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A Tricky Ride

The last lap has been far from smooth for Maruti. The next is full of sharp curves and road blocks. CEO Jagdish Khattar dons combat gear as Maruti changes lanes to stay ahead of the pack.

By Suveen K.Sinha

Jagdish KhattarJagdish Khattar shouldn't be smiling, but he is. The CEO's seat at Maruti Udyog Ltd. (MUL), the country's largest car-maker, has, arguably, never been hotter. In June, 2000, the company's marketshare stood at 45 per cent, a full 35 percentage points lower than what it was in June, 1997. And absolutes didn't provide any succour either: MUL's passenger car sales slipped from 29,911 in April, to 25,720 in May, and 14, 543 in June. The decline was universal; every model in the company's portfolio sold less in June than it had in May. Indeed, in the first quarter of this year, MUL's sales witnessed a 50 per cent dip. Worse, analysts and other auto-industry mavens believe the Maruti 800, that venerable symbol of Indian consumerism, is at the fag-end of its life-cycle. The customer, they posit, has moved on to other entry-level offerings from rival car manufacturers. Coming as they did, in the wake of the company's financial performance-net profits declined from Rs 522 crore in 1998-99 to Rs 330 crore in 1999-2000, a fall of 37 per cent-these facts should have shaken Khattar.

If they have, it doesn't show. The man looks poised and confident. His speech is deliberate and he doesn't spare the details. To cut to the chase, this is a very different man from the Khattar who took over as CEO of Maruti in August, 1999. The smile was a trifle more tentative then. And his contribution to the first press conference he participated in took the form of monosyllabic answers. Khattar doesn't shy away from admitting that MUL is under pressure. ''We were down in the dumps in June,'' he admits. Pause. Then, ''We have to fight back.'' Another pause. Then (more emphatically), ''we will make a roaring comeback.''

The Market and Maruti

It's easy to rationalise Maruti's declining sales. The passenger-car market grew at around 60 per cent last year, and, as even the most optimistic of bean-counters will admit, it's not easy maintaining that pace. Thus, Maruti was not alone in riding down the roller-coaster. Ford India's Ikon and the just-launched Corsa of General Motors India were the only ones to improve upon their May sales in June as the passenger car sales slid to 35,600 in June, 2000, from 50,866 in May, 2000.

Besides, in early 2000, MUL announced that it would pass on the cost of installing new Euro-II compliant engines with multi-Point Fuel Injection (MPFI) to its customers. That crashed purchase lead-times as many 'should-we-now, should-we-wait' first-timers rushed to pick up the 800. The hike (inflated because all states decided to adopt an uniform sales tax of 12 per cent, and in most cases this meant an increase of 6 per centage points), when it happened in May, 2000, upped the price of the 800 (standard version) from Rs 184,000 to Rs 220,000.

Things don't look good. B.V.R. Subbu, the executive director (marketing & sales), Hyundai Motor India, sees no upturn in the next few months. Even the usually optimistic Phil Spender, 46, President & Managing Director, Ford India: ''The growth is settling at 10 per cent.'' It's this slowdown that has made marketshares more important than ever. ''When the size of the pie is not growing, the fight for marketshare intensifies. For instance, if we maintain our numbers in a shrinking market, someone is losing,'' says Subbu, 45.

But it will probably be inappropriate to read too much into Maruti's falling marketshare. In its hey-days, huge waiting lists for its products ensured that Maruti's marketshare was directly linked to the supply side of the equation. Thus, if Maruti's share touched 80 per cent two years ago, that was also its share of the total industry capacity. Today, there are 12 car manufacturers in India with a total capacity of about 1,250,000 cars. Maruti produces about 400,000 (33 per cent of the industry capacity). In effect, if Maruti harbours any hopes of regaining its 75 per cent share of the market, it must, to begin with, have a capacity of 900,000. Argues Khattar: ''Tell me, if we have a marketshare of 50 per cent out of a capacity that is 33 per cent (of the industry), are we doing badly? Why don't you ask the others who together have a capacity of 800,000, but cannot match our sales?'' There is support for Khattar from an unexpected quarter. Explains S.G. Awasthi, 57, Chairman, Daewoo Motors India: ''As the Indian automobile market moves from monopoly to (free) competition, marketshare comparisons from the old era have no relevance. The alarm (over MUL's declining marketshare) is not justified.'' Seconds Arindam Bhattacharya, 38, Principal, A.T. Kearney: ''As long as Maruti's own growth targets are being met, it doesn't really matter whether the marketshare is falling.'' And those targets are being met: an annual production of 407,589 units in 1999-2000 (333,198 in the previous year); annual sales of 406,574 vehicles (333,881 in the previous year) ; and a total income of Rs 9,673 crore (Rs 8,181 crore in the previous year).

It isn't just industry competitors that Khattar has to worry about, though. With the Government of India (GOI) certain to divest its stake in the car major sooner than later, he will have to think of MUL's post-GOI future. With the global auto industry witnessing a process of consolidation, identifying his company's position in an industry that will soon be dominated by a few gigantic manufacturers must also be keeping the man up at nights. And, if these do not faze him, there's always the issue of profits.



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