DEC. 22, 2002
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Two Slab
Income Tax

The Kelkar panel, constituted to reform India's direct taxes, has reopened the tax debate-and at the individual level as well. Should we simplify the thicket of codifications that pass as tax laws? And why should tax calculations be so complicated as to necessitate tax lawyers? Should we move to a two-slab system? A report.


Dying Differentiation
This festive season has seen discount upon discount. Prices that seemed too low to go any lower have fallen further. Brands that prided themselves in price consistency (among the consistent values that constitute a brand) have abandoned their resistance. Whatever happened to good old brand differentiation?

More Net Specials
Business Today,  November 24, 2002
 
 
It Takes Three To Tango

In a first-ever, industry-altering alliance, General Motors, Suzuki and Fiat are planning to jointly develop cars, share components, and combine marketing and distribution. Competitors, beware.

Acumen arsenal (Lto R): National quiz winners Deepak Chandran and Soumit Deb from School of Communication & Management Studies, Cochin, with national debate champs Khalid Ahmed and Ankur Huria from Management Development Institute, Gurgaon

Seven months after taking over as president of General Motors Asia Pacific, Frederick Henderson finally found time to visit India for two days in July this year. It was supposed to be a quiet "meet-the-stakeholders" tour for Henderson, but things warmed up when some Indian automotive journalists in Mumbai buttonholed him and reminded him of an interview promise he had made at the Geneva Motor Show three months ago. Henderson, who's also Vice President at the parent company in Detroit, yielded. And out tumbled the Asia Pacific chief's pet dream: to turn the world's biggest car manufacturer into the biggest car marketer in India, too.

If the automotive honcho's dramatic declaration did not make the headlines, it's for good reason. General Motors India then was, and even now is, a minnow in the Rs 53,000-crore automobile industry. Its Rs 780-crore plant at Halol in Gujarat is built to make 25,000 cars a year, but last fiscal it sold a mere 8,473. In terms of unit sales, that puts the Detroit giant at No. 8 in India. Behind leader Maruti Udyog, behind even Korean Hyundai Motor Company-a company less than a 10th of GM in terms of revenues. Worse, despite its eight-year presence in the country, GMI seemed stuck in the slow lane. Obviously, Henderson's dream seemed set to remain just that: a dream. May be not.

Debate
National Champions MDI, Gurgaon: Ankur Huria, Khalid Ahmed

1st Runner Up
IIM-B: PM Hashim Kabeer, Anirban Roy

2nd Runner Up
IIM-C: Avik Bhattacharya, Rohil Sehgal

3rd Runner Up Symbiosis Centre of Management & HRD: Deepti Srivastava, Anjali Sharma

In what will be a first in the Indian automotive industry, General Motors plans to use its 21-year-old global alliance with Suzuki, and a more recent one with Fiat, to move into top gear. What helps is the fact that GM owns a 20 per cent stake in each. Combined in India, their purchasing will soar to over Rs 6,100 crore a year, the dealership and service station network will jump to 360, and make it an alliance with the widest range of passenger cars.

A Winning Troika?
Ever since Suzuki Motor of Japan took over the reins at Maruti Udyog in May this year, the alliance has received a shot in the arm. Apparently, the idea is to create an Indian version of the global alliance that the three already have. The GM-Suzuki alliances dates back to 1981, under which the two have developed new products, sold each other's cars in various markets, sourced components together and even entered into joint ventures (See A Global Model). GM's tie up with Fiat is more recent. But since 2000, when GM picked up a stake in Fiat Auto, they have struck deals to jointly work on powertrains and other parts. (Fiat's Agnelli family has the option of selling the rest of the automotive division to GM anytime between 2004 and 2009.)

The threesome plan to replicate much of that strategy in India. Specifically, the alliance will focus on the companies sharing each other's products, buying components together in order to cut both components and sourcing costs, working on engines and transmissions together, and entering into cross branding agreements in India. Says Maurizio P. Bianchi, Managing Director, Fiat India: "We are in a relationship with General Motors and are looking at ways in which we can cooperate in the Indian market."

Simply put, the Indian automobile industry is in for a big change. Under the new scheme of things, three players out of the 12 players would, for all practical purposes, play the game as one. The alliance could bring the world's largest car maker's vast portfolio of brands like Chevrolet, Isuzu, Opel, Pontiac, Subaru, Buick, Cadillac and Daewoo into India. And the volumes of India's largest car maker-Maruti Udyog-would give GM and Fiat the leeway with vendors to source components cheap and expand their markets through Maruti Udyog's wide network.

GM India and Fiat India are already busy working out a blueprint for the alliance. And it's only a matter of time before Suzuki, or rather Maruti Udyog, will be included in this blueprint. As per the revised joint venture agreement between Suzuki and the government of India, the disinvestment of government's stake in Maruti Udyog should be completed by March 2003. Kinji Saito, Director (Marketing & Sales), Maruti Udyog insists that as of today "Maruti Udyog has no plans related to Fiat or GM."

But probe a little, and the contours of an alliance begin to emerge. Bianchi says that Fiat India is in talks with Maruti Udyog for engines. According to industry sources, Maruti Udyog is testing Fiat's xl diesel engine at its Gurgaon plant. At present, Maruti Udyog imports diesel engines from Peugeot for Zen and Esteem. Sourcing diesel engines from Fiat India could make these diesel variants more affordable. In fact, industry sources also point out that GM India and Maruti Udyog may soon work towards Chevrolet Cruze into India. General Motors and Fiat Auto plan to invest $100 million (Rs 490 crore) at Fiat India's Ranjangaon facility (near Pune) in order to produce new models and powertrains. The equally-owned joint venture, details of which are being worked out, could also become a global source of powertrains for small and mid-sized cars.

There is little reason to doubt that the trio are in a hurry to get the partnership rolling in India. The Asia-Pacific region is, after all, the fastest growing car market in the world and India, despite the hiccups, is an emerging car market. In fact, Maruti Udyog's Managing Director Jagdish Khattar says that if taxes on cars are lowered and road-construction activity takes place at the current rate, the Indian car market could grow at a much faster rate than the current pace of 6-7 per cent. Given that, it's only logical that the three players should combine their strengths to make the most of the Indian and Asian markets. Says Ravi Khanna, Country President and Managing Director, Delphi Automotive Systems (India): "Globally, the auto industry is now more agile as a result of consolidation. In India, circumstances may be peculiar or unique. But the pattern can be seen quite clearly."

 

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