’t see much (improvement). However, next year, I hope these (measures) will spread to the market and there will be a recovery.
But you have no idea when?
No. At least for one year we have to be patient.
Would you like the government to do anything else?
They have cut the interest rate, cut the excise duty. Now the question is how to push the banks to lend money. SIAM (Society of Indian Automobile Manufacturers) is asking the government about the repossession issue. That needs to be solved quickly. This is burdening finance companies.
Other manufacturers in India like General Motors, Ford and Honda have plans to launch a small car. Maruti is a dominant player in this market. All these new models are going to be competition to Maruti. How do you view these launches and what do you plan to do to counter them?
Before the slowdown every maker announced that they’re going to bring new cars and launch small cars sometime in 2010-11. That segment will see tough competition. That segment is the biggest in the market and so it is only natural. We are lucky we have a very strong sales and service network and 12 models from the 800 till the Grand Vitara. Next year we would add some models in the A2 segment. Our (plan) is to introduce more models to compete in this segment.
In the late 1990s we used to read a lot of stories about how Maruti’s dominant position is under threat. But the company still sells one in every two cars sold in the country. What are the lessons you learned then that you’re looking to apply today? Are there any parallels that you can draw?
This is thanks to the former management. They have managed well. Point is we are continuously focusing on the network and to keep the quality model and to keep the quality of our cars. This is the ninth time that Maruti came high on the JD Power/Customer Satisfaction Index.
Our network is over 600 strong. Our dealers enhance their business with workshops. I think those are the steps we have taken to keep our share at over 50%. And we will continue to take these steps.
On exports, Hyundai is making India a small car hub. Suzuki is also exporting and doing contract manufacturing for companies such as Nissan. How do you see exports developing in the next few years?
Our strategy is rather different from Hyundai’s. Hyundai is focusing strongly on exports. We’re putting India’s domestic market first and exports second. That is why our export volume when compared with Hyundai is less.
Now in Europe – they are also a small car market – and Suzuki has a factory in Hungary. In Hungary we’re making the SX4 and the Swift. The domestic market in Hungary is a small market -- just 100,000 or so. So we utilize this Hungary plant for exporting to Europe. But Europe is keen to have the smaller entry level cars and Suzuki started thinking where’s their base of entry level cars. Luckily we have the demand in India as well as the manufacturing facility. So we decided that Maruti takes care of (Europe’s demand for) the entry cars. So these 2-3 years we stopped exporting to Europe and now we are going to restart exporting to Europe – the A Star.
When we talked about this model in Japan Nissan also thinking exactly same size model for Europe, Then we talked to see if there is any possibility of collaboration and came to the agreement that since Nissan doesn’t have a product factory in India we at Maruti Suzuki will take care of this model and just change the badge. This kind of business is already done in Japan. We call the model the MR Wagon and they call it Moco. We had a similar business in Japan and that helped to start the A-star business.
How is the A-Star doing?
In domestic India it is too early to say as we started (selling in) mid-November. But the feedback from the market is not bad. I hope we can reach the annual target (of 40,000-50,000 cars in a few years); not in the first year second year etc. On the other hand, exports of this model in the beginning of this year January when there was no crisis everyone was very very keen. I hope that keenness is not down yet. However, we have to think and prepare for those situation as well. But I think we can export at least 70,000-80,000 units not only in Europe but also other countries in the Middle East. Nissan is still negotiating its volume.
Why are they taking time?
But then this time came (referring to the current slowdown)
Analysts say that even though commodity prices are coming down but on the other side there’s heavy discounting, plant shutdowns and so on. So the pressure on margins will continue and companies won’t really benefit a lot from falling commodity prices?
It’s true that commodity prices like steel are coming down. But we’ve not yet reached an agreement even though prices are coming down. So we haven’t been able to take advantages of internationally declining prices. From April till today we’ve had huge increases in commodity prices and so our margins are totally down compared with last year and we’ve still not got any much benefit. I hope next year from start of April onwards we may enjoy some benefits. However, this year (is) very difficult. As you say the production volumes are down. Last year we sold 711,000 units in India. I want to reach this number however I don’t know whether we can reach or not. Till today (we’re) 3% down. So if we reach the said number – lucky. Though, of course, (with) exports the number is definitely higher.
Margins this year are even lower than last year. What were they last year and what are they this year?
What we have done is to try and reduce cost of production and to stop the over expense and fixed costs. People say you increased the price two times. That is not what … one time we adjusted Dzire’s price. When we introduced in May this year we put an introductory price and then we changed it this year. Of course some model up little. That is not covered yet. So our margin is same.
I hope this year end we hope to show some gross profit.
Maruti’s is facing a problem given that its Gurgaon plant is not running at full capacity due to the models its manufacturing and the Manesar plant is running at more than full capacity. The Gurgaon plant is very inflexible as you cannot manufacture the models that are most in demand. Globally automakers invest lot in flexible plants. Is the company thinking of making any changes in the Gurgaon plant?
There is still a back order for Dzire and Swift diesel but there is still a production limitation at Manear. So we’re looking to see if there is any chance or possibility to assemble the models in Gurgaon. If possible that will help increasing volumes. Looking at flexibility like this as we cannot change the total line. Actually we don’t want it (to change the production line). Those arrangement is possible. Not possible for the SX4.
Skilled manpower is a problem that the industry faces. Different manufacturers have taken steps to deal with the problem. Toyota, for instance, has set up a school. How serious is this problem and what steps is Maruti taking to address this?
There are two types of workforce. Blue collar and white collar. In case of workers we don’t have any problems. For white collars the attrition ratios are very high. The industry level is near 20% but our ratio is little bit less than the industry. We try to retain those people but no way (all) those people stay back. But hopefully these days after the slowdown the attrition ratios will reduce.
However, we train recruit and train for 2-3 years but we cant do anything. People say make the school. We establish school and educate and they enter Suzuki but we cannot say only enter Suzuki. Once I talked to the government people to make the school but this is not possible. We should be a democracy. We are having a school with the collaboration of DPS (Delhi Public School). Also four ITIs in Haryana.
Maruti’s rural marketing efforts have been a huge success. How important is this to the company? Other companies are not going to be able to penetrate this market so quickly so that’s a significant advantage Maruti has.
Rural areas are a promising, future area; 60% of the population is related to agriculture in India and 17% of GDP is from agriculture. This is a huge market. One day I saw on the TV in Japan that ITC is trying to enter those rural areas. But even the farmers wife becomes a saleswoman and sells small medicine or shampoo and others. They’re making some success. Next day they make some store to put every commodity. So I told my people that people are gathering here why don’t you have some event or tent to put our cars. They come and may have interest to our vehicles. And they have money. Of course, it depends on the monsoon. That’s why we’re also expanding this so-called extension counter sales network. Main dealer asks small town (sales outlets) to put two to three units in a small showroom. These are called extension counters and they’re now over 150. We want to increase this facility as well.
This is a long-term project and you’re not going to see results soon. A lot of companies say that it’s just too hard and not worth their time.
Business is always hard. To get the good result you need to work hard.
There’s been a lot of speculation in the media that the Maruti 800 wont carry on for too long due to the environmental and crash testing norms…
So far, accumulated production of our company has reached 7.5 million out of that 3 million is the 800. We started in 1983 and 1986 we made our model change. Then our production engineers said this cars mold and dye (will only last) only 1 million (cars). We reached 1 million still the dye is OK. Then we reached two million and even three million we reached. However, I think it will be very difficult to reach four million. We adjust it and make some repairs but I think it (the dye) has come to (end of its) life. We do not have a plan to change the dye and make a new dye. In addition to that as you say there is a regulation (on) emission and safety. And someday this model will come to an end. As long as we can produce I want to continue but a day will come…
You don’t plan to make new investments on the 800…
No no no. We have the Alto.
The first 25 years have been great. Where do you think Maruti will be 25 years from today?
I told my people 25 years silver jubilee has just passed. What we have to do in the next 25 is a big question to us but we want to keep this situation (market leadership etc.). We should be a leader in the auto industry. What happens we can’t tell but at least our mission is that. Hundred years ago Roosevelt said “What’s good for the GM is good for the country.” If those companies can be in trouble therefore we don’t know what will happen…