Business: Maruti Udyog limited: Shifting Gear

With new models, upgraded technology and competitive pricing, the automobile giant has woken up to competition. But is it too late?

Competition has finally caught up with India's largest car maker, Maruti Udyog Limited (MUL). The Rs 8,118-crore company which produced 3,33,199 vehicles last year is now embarking on a new drive. It will launch more models, chase technology, cut flab and go after buyers with fresh zeal to deal with the ever intensifying competition in the car market.

THE OVERHAUL

ť Launch new models to be present in different segments of the market.
ť Reduce production costs by achieving a 85-90 per cent indigenisation for new models within 12 months.
ť Revamp marketing by increasing the dealer network from 150 to 300 and focusing on bulk institutional sales.
ť Bring down number of vendors and introduce competitive bidding by suppliers.

Later this week, the company will launch the Zen Classic version. Over the next year the company, which has not launched any model since the Esteem in 1994, will add three new cars to its existing seven-model fleet. On the anvil are the Wagon R, Baleno and a New Alto (tentative names) that will help broaden MUL's presence in the Indian car market. Jagdish Khattar, who took over as managing director of the company on August 17, is confident that MUL "will retain leadership in the car market".

That's easier said than done. Between April-June 1998 and April-June 1999, MUL's share in passenger cars slipped from 84 per cent to 69 per cent, even though its sales, including exports, grew by 14 per cent during the period. Clearly, its competitors have grown faster. For instance, Hyundai's small car Santro, which was launched only in October 1998, sold 12,684 cars during April-June 1999. Telco, which introduced Indica in December 1998, has put 7,617 cars on the road in the same period. Even Daewoo, which got off to a slow start because its small car Matiz was priced much higher than expected, had a long list of buyers. The increased competition was one of the reasons why MUL's net profit slid from Rs 652 crore in 1997-98 to Rs 522 crore last year. Hyundai is aiming to sell 55,000 cars this year while Telco has set 60,000 cars as its target. If the two manufacturers achieve their numbers, their sales would be equal to almost half the total number of Maruti 800s and Zens sold last year.

NEW DESIGNS

BALENO
Launch: Nov 1999 Price: Rs 7-7.5 lakh Engine Capacity: 1,600 CC
Introduced in 1995 as Suzuki's mid-sized saloon in Europe. It comes across as a solid but bland looking car. The Baleno will be pitched against Honda City, Mitsubishi Lancer and Opel Astra.

WAGON R
Launch: Feb 2000 Price: Rs 3-4 lakh Engine Capacity:: 1,000 CC Market leader in Japan for the past one and a half years. Overtook Toyota's Corolla model, which was reigning for almost 15 years. Suzuki pioneered the "tall boy" concept with this car years before Hyundai launched its Santro in India.

NEW ALTO
Launch: April 2000 Price: Rs 3.5-4.6 lakh Engine Capacity: 1,000 CC
Maruti 800 was the original Alto in Japan and Europe. This hatchback is similar, but a new front-end design (grille, headlamps and bumper) makes it look like it is a new model. Positioning to be decided at a later stage.

Khattar is trying to change that by focusing on customer care, putting costs under a magnifying glass and examining ways to increase market reach. Right now, he is busy despatching survey teams to 35 highways to check out the feasibility of setting up a Maruti service station every 25 km. That's not all. Earlier, new colours were introduced every five to six months. Now Khattar promises fresh hues every two or three months. "Buyers have become impatient," he says, "we'll have to give them what they want."

But Khattar knows only too well that in competitive markets, the biggest challenge is to keep costs down. For the same reasons, MUL is targeting an indigenisation level of 85-90 per cent for the Baleno and Wagon R within a year. It took 12 years to reach that level for Maruti 800 and seven years for the Zen.

But keeping costs down is not easy. MUL's problems are rooted partly in the crackdown on cars that use obsolete technology and cause pollution. On April 28 this year, the Supreme Court made it mandatory for all new cars in the National Capital Region (NCR) to comply with Euro I emission norms by June 1 this year and become Euro II compliant by April 1, 2000. MUL sales in the NCR (its largest market, accounting for almost a fourth of all sales) dipped sharply after the ruling. On the other hand, the new entrants already had multi-point fuel injection systems that complied with the Euro I pollution control norms.

By June 9 MUL had made the necessary changes. The switch cost Rs 3,000-4,000 per vehicle. But with competition snapping at its heels, the company could not afford to pass on this cost to the consumer. MUL has spent nearly Rs 600 crore to ensure that the new engines will be Euro II compliant by January 2000, three months before the deadline.

However, rivals are not impressed. "MUL has been complacent," says B.V.R. Subbu, director (marketing and sales), Hyundai Motor India. "Its current range of products is obsolete in terms of technology." That's something both the Indian government and Suzuki Motor Corporation of Japan are beginning to realise. Last week, MUL announced plans to launch the Baleno and Wagon R. Baleno, a mid-sized saloon with a 1,600 cc engine, will mark Maruti's entry into the luxury segment. The Wagon R will take on the Santro and the other cars in the segment. The New Alto will also join the MUL family later next year. This is a clear indicator that Suzuki's interest in MUL, which had waned in the past three years, has revived. Says Autocar India Editor Hormazd Sorabjee: "These models will definitely give MUL a shot in the arm."

Apart from launching new models, MUL plans to push its cars aggressively. Institutional sales, which currently contribute only 7-8 per cent of its sales, will be a focus area. It is also eyeing the taxi market in urban centres for its Omnis. Besides, MUL is hawking its cars on the Internet and hopes to significantly increase the current 50-80 cyber-bookings per month. To improve market reach, it may even sell through its network of 1,200-odd service stations spread over 530 cities.

Will all this help MUL retain its marketshare? The company is betting on an increased market presence to consolidate its leadership. But upgradation of technology will be as crucial. After all, it was the right mix of new technology and low pricing that helped MUL race past Premier Automobiles and Hindustan Motors in the '80s.

Also, the company could concentrate on diesel technology. The success of Indica's diesel version -- a majority of the Indica models sold till now have diesel engines -- shows how the skew in prices of petrol and diesel can be effectively used to attract buyers. However, Zen D hasn't come close to being a hit. "How long can anyone push old models and technology?" questions Adil Jal Darukhanawalla, editor, Overdrive magazine.

By introducing new models, upgrading technology and cutting costs MUL seems poised to answer its critics. But the worth of its efforts will depend on how effectively it tackles the competition in the coming months.

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