Monday, August 2, 2010

THE MARUTI STORY

The Maruti story: A backgrounder
Maruti Udyog sold 330,000 cars in India in fiscal year 2003 and as stated earlier, is India's largest car manufacturer with a 54.6 per cent market share in 2002-03. It has however in recent years been consistently been losing out to other players like Hyundai and Telco in the compact car segment. (See table).
In terms of pure financials, Maruti achieved consolidated sales of Rs 9,420 crore (Rs 94.20 billion) for the year ended March 31, 2003 with total expenditure at Rs 9,140 crore (Rs 91.40 billion).
The company's profit after tax stood at Rs 146.4 crore (Rs 1.464 billion), up by 40 per cent over Rs 104.5 crore (Rs 1.045 billion) year-on-year and it declared a 30 per cent dividend for the fiscal year ended 2003.
The company's net worth stands at Rs 3,009 crore (Rs 30.09 billion) and its total reserves and surplus are at Rs 2,953 crore (Rs 29.53 billion), its offer document states.
Maruti Udyog sees its strengths as having expertise in the small car technology and providing quality products in an extensive range. However the same could be said for some of the recent global car manufacturers in India.
Maruti has an extensive sales, dealership and servicing network, an integrated manufacturing facility and strong capital resources.
Its business strategy and outlook will be based on the past, focussing on the small car segment and try to enhance its product range through Suzuki's expertise.
The company's thrust towards penetration of the market will continue to boost pure volumes.
But key to the survival strategy in the future will be cost competitiveness, particularly the Segment B, where the players and consumer demand will be higher in coming years.
Maruti aims to zoom ahead via price-cuts
Neena Haridas
With sales no longer defying gravity, customer satisfaction dropping like a stone, its stellar image needing an urgent facelift and no immediate signs of recovery coming through, Maruti Udyog Limited's cup of woes seems full.
But the Indian automobile giant has a plan: one that, it thinks, could drain all its woes away. It is called price-cuts.
Maruti, with its back to the wall and trying desperately to regain its lost glory, has slashed prices on three of its models. Analysts believe that the price cuts have been effected to stem the rot, so to speak, as for the first time the company's market share has fallen below 50 per cent. However, Maruti claims the move is a 'strategy to rev up the dull automobile sector'.
Maruti has drawn up a detailed blueprint to address the issue. Besides price-cuts, it plans to launch new models and explore fresh marketing avenues.
As the first step towards the implementation of its multi-pronged initiative to beat the competition, Maruti pared the prices of its Maruti 800, Omni and Wagon-R models. Says MUL Managing Director Jagdish Khattar, "The automobile market has been listless because of the uncertainty over the sales tax issue. Yet, we believe that Maruti Udyog should take the lead in getting the market up and going once again. This is why we have unleashed an aggressive pricing strategy."
In May 2000, Maruti reduced the price of its M800 STD model to Rs 2,12,446 for the MPI version, (the Euro I M800 STD will now be available at Rs 198,979), while the Maruti 800 EX will be available at Rs 241,796 and the Maruti 800 DX at Rs 259,569. The Wagon R LX will now cost Rs 343,763. (Prices ex-Delhi)
"In the recent past, a combination of cost- and tax-induced increase in prices and an uncertain sales tax regime had adversely impacted the auto makers. To revive the market, Maruti has repositioned the entry-level price point for a limited period. In addition, the Wagon-R LX, which has emerged as a strong player in the B segment, will be offered for a limited period at a more attractive price. We will kickstart the market out of its current stupor. With the finance ministers' conclave laying the rollback issue to rest, we believe this is the correct time to stimulate the market with aggressive pricing," says Khattar.
Khattar calls the price-cut the 'Second Revolution' as MUL tried to thwart Indica's challenge by slashing the prices of M800 in early 1999. "Our price-cut strategy in early 1999 contributed to a phenomenal 60 per cent growth in the automobile market," claims Khattar.
But will the pricing strategy work?
However, auto experts and former managing directors of Maruti believe it will take more than just price-cuts to see the sales graph shooting up again.
Says former MUL MD R C Bhargava: "I do not think that a market is tackled by a pricing strategy alone, especially in the automobile industry. For one, it is not as price sensitive as the consumer durables market. What the company needs to do is shed its complacence and take the competition by the horns. After all, MUL has been in this business in India longer than 'they' have. MUL has a better understanding of the market."
But what does Bhargava have to say about MUL's falling market share. "Yes, the figures may be coming down. But are the overall volumes also falling? As of today, MUL has more models coming out of its stable than any other company in India. Now this means that a potential Maruti Zen customer might decide to buy a Wagon-R if it suits him. So a growing market only means that volumes go up and there will be enough for everyone."
Tackling the issue from all sides
The figures, however, tell a totally different story. Even in a growing market, Maruti's pie is shrinking. MUL, meanwhile, has decided to tackle the challenge on all fronts -- including the Net. According to a company spokesperson, MUL plans to sell its cars through the Internet making use of e-commerce.
"We will be among the first ones to tap the market via the Net. We are going beyond the traditional medium to rev up the entire market, not just the Maruti sales graph. For instance, e-commerce is going to happen in a big way in India and we want to be among the first ones to tap the market then. We are doing a lot on the Net with our own sites and cross advertising on other sites. This will change the way cars are sold and bought in India. And the more avenues we tap the better for the industry as a whole."
Besides, Maruti also plans to displace the good old Ambassador from the taxis and government vehicles segment. Says Khattar, "This is one area where we can increase our sales tremendously. We have already begun our attempts towards this end. For one, we have CNG-powered, environmentally fit vehicles which are best suited as taxis and government cars. We are also offering discounts to taxi owners to buy our cars. If we are able to convert old cars into new green Marutis, our sales will leapfrog by at least 10 per cent."
Bottomline seen under pressure
Despite putting the company in an overdrive on sales efforts, Khattar admits that MUL's bottomline will be under pressure in the current fiscal. And this takes into account its projections for a 15 per cent growth in turnover this year.
However, Khattar is optimistic on sales volumes: "We expect the automobile industry to grow at 12 to 15 per cent this year and Maruti's growth will be in line with that of the industry. Our sales turnover is expected to grow at 15 per cent, but the bottomline will be hit. Margins will also be under pressure. We have made huge investments at our Gurgaon plant and there is a fair amount of depreciation arising out of these. In addition, the financial costs of introducing new models will also put pressure on our profits."
'New models will see us through'
Once the pricing strategy and new sales avenues are in place, Khattar believes that new models will be the next best bet to beat competition.
"Consumers have matured. New models are something they have taken in their stride and we feel the need to introduce people to newer products from Suzuki which are appropriate for the Indian market. This is why we have also showcased the concept car YMO and the Suzuki C2, a compact 2-seater sports car, which was a reference vehicle at the recent auto expo. One of the new models which is expected to hit the roads is the 'Carry Pick-up'," said the Maruti chief.
Maruti hits the skids, sales plummet
Neena Haridas
It is like a sizeable grain of sand in its profitable pudding, a snake in its Garden of Eden, a lump in its throat. The sharply dropping sales graph at Maruti Udyog Limited has spoiled its prolonged party.

The automobile giant's falling fortunes have made it sit up and take notice of the competition that had once been dismissed with a sneer. If the sharp decline in the sales volumes for May 2000 gave Maruti a start forcing it to cut prices on three of its models, the figures for June promise to give it a rather nasty headache.

Maruti, which enjoyed a near-monopoly in the small car segment, saw its market share falling to a measely 56.3 per cent from a high of 74.6 per cent a year ago. In May 2000, MUL reported a 24.5 per cent drop in sales at 25,765 units compared to 34,122 units sold in the same month last year.
In June, Maruti's share plummeted even further, dropping for the first time to an all-time low of 46 per cent with sales sharply dipping by 34 per cent to 15,898 units.

Sales of its new offerings -- the Wagon-R and Baleno, besides its bread-and-butter Maruti-800 -- plummeted during the last two months.

So what has led to this decrease in sales? Jagdish Khattar, MUL managing director, says, "This question has been haunting the industry for quite some time now. But nobody seems to realise that with more and more companies entering the market its size has also increased. This, in effect, means that the overall market share might come down in percentage terms, but the volume figures would actually go up."
However, there seem to be few takers for Khattar's optimism. Alarm bells have been sounded in industry circles. MUL's share of the cake is being eaten away by Daewoo Matiz and Hyundai Santro, which have seen their sales figures rise considerably in the last couple of months.
For instance, Korean Daewoo sold a total of 6,033 cars in May compared to 2250 units in April 2000 -- a growth of 2.7 times. Its rival Hyundai Motor India sold 7,561 cars during the month.

Giving MUL's Esteem a run for its money is Ford Motor's Ikon which recorded a sales figure of 1,697 units in May against 1,592 units in the previous month. The company has sold 9,556 units of Ikon in the first six months since launch. Maruti's luxury car Baleno too is being taken for a tough ride by Honda Siel's City and Accent which together registered a 24.4 per cent growth in sales in the last two months.

In the mid-size segment, Hyundai emerged as the market leader by selling 1,710 units of the Accent, while Ford India was close behind with sales of 1,697 units of the Ikon.
Maruti was pushed to the number three slot as it could sell only 1,134 units of the Esteem and Baleno. Its sales in June declined by 17.6 per cent to 73,447 units during April-June of 2000-2001 against the industry growth of 10.5 per cent during the period.

Decline in small car segment hurts Maruti most

It is not, however, the luxury segment that is hurting MUL the most, but the poor performance of the small car segment. Hyundai recorded a 67.3 per cent jump in sales of 7,561cars this May compared to 4,519 units during the month in 1999.
'Image, too, is getting a beating'
According to analysts, Maruti's image has also suffered. Says auto expert Murad Ali Baig, "It will never be the same again. Customers now have a choice and obviously the best car will win the race. The image has also taken a beating ever since Hyundai Santro hit the television screen with its ad blitz claiming that there was a computer in the engine. Matiz, too, is giving the M-800 a run for its money and is being sold as a world car."
'Customers seem less satisfied'
A Sales Satisfaction Index study conducted by internationally renowned automobile survey agency JD Power & Associates's Asia Pacific arm has found that customers give Honda and Mitsubishi a clean chit when it comes to customer satisfaction.
Maruti on the other hand comes way down the chart ranking seventh after Ford, Mahindra & Mahindra, Daewoo and Hyundai.
Chris Bonsi, director, JD Power Asia Pacific, says, "The study shows the customer's satisfaction on the basis of sales experience, explanation at delivery, price evaluation, delivery timing, salesperson knowledge and post delivery contact."
Sales experience is the most important factor, accounting for 37 per cent of the SSI score, and includes issues such as fulfilment of commitments and lack of hassles during the sales process, overall honesty and integrity of the dealership personnel and sufficient time to make the decision.
"The dynamics of selling cars is changing and manufacturers and dealers who fail to meet the rising needs and expectations of their customers will lose out to those who can. Buying a new car is an experience customers will remember for a long time and ensuring that this experience is a satisfactory one is essential in building brand loyalty and customer advocacy," Bonsi added.
Khattar, however, is an optimist. "We expect the automobile industry to grow at 12 to 15 per cent this year and Maruti's growth will be in line with the industry's growth. Our sales and turnover is expected to grow at 15 per cent, but bottomlines will be hit,'' he believes.

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