Here, in a candid conversation with Surajeet Das Gupta and Krishnakoli Dutta, Bhargava talks on a range of issues from challenges before the company and the recent controversy between the two partners, to the path the company will take in the future.
Q:. Maruti has had a virtual monopoly in the Indian car segment. But now the market is changing, with new companies set to enter the smaller car segment. What will Marutis strategy be to maintain leadership?
A:. This is one car segment that has been recognised as the growth area for the next five years and more. Those who had earlier thought that growth was going to happen in the middle segment, 1300 cc and others, are now coming to believe that growth there is going to be comparatively smaller.
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The real growth is in the smaller car segment. So competition here is inevitable. Anybody who wants to have any kind of presence in the Indian car market has to be in the small car segment. Otherwise it is going to be a marginal player with 20,000 to 30,000 cars.
Maruti has tremendous advantages here. For one, we have a large volume already, and with this large volume we have been able to achieve high levels of local content and break down costs due to economies of scale.
We have a big advantage in terms of our established dealer network sales, service, spare parts. Others are still trying to build up their dealer network its a very costly business. Our dealers have a big advantage with repairs, servicing and selling accessories and spare parts, they are able to sell cars with smaller margins as they can make their money elsewhere. The new dealers do not have this adva- ntage since they have no income from other areas.
We also have a huge advantage in the fact that Suzuki is today the world leader in the small car market. In Japan they have the largest market of small cars and also the largest volume of small car exports. Others who are coming in are mostly making their initial foray into small cars, and do not have a background or experience in small cars.
A good part of our investment is through internal resource generation, which again gives us an advantage.
At some stage in the future (not now, because it has been ruled out for the present) if there is a decision to raise equity in the market, then it can be raised with a huge premium, again lowering the cost of capital substantially.
I think these strengths will enable us to retain our pre-eminent position in the small car segment, giving us a competitive edge.
Q: With the foreign car companies willing to subsidise their Indian ventures, how long do you expect your cost advantage to last?
A:. Any subsidy to an Indian company will add to their losses or they will have to keep pumping in more equity capital. It is comparatively easy to subsidise cars when you are selling them in small volumes like 20,000 or 40,000. It becomes quite a different game when you want to reach a market size of 100,000 or 150,000 cars because then the subsidy amount becomes really big. Then you need to have a very deep pocket and you should be willing to take a huge hit.
Q: Your competitors are all introducing newer international models. Will you make any changes in your core models?
A: We will introduce models as and when required. Suzuki has several models. We have models beginning with the 800cc the entry level car.
I think the Indian market will continue to require an entry level car for a long time. As long as there are millions of scooter owners, they will need an entry level car. We will not need these low priced entry level cars the day the scooter population dries up. And you can guess when that will happen!
But after the 800 cc, some other models may be introduced between the existing segments so that people have stepping stones to move up. We are still working with Peugeot on the diesel option.
Q: Are you looking at upgrading your 800 cc car? Will the new model be more expensive?
A: A new model of the 800 cc is being worked upon. We have suggested to Suzuki that it should design a new model where the price difference (from the existing 800 cc car) is minimal.
But prices are going to go up in the year 2000, because all cars will have to have fuel injection by then as part of the fuel emission regime. That will be common for all cars.
Q: How are you tackling the challenge of competition in the 1.3-litre segment where Maruti has seen slipping sales?
A: We are still selling the largest number of cars in this segment. Our product gives value for money. The Indian customer is a very price sensitive customer. Ultimately, he is looking for value for money.
Q: How do you see yourself coping with your capacity constraints?
A: Sure, we are short of capacities. But this year the market doesnt seem to be growing as much as we thought it would. By the time the market picks up, we would have added to our capacities by completing the third plant, which will be operational by January 1999.
Q: How will you meet the demand during the interim period?
A: We are looking at various Kaisen options how to get more out of existing ones. The installed annual capacity is 2,50,000 cars; last year we did 3,36,000. This year we are hoping for 3,50,000 or thereabouts. And next year we will again try and add some 30,000 cars. One of the options is an extended shift everybody works overtime. We are looking at other ways of de-bottlenecking.
Q: What is the current growth rate and what are your estimates for the year 2000?
A: This year will be much slower than last year. We had grown at close to 35 per cent average in the last three or four years. I do not think this years growth can be much more than 7 per cent. By year 2000, the automobile industry will be something between 600,000 to 700,000 cars. The economy has run into problems with infrastructure, power and roads.
Q: What are your projections for internal accruals?
A: Last year it was Rs 600-odd crore. This year it should be more. The turnover should cross the Rs 8000 crore this year. Last year we were at Rs 7,916 and if we make another 20,000 cars this year, we should touch it. By year 2000, our factory capacity will be 5,00,000 cars which should give us a turnover of around Rs 11,000 crore.
Q: What do you think have been the problems with the Zens export performance?
A: The car has been well accepted outside. In UK and Holland it was voted the best buy. But, there have been two or three problems relating to increasing sales. One has been the production capacity constraint. Second, there is a problem of adequate level of local content. Price competitiveness is the third factor because the dollar has become stronger against European currencies, and because our pricing is in dollars, we need to have even lower costs in order to increase export volumes.
Q: Which company do you see as your main challenge? How do you see Telcos small car project?
A: Everybody is a major challenge. Out of them, who will become stronger, who will grow more, only time will tell.
We are yet to see Telcos small car, how it will perform and how it is priced. I do not think anybody really knows what this car is going to do.
Telco will have the same problems as others, though it has the advantage of high local content and high turnover which will allow it some cross-subsidisation.
But they still have to set up a dealer network. They cannot use the truck network to sell large numbers of small cars. They are still to get over the teething problems of making cars. And they are still to get up to the productive levels of Maruti.
Q: What is your comment on Suzukis request for a unified management at Maruti Udyog Ltd?
A: Maruti has always had a unified management. I think what Suzuki meant was management control on the board by majority equity stake in the company. A 50-50 directorial representation on the board was not very comfortable. But that issue is over, with the government resolving to have no equity change.
Any professional manager has to function within the parameters given to him, and he will like parameters where decision making is quick and based purely on business considerations. It has been like that in Maruti for most of the time.
There will always be some differences in opinion between two joint venture partners. But fundamentally it is clear that both partners are still happy to be partners.
Q: Do you think Suzukis conflict with the government will mean that they will stop providing technology?
A: No. I think Suzuki will continue to provide technology because it is not in Suzukis interest not to do so. Market circumstances will force the two partners to decide on the introduction of new models. Till now there is no real pressure. I think Maruti will be the overwhelming market leader for a long, long time.
Sure, we are short of capacities. But this year the market doesnt seem to be growing as much as we thought it would. By the time the market picks up, we would have added to our capacities by completing the third plant, which will be operational by January 1999.