'We could only produce 20,000 Maruti 800s in the first year, but got 1,20,000 bookings:' RC Bhargava
The chairman of Maruti Suzuki India has been at the helm of the company since its founding in 1981. On the 40th anniversary of their first car, the humble Maruti 800, he shares rare, behind-the-scenes insights with Hormazd Sorabjee on the extraordinary journey of the automaker that single-handedly birthed India’s car industry and has grown into a towering force.
Fairytale-like tales of the automobile industry don’t come any better than that of Maruti. It’s the car company that put our entire nation on wheels with the little 800. So 40 years ago, on December 14, 1983, when then Prime Minister Indira Gandhi handed over the key to the first Maruti 800 to Indian Airlines employee Harpal Singh—after he paid a measly Rs 47,500—little did he or anyone imagine that Indian roads would never be the same again. This humble home on wheels went on to become a giant, a symbol of mobility that conquered our roads.
Mr. Bhargava, you were there when this car was launched, that momentous occasion when Mrs Gandhi handed over the key to Harpal Singh. Did you ever imagine what a revolution the Maruti 800 would spark?
You’re absolutely right. In December 1983, when this car was launched, I don’t think anyone anywhere had any inkling of what it would lead to—for the automobile industry in India, for our component industry, for manufacturing in India, for the whole concept of customer centricity that we now all talk about [it was virtually an unknown word back then] and how India would transform from being known for poor quality and manufacturing into a hub whose products, including a sophisticated one like a car, are accepted in the best of markets the world over.
What makes the Maruti story even more captivating is that the government never planned to make a car. Do you think it was Sanjay Gandhi’s tragic death in a plane crash that made Maruti an emotional project for his prime minister mother and created a car company?
If Sanjay Gandhi hadn’t passed away in that accident, there would have been no joint venture of this kind. We can only imagine what the state of automobiles in India would have been. After 1993 [when the automobile industry was delicensed], companies would have come in, but would the industry have grown the way it did? Because the way the component industry grew, the way small cars boosted the growth of motorisation in India, it would never have happened with the bigger multinationals. In fact, one of the reasons multinationals flocked to India back then was that we were the only country with a well-established, developed component industry. Look at the size of the component industry today. It’s unbelievable. They export more than USD20 billion worth of components at present.
Tell us about your experience during the negotiations with Suzuki.
We started our negotiations with Suzuki in April 1982; it took over two months to put all the licence agreements in place, and we finally signed the agreement in October 1982. While we were negotiating, we told Osamu Suzuki that we had to close the deal by October that year. Suzuki was taken aback and didn’t think it could be done because they had been in talks with General Motors for two years at the time. But I insisted that we close it by August so that I could return to India and get the required government clearances.
The Japanese still have a relatively conservative mindset, and as a company, they have their own legal processes, as well. We didn’t have a lawyer with us during the negotiations. It was just me and DS Gupta [marketing director, Maruti], with V Krishnamurthy [chairman of Maruti] in the background. Suzuki himself didn’t join any of the negotiations. All he said was to come to him if there was a problem or disagreement. We would travel to Tokyo frequently because Suzuki’s lawyer was based there. Our visits ranged from as long as two weeks to as short as an hour, after which we would return to India, and they would visit us for the next round of discussions. It was a continuous process, but we did manage to get the agreement completed and then pushed it through various government departments. We had no choice but to get it done by October 2, 1982.
Suzuki took just a 26 percent stake in the beginning of the joint venture. How did they arrive at that figure?
Suzuki had a limit on how much money they could put in. Also worried about the risks, they said the total cost of the project must be limited to USD200 million, and that they would only take 25 percent equity. No more. Everything in the project had to be done within that cost.
But why 25 percent and not 26 percent? It would have been strategically better as that would have given them special rights and the power to block some key decisions?
Actually, from the very beginning, the government had directed us to get 40 percent foreign equity in the project. They, in fact, had refused to sign this agreement for just 25 percent. So we informed Suzuki of the Companies Act and about the additional rights they would have if they went from 25 to 26 percent in acquisition. This also garnered me a great deal of trust, as the guy helping them understand things they weren’t aware of. Next, I tried to convince them to jump to 40 percent from 26 percent. So we came up with a compromise: Suzuki agreed to increase to 40 percent, but over a period of five years, starting with an initial 26 percent stake. So that allowed the government to hold its own, and we got our 40 percent.
After tasting success for five years, Suzuki must have been delighted to raise their investment to 40 percent…
At that time, they were only too happy. They would have pumped in more funds to go even higher. I don’t think they anticipated the response we got. When we prepared a budget and projected a profit, Suzuki asked us, “How long have you guys been in the automobile industry?” I told him we had never been in the field, to which he responded saying we clearly knew nothing about it because this wasn’t how things worked! “You don’t make a profit in the first year. You don’t get customers to book cars they have never seen or are even in production,” he had said. I told him then that if it doesn’t happen, it doesn’t, but there was no harm trying. What did we have to lose? So when we got 1,20,000 bookings [within the first year], they were shocked!
But you couldn’t have fulfilled all those orders because you had capacity limits, right?
Our target was to make 20,000 cars in the first year, 40,000 in the next. The whole production plan had to be changed. The ratio between the vehicles had to be changed completely because it was all passenger cars. Vans were only a small part of the business.
Why couldn’t you increase capacity?
Despite such long waiting lists, we couldn’t raise the capacity at Maruti till 1992-93 because it needed foreign exchange. Plus, nobody was willing to release the money it would require. Where was foreign exchange? We were in a crisis in 1991, and we’re talking about 1985 to 1991. How were we expected to get the money to set up a car plant? Even in 1991, the government had said we could expand only if we got a foreign loan to cover the cost. So we approached Axiom Bank in Japan and got aid to finance the foreign exchange part of our expansion. That’s how we got our next line in Gurgaon. Until then, we had to live with shortages.
What are your takeaways today, 40 years after delivering the first Maruti 800?
The most important of the lot is realising that we lose an enormous amount of knowledge and people’s capabilities because we don’t value experience as a form of learning; we only value academic degrees. If you train people on ways to channel their learnings, correctly utilise their experience and motivate them, it would add a lot of value to our functioning. Even the best of engineers can’t do this. When I say you must leverage the experiences of those who actually do the work, then you must be willing to make changes so they are motivated to listen to you, to learn from you and contribute to your company. You can’t do this if you take all the credit for what’s happening in the company.
How did Maruti get such an efficient workforce? Was it just the Japanese company systems and work culture, or more?
It was a number of factors. In fact, that’s part of what my new book is going to be all about. How did Maruti become different? What motivated guys to work differently from what others were doing? Yes, our extensive exposure to Japan and training in Japan played a major role, and Suzuki’s support to Maruti was unparalleled. I don't think the head of any car company does what he did. The level of interest he took, the amount of time he devoted to the project was amazing.
Lastly, which is your favourite Maruti car of all time? The model closest to your heart…
All models are special to me. Maruti, in itself, is special to me. But there’s no question that the car that drove our success, that drove India’s motorisation and made a car accessible to a large section of our population, was the Maruti 800. It symbolises India’s transformation from an old, obsolete car market to a modern automobile industry. No other model has played such a significant role in any auto market the world over.
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