(Clockwise) Jagdish Khattar, MD, (front), Yuichi Nakamura, Joint MD, Shinichi Takeuchi, Director (Production), K. Kumar, Advisor (Engineering), MUL: Scripting a new roadmap

Jn August 1, at 9.30 am, the executive committee of the Automotive Component Manufacturers Association (ACMA)-the apex body that represents the interests of the Rs 15,000-crore Indian auto components sector-drove into the Gurgaon plant of the Rs 9,410.3-crore automobile giant, Maruti Udyog. Comprising 38 members (some of them past presidents, others CEOs of component manufacturers) the committee, which makes periodic visits to auto makers, first met the new-look Maruti Board of Directors: other than Managing Director Jagdish Khattar and two part-time directors, the rest are all Japanese. After exchanging the routine pleasantries, the ACMA team was taken around on a plant visit-another standard procedure.

If the ACMA honchos were comfortably settling into yet another visit to an original equipment manufacturer, it all changed dramatically an hour after the plant visit, when Khattar made a presentation. The Maruti chief's short point: cut costs by 30 per cent over three years. If you can do that, Suzuki will increase its sourcing from you, perhaps even treble it, by making you a part of the global supply chain.

A routine ACMA-OEM interplay did we say? The vendors for their part should have expected something significant: after all, this was the first time the Maruti top brass was catching up with such a large number of vendors since the Japanese auto major acquired a controlling stake in it in mid-May. But few counted on such an ambitious target-wrapped along with the juiciest of carrots-being thrown at them.

The instant reaction amongst the vendors was that of disbelief. It's unrealistic, some felt, as their knees jerked. But once they stepped out of the Gurgaon plant by 5.30 pm, cool-headed analysis took over. A 30 per cent cut in costs was workable. It had to be, for the benefit-the outsourcing opportunity-would be huge. ''Two years back, our costs were 20 per cent higher. At that point, we never thought we could lower them. Given Maruti's volumes, we may succeed this time as well,'' says A.K. Taneja, Senior Executive Director, Shriram Pistons & Rings.

Shriram Pistons is one of Maruti's 350 vendors that Suzuki will ride on in the years to come. And don't forget the 257 sales outlets developed along with the vendor base over the past 19 years. "With competitors finding it difficult to increase their reach amidst low profitability, this network of distributors and service stations could emerge as a key strength for Suzuki,'' says Amul Gogna, Executive Director, ICRA.

Say hello to the new Maruti. Suzuki's Maruti. A Maruti whose 350-strong vendor network will be used to source lower-cost components for Suzuki's global operations. A Maruti that will become the global hub for the Suzuki small car. A Maruti that's turning the heat on its vendors to lower costs, but also luring them by dangling the juicy carrot of sourcing. And, yes, a Maruti that plans to consolidate its leadership in the Indian car bazaar by playing the volumes game.

The Numbers Game

Last year, Maruti sold 3.52 lakh vehicles. Vijay Mehta, Vice Chairman & Managing Director, Clutch Auto, says it should work towards increasing volumes to 1 million over the next five years, with exports contributing significantly. Kinji Saito, Director (Marketing & Sales), has set a more "realistic'' target of 0.5 million cars over the next three-to-four years.

That figure could increase if Suzuki uses India as an export base in a big way. The current year's export target for completely-built units is ambitious: from sales of Rs 240 crore clocked last year, Suzuki wants to more than double that figure to Rs 500 crore by more than doubling volumes from 12,230 to 27,000.

Maruti's volumes coupled with India's status of being the lowest cost producer of small cars in the world give it an edge. What's more, the trend worldwide is shifting towards smaller cars, packed with the gizmos and luxuries of a bigger car. So it makes plenty of sense for Suzuki to encourage economies of scale in India by sourcing cars and components from its operations in the country.

Maruti's volumes ensure that the effect of cost reductions is far greater in India than anywhere else. Suzuki Motor is anyway known for keeping costs low over years. In Japan, the price of a 550cc Alto for the last 23 years has increased by barely Rs 40,000. "Prices don't increase in Japan," adds Saito.

Khattar has been doing his bit on the cost front back home. Last year, thanks to localisation, costs were trimmed by Rs 70 crore, and another Rs 65 crore was shaved off by increasing efficiencies on the vendor side. Overall, Maruti Udyog's operational efficiency in 2001-02 improved by Rs 364 crore.

Setting Things Right

Perhaps it's these cost-reduction initiatives that have enabled Suzuki to correct some of the inequities that existed on the pricing front. That could explain why, despite its apparent dominance, Maruti's volumes don't come proportionately from all its models. And Saito is pretty clear that Maruti has to get its act together first on the domestic front, before contemplating overseas opportunities. ''I am not satisfied with Maruti today,'' he shrugs. ''We have many models, but each one doesn't bring in big volumes. We need to enhance volumes of each model."

That's why a little over a month after getting into Maruti's driver's seat, Suzuki began setting things right. In June-end, it lowered the price of the Versa by over Rs 1.15 lakh through a promotional scheme. In late-July, Khattar slashed the price of the flagship Maruti 800 by Rs 15,000-Rs 18,000. A few days later, the Suzuki think-tank launched the WagonR Pride, opting for the tried and tested marketing gimmick of winning more buyers through the launch of limited editions. And last fortnight, Suzuki scored another brownie point by flagging off a new-look Esteem along with a diesel variant.

Says Hormazd Sorabjee, Editor, AutoCar India: ''I have always felt Maruti's problems have been internal. Now Suzuki will really begin to flex its muscles.''

Competitors dismiss the recent price cuts and model upgradations as a desperate attempt to arrest drooping sales. During the first four months of the current fiscal, Maruti's volumes have dropped 21 per cent, whereas Fiat, Hyundai Motor, and Tata Engineering have seen their volumes surge. "They didn't have a choice," says a competitor. "Suzuki undoubtedly has acquired a market leader. But this is a market leader whose products can't take a price hike, and that hasn't launched a successful model since 1993 (the Zen), let alone taken the leadership in opening a segment.''

"I am not satisfied with Maruti today. We have many models, but we need to enhance volumes of each model ." Kinji Saito, Director (Marketing and Sales), MUL

Harsh words, those. But not incorrect. And the Suzuki-heavy management is well aware of the lacunae in its India operation. To be sure, many of Maruti Udyog's weaknesses emanate from the manner in which the company has been functioning over the last 19 years. Most dealerships and vendors were appointed more on the basis of political considerations than entrepreneurial skills. Along the way, Maruti acquired a lot of flab (which Khattar has been working on reducing for the last two years).

A more serious problem for Maruti is the financial health of its dealers. "If Maruti Udyog doesn't mend its policy towards dealers, 30 per cent of them will shut shop over the next couple of years,'' says a Delhi-based dealer. Maruti dealers often compete with one another, rather than fighting competition. Unlike companies like Hyundai Motor India, which don't allow dealers to sell cars at discounts greater than their margins (in a bid to meet their sales targets and earn more incentives), Maruti Udyog dealers often subsidise discounts with income from their service stations.

THE SUZUKI PIPELINE

Ignis A hatchback that will take on Fiat Palio and Hyundai Getz Expected price: Rs 4-5 lakh Engine capacity: 1,300cc Expected launch date: 2002-end or early 2003 Grand Vitara A sports utility vehicle to be positioned against Hyundai Terracan and Honda CR-V Expected price: Rs 14-15 lakh Engine capacity: 2,400cc Expected launch date: 2002-end or early 2003 Liana Suzuki's new mid-size car will take on Opel Astra and Mitsubishi Lancer Expected price: Rs 8-9 lakh Engine capacity: 1,300cc and 1,600cc Expected launch date: 2003-end/2004

Another weakness-which is actually a Suzuki problem-is the inadequate diesel-model presence in the portfolio. Maruti needs to focus more on diesel cars, agrees Khattar. The runaway success of Indica v2 Diesel and Palio diesel has proved that this segment can't be ignored. But Suzuki doesn't make diesel engines. Maruti sources engines for Zen diesel and Esteem from Peugeot. In future, Suzuki may want to rely on its alliance partners-Fiat and General Motors-to source cheaper diesel engines (See Three's Company).

Big cars is another weakness of Suzuki. And the C segment (Ford Ikon/Maruti Esteem/Hyundai Accent) is bound to grow once B-segment car users (Maruti Zen/Hyundai Santro/Fiat Palio) graduate to bigger cars. Suzuki has one new product-Liana-which it could bring to India. Liana was launched in 2001, in Japan and comes in 1,328cc and 1,586cc engine capacities. It's a bigger car than the Esteem and Suzuki may want to launch it after a year, depending on the size of the segment and the state of the economy. For now, Maruti is more likely to address the market with products like the Grand Vitara and the Ignis.

When Osamu Suzuki decided to set up shop in India in 1982 along with the Indian government, his Japanese counterparts thought he was crazy. Today the Suzuki Chairman is earning royalties many times over the Rs 66 crore he initially invested in the company.

From now on, though, with Suzuki in the driving seat, Osamu will have to pump in big money to consolidate his leadership in the Indian market even as he draws out plans to make Maruti a global sourcing base for his global operations. His time starts now.