Can Suzuki Rev Up Maruti's Fightback?

JOINT VENTURES
Can Suzuki Rev Up Maruti's Fightback?

Finally, CEO Jagdish Khattar will launch 4 cost-competitive beauties in 12 months for the country's largest car-maker to stay in pole position.

By Rajeev Dubey

Jagdish Khattar, Managing Director, MUL One July afternoon, even as Maruti Udyog Ltd's (MUL) Managing Director, R.S.S.L.N. Bhaskarudu, was in Chennai, meeting his mentor and former Union Industry Minister, Murasoli Maran, he was transferred. With immediate effect. In a quiet decision taken at Udyog Bhavan, the headquarters of the Union Industry Ministry, on July 15, 1999, Bhaskarudu, 59, was moved out to a Government of India's (GOI) Secretary-level posting as a Member of the Public Enterprises Selection Board (PESB). Very Japan-like, did someone say?

Sure, as per the deal struck on June 8, 1998, between MUL's uneasy partner-parents-the GOI (stake: 50 per cent) and Suzuki Motor Co. (stake: 50 per cent)-Bhaskarudu, one of MUL's 2 managing directors, was to have stepped down only on December 31, 1999. But with the caretaker A.B. Vajpayee-led BJP Administration choosing to intervene, it paves the way for Jagdish Khattar, 56, the other Managing Director, to become the CEO of India's largest automobile company.

Read between the lines of Bhaskarudu's ouster. Clearly, Suzuki Motors, which has been rooting for Khattar from the outset, will now be able to manage the company on its own terms-something it has been itching to do ever since the company's former CEO, R.C. Bhargava, stepped down in August, 1997. Surprisingly, a swadeshi Administration in caretaker mode seems to be willing to give a transnational a free hand to steer a State-owned company into overdrive-certainly, a necessity in the face of competition.

R.S.S.L.N. Bhaskarudu, Ex-Managing Dir., MUL Obviously, the dual managing director system, like all compromises, didn't work. For one, it delayed MUL's new product-launches, leading to a situation where Suzuki Motors, perhaps deliberately, was most reluctant to transfer fresh technology to its Indian venture. Adds Mahendra Taragi, 41, Vice-President, MUL Employees Union: ''There was no consensus at the top.'' For instance, a wage-agreement with the unions-the last one expired on March 31, 1999-has been pending for 4 months due to the differences between Bhaskarudu and Khattar. But now, MUL could roar back into business under Khattar. Finally.

BT learns that Suzuki Motors has been secretly working with MUL's 379-strong vendor network in the country since June, 1998, to develop the components for as many as 3 new models of cars, code-named A, B, and E, and a variant of the Zen, christened New Alto. The deadline: to make specimen dies for components for the first new model (Model E) before August 15, 1999, so that the trial-runs can be completed this year. Although Suzuki and MUL are keeping everything under wraps, its new models could be winners. Points out Hormazd Sorabjee, 35, the Mumbai-based consultant: ''Don't ever dismiss Suzuki. It has an edge in designing India-specific models. Given the company's expertise, it will always be difficult for its competitors to take on MUL.''

There are 2 prongs to Suzuki's strategy. First, quickly launch new cars to plug the gaps in its range of 7 models (and 31 variants). Second, cut costs to prepare for the inevitable price-war in the car market. In a sense, MUL has the largest range of cars for the Indian market and, beginning with the standard 800-cc (price: Rs 1.93 lakh), the company, by and large, offers a model for every Rs 20,000-Rs 30,000 price-increase upto Rs 5.55 lakh. Yet, there are 3 gaps in its range.

MUL has only one model, the Zen lx (Rs 3.04 lakh), in the price-band between Rs 2.44 lakh (800 DX) and Rs 3.56 lakh (Zen VX). Similarly, it offers no options between the Esteem lx (Rs 4.88 lakh) and the Esteem vx (Rs 5.55 lakh). And, in the premium (between Rs 6 lakh and Rs 8.50 lakh) and the super-premium (Rs 10 lakh-plus) categories, MUL has no models to offer. Avers Ewell Fernandes, 42, Head (Research), CRISIL: ''It is very important for the company to make up for lost time.'' Especially since all of them could be lucrative niches for the company.

Already, the Rs 2.44-3.04-lakh segment is becoming quite crowded, with 10 models launched by TELCO, Hyundai Motor, Daewoo Motors, and Fiat. As a result, MUL's marketshare in the small cars segment (below Rs 3.50 lakh) has fallen from 90 per cent in 1996-97 to 84.30 per cent in 1998-99. Likewise, although the Esteem, with sales of 16,769 units in 1998-99, dominates the mid-size segment, its rivals like Daewoo's Cielo Executive (Rs 5.38 lakh) and the recently-launched Nexia (Rs 6.55 lakh), the Honda City (Rs 5.91 lakh), and the Fiat Siena (Rs 6.10 lakh) are trying to drive into its domain-and successfully too.

To pre-empt these threats, the Model A, to be launched in June-July, 2000, will have 2 variants, with an engine-capacity of 800-cc, priced in the Rs 2.65-3 lakh band. They will plug the gap between the 800 DX and the Zen LX. A third variant of the Model A (price: Rs 3.15 lakh), and the New Alto, a 1,000-CC variant (expected price: Rs 3.30 lakh) of the Zen-which will be branded the Zen Classic and launched in August, 1999-will do the same in the space between the Zen LX and the Zen VX. And the Zen Classic will have a second variant (Rs 4.60 lakh) with automatic transmission and power-steering.

Similarly, the 1,000-cc Model B-actually, a code-name for Suzuki's Wagon R-will be launched in 2 variants (expected price: Rs 5-5.50 lakh), and will be positioned between the Esteem LX and Esteem VX. Launch date: January-February, 2000. Finally, the Model E-logically, the Baleno-with 2 options, 1,300-CC and 1,600-CC (expected price: Rs 7 lakh-Rs 7.50 lakh; launch date: October-November, 1999), will be slotted in the premium segment, pitted against the Ford Escort (Rs 7.10 lakh), the Opel Astra (Rs 7.40 lakh), and the Mitsubishi Lancer (Rs 7.50 lakh).

Once the new models are in place, MUL will, definitely, be better-positioned to take on its new rivals. Admits Manish Maheshwari, 31, Senior Analyst, ICRA: ''MUL will be able to plug the gaps in its products-profile before the real battle begins.'' Moreover, Suzuki has carefully planned the models to save on manufacturing-costs and, in turn, help MUL aggressively price its products. For example, 2 of the 4 models will use the 1,000-cc and 1,300-cc engines already manufactured by the company. Of course, MUL will not have to invest in additional engine-making capacities because, last year, it completed its Rs 800-crore expansion, which increased its engine- as well as car-making capacity from 250,000 units to 350,000 units per annum.

Apart from savings in investments, MUL will also be able to cut the time taken to launch new models: the industry average is 3 years, but MUL could do it in less than 2 years. Its biggest advantage: the manner in which it has negotiated prices with its vendors for the new models. MUL played the competition card to cut its costs. For instance, it set a target-price for each component-by working backwards after deciding the estimated selling-prices-and then invited bids from each vendor.

In return for competitive prices, the company by-passed its own policy of having a minimum of 2 vendors for each component by offering sole-supplier status to the lowest bidder. The company has, thus, slashed the number of its vendors to 200 from the earlier 379. Agrees the CEO of a Gurgaon-based vendor, who currently supplies over 50 per cent of MUL's requirements: ''The transparency inspired me to quote competitive prices.'' Many vendors, enthused by the orders up for grabs, even quoted prices that were below the company's targets.

That will make Khattar-whom Bhargava had hand-picked for the top job back in 1992 (see Just Who Will Drive Maruti Tomorrow?, BT, February 7, 1998)-smile. For, apart from Suzuki's free flow of technology, what Khattar needs to fight MUL's growing breed of competitors is components of competitiveness. Only then will India's largest car-maker succeed in holding on to that epithet in the New Millennium.

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