Maruti and the burden of leadership

Autocar Pro News DeskBy Autocar Pro News Desk calendar 01 Apr 2013 Views icon3584 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
Maruti and the burden of leadership
Maruti Suzuki, India’s car leader by volume, has a new chief. Kenichi Ayukawa, a veteran of Suzuki’s European operations, takes over from Shinzo Nakanishi at a particularly tough time as the Indian passenger vehicle segment is going through its toughest phase in almost a decade as a result of the cumulative effect of a general slowdown, high interest rates and a volatile fuel regime.

Maruti’s share in the automotive sector is now just under 40 percent, down from 50 percent a few years ago. That was a time when Maruti had an aura of invincibility. That is changing. For one, there is increasing competition in the segments in which it operates from the likes of Toyota Etios versus the Swift, for example, even as the Alto now faces a strong rival in the Hyundai Eon. Overall, the buyer has much more choice than ever before. And Maruti may not always be a first choice. While Maruti is and will remain a formidable brand -- its sheer dealer network that reaches virtually all parts of the country is a huge plus.

In recent years, however, the company has had its fair share of problems on the labour front. That has made for major headlines even as the northern Manesar-Gurgaon belt has had its share of labour problems. Two strikes at Maruti impacted production and consequently sales have suffered , given that the labour issues struck at the time of the festive season in 2011 and 2012. These affected production and delivery schedules and have got some of the company’s suppliers more than a little worried.

However, these developments apart, Maruti has also laid the ground for its future growth. The company has already announced an investment of Rs 4,000 crore in its third plant at Mehsana district of Gujarat, joining Tata Motors and Ford India which are investing in facilities in the Sanand-Ahmedabad area. Along with a supplier set-up, cumulative investments from Maruti’s foray into Gujarat will total an estimated Rs 18,000 crore. The new investment will enable the company to target in a better way the export market, given the proximity of the new plant to the Gujarat ports.

In terms of products, Maruti can be proud of the fact that its Swift and Dzire duo have been enormously successful with both products bringing in close to 36,000 units a month, which is more than Alto has brought in on a monthly basis. However, the company has now begun to offer a discount on the Swift, the first time ever it has since the car made its debut in 2005 which is only indicative of how tough market conditions have become as buyers staying away.

And as the financial year comes to close, Maruti can also look back and take pride in what it has been able to achieve with the Ertiga. Prior to its launch, it kicked off exports to Indonesia in the form of kits. But the vehicle, which sells in the region of 6,500 units a month in India, has created a niche for itself and even as other rivals, particularly the upcoming Ford EcoSport, eye the potential of the compact segment, it is clear that Maruti has the first-mover advantage. The Ertiga has joined the Swift, Dzire and Wagon R in the top 10 in terms of vehicle sales every month.

Meanwhile, from a supplier’s point of view, the general opinion has been that as a result of the slowdown, suppliers want Maruti to provide more confidence and support given that suppliers have had to bear the brunt of the on-going slowdown. One Delhi-based supplier said the fear of another labour issue is a very real threat and want the company to take steps to solve this issue given that it has created a lot of uncertainty. Some suppliers have shut down a shift thanks to the slowdown but their main worry is that this will mean a hit on their bottomlines.

Maruti has over the years carved a niche for itself in the compact and hatch segment but has no real presence in the mid-size saloon and premium segment. In the case of the former, the SX4 which got a diesel sibling when the swing to diesel occurred had a brief uptick before sales became lacklustre. Just over 6,000 units were sold in the current fiscal year. And as for the Kizashi, the premium, petrol-only car, has been buffeted by a strong yen and the higher customs on CBU to 30 percent in Budget 2011. Under 200 have been sold in the current year. Maruti is effectively tied down with a small car tag.

So Ayukawa’s main task really, basically, is to protect the company’s share from increasingly strong rivals. Setting up base in Gujarat and leveraging the R&D centre in Rohtak will give the company and its top brass busy. And the labour issue is something that has to be handled with a lot of skill and patience.
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