“Synopsis on MARUTI Udyog Limited (Mul)”

Maruti Suzuki is one of India's leading automobile manufacturers and the

market leader in the car segment, both in terms of volume of vehicles
sold and revenue earned. Until recently, 18.28% of the company was
owned by the Indian Government, and 54.2% by Suzuki of Japan. The
Indian government held an initial public offering of 25% of the company
in June 2003. As of 10 May 2007, Govt. of India sold its complete share
to Indian financial institutions. With this, Govt. of India no longer has
stake in Maruti Udyog.

Maruti Udyog Limited (MUL) was established in February 1981,

though the actual production commenced in 1983 with the Maruti 800,
based on the Suzuki Alto kei car which at the time was the only modern
car available in India, its' only competitors- the Hindustan Ambassador
and Premier Padmini were both around 25 years out of date at that point.
Through 2004, Maruti has produced over 5 Million vehicles. Marutis are
sold in India and various several other countries, depending upon export
orders. Models similar to Marutis (but not manufactured by Maruti
Udyog) are sold by Suzuki and manufactured in Pakistan and other South
Asian countries.

The company annually exports more than 50,000 cars and has an
extremely large domestic market in India selling over 730,000 cars
annually. Maruti 800, till 2004, was the India's largest selling compact car
ever since it was launched in 1983. More than a million units of this car
have been sold worldwide so far. Currently, Maruti Alto tops the sales
charts and Maruti Swift is the largest selling in A2 segment.

Due to the large number of Maruti 800s sold in the Indian market, the
term "Maruti" is commonly used to refer to this compact car model. Till
recently the term "Maruti", in popular Indian culture, was associated to
the Maruti 800 model.

Maruti Suzuki India Limited, a subsidiary of Suzuki Motor Corporation

of Japan, has been the leader of the Indian car market for over two
decades.
Its manufacturing facilities are located at two facilities Gurgaon and
Manesar south of New Delhi. Maruti’s Gurgaon facility has an installed
capacity of 350,000 units per annum. The Manesar facilities, launched in
February 2007 comprise a vehicle assembly plant with a capacity of
100,000 units per year and a Diesel Engine plant with an annual capacity
of 100,000 engines and transmissions. Manesar and Gurgaon facilities
have a combined capability to produce over 700,000 units annually.

More than half the cars sold in India are Maruti cars. The company is a
subsidiary of Suzuki Motor Corporation, Japan, which owns 54.2 per cent
of Maruti. The rest is owned by the public and financial institutions. It is
listed on the Bombay Stock Exchange and National Stock Exchange in
India.

During 2007-08, Maruti Suzuki sold 764,842 cars, of which 53,024 were
exported. In all, over six million Maruti cars are on Indian roads since the
first car was rolled out on 14 December 1983.

Maruti Suzuki offers 15 models, Maruti 800, Omni,Esteem, Baleno, Alto,

Versa, Ritz, Gypsy, A Star, Wagon R, Zen Estilo, Swift, Swift Dzire,
SX4, and Grand Vitara. Swift, Swift dzire, A star and SX4 are
maufactured in Manesar, Grand Vitara is imported from Japan as a
completely built unit (CBU), remaining all models are manufactured in
Maruti Suzuki's Gurgaon Plant.

Suzuki Motor Corporation, the parent company, is a global leader in mini

and compact cars for three decades. Suzuki’s technical superiority lies in
its ability to pack power and performance into a compact, lightweight
engine that is clean and fuel efficient.

Maruti is clearly an “employer of choice” for automotive engineers and

young managers from across the country. Nearly 75,000 people are
employed directly by Maruti and its partners.
The company vouches for customer satisfaction. For its sincere efforts it
has been rated (by customers)first in customer satisfaction among all car
makers in India for nine years in a row in annual survey by J D Power
Asia Pacific.

Maruti Suzuki was born as a government company, with Suzuki as a

minor partner to make a people's car for middle class India. Over the
years, the product range has widened, ownership has changed hands and
the customer has evolved. What remains unchanged, then and now, is
Maruti’s mission to motorise India.

Partner for the joint venture

Pressure started mounting on Indira and Sanjay Gandhi to share the
details of the progress on the Maruti Project. Since country's resources
were made available by mother to her son's pet project. A delegation of
Indian technocrats was assigned to hunt a collaborator for the project.
Initial rounds of discussion were held with the giants of the automobile
industry in Japan including Toyota, Nissan and Honda. Suzuki Motor
Corporation was at that time a small player in the four wheeler
automobile sector and had major share in the two wheeler segment.
Suzuki's bid was considered negligible.

In the initial rounds of discussion the giants had their bosses present and
in the later rounds related to the technical discussions executives of these
automobile giants were present. Osamu Suzuki, Chairman and CEO of
the company ensured that he was present in all the rounds of discussion.
Osamu in an article writes that it subtly massaged their (Indian
delegation) egos and also convinced them about the sincerity of Suzuki's
bid. In the initial days Suzuki took all steps to ensure the government
about its sincerity on the project.
Suzuki in return received a lot of help from the government in such
matters as import clearances for manufacturing equipment (against the
wishes of the Indian machine tool industry then and its own socialistic
ideology), land purchase at government prices for setting up the factory
Gurgaon and reduced or removal of excise tariffs. This helped Suzuki
conscientiously nurse Maruti through its infancy to become one of its
flagship ventures.

Joint venture related issues

Maruti Suzuki's A-Star vehicle during its unveiling in Pragati Maidan,
Delhi. A-Star, Suzuki's fifth global car model, was designed and is made
only in India. Besides being Suzuki's largest subsidiary in terms of car
sales, Maruti Suzuki is also Suzuki's leading research and development
arm outside Japan

Relationship between the Government of India, under the United Front

(India) coalition and Suzuki Motor Corporation over the joint venture
was a point of heated debate in the Indian media till Suzuki Motor
Corporation gained the controlling stake. This highly profitable joint
venture that had a near monopolistic trade in the Indian automobile
market and the nature of the partnership built up till then was the
underlying reason for most issues. The success of the joint venture led
Suzuki to increase its equity from 26% to 40% in 1987, and further to
50% in 1992. In 1982 both the venture partners had entered into an
agreement to nominate their candidate for the post of Managing Director
and every Managing Director will have a tenure of five year.
Initially R.C.Bhargava, was the managing director of the company since
the inception of the joint venture. Till today he is regarded as
instrumental for the success of Maruti Udyog. Joining in 1982 he held
several key positions in the company before heading the company as
Managing Director. Currently he is on the Board of Directors. After
completing his five year tenure, Mr. Bhargava later assumed the office of
Part-Time Chairman. The Government nominated Mr. S.S.L.N.
Bhaskarudu as the Managing Director on 27 August 1997. Mr.
Bhaskarudu had joined Maruti in 1983 after spending 21 years in the
Public sector undertaking Bharat Heavy Electricals Limited as General
Manager. Later in 1987 he was promoted as Chief General Manager,
1988 as Director, Productions and Projects, 1989 Director, Materials and
in 1993 as Joint Managing Director.

The Suzuki Motor corporation didn't attend the Annual General Meeting
of the Board with the reason of it being called on a short notice Later
Suzuki Motor Corporation went on record to state that Mr. Bhaskarudu
was "incompetent" and wanted someone else. However, the Ministry of
Industries, Government of India refuted the charges. Media stated from
the Maruti sources that Bhaskarudu was interested to indigenise most of
components for the models including gear boxes especially for Maruti
800. Suzuki also felt that Bhaskarudu was a proxy for the Government
and would not let it increase its stake in the venture If Maruti would have
been able to indigenise gear boxes then Maruti would have been able to
manufacture all the models without the technical assistance from Suzuki.
Till today the issue of localization of gear boxes is highlighted in the
press

The relation strained when Suzuki Motor Corporation moved to Delhi

High Court to bring a stay order against the appointment of Mr.
Bhaskarudu. The issue was resolved in an out-of-court settlement and
both the parties agreed that R S S L N Bhaskarudu would serve up to 31
December 1999, and from 1 January 2000, Jagdish Khattar
, Executive Director of Maruti Udyog Limited would assume charges
as the Managing Director Many politicians believed, and had stated in
parliament that the Suzuki Motor Corporation is unwilling to localize
manufacturing and reduce imports. This remains true, even today the gear
boxes are still imported from Japan and are assembled at the Gurgaon
facility.
Industrial relations
For most of its history, Maruti Udyog had relatively few problems with
its labour force. Its emphasis of a Japanese work culture and the modern
manufacturing process, first instituted in Japan in the 1970s, was
accepted by the workforce of the company without any difficulty. But
with the change in management in 1997, when it became predominantly
government controlled for a while, and the conflict between the United
Front Government and Suzuki may have been the cause of unrest among
employees. A major row broke out in September 2000 when employees
of Maruti Udyog Ltd (MUL) went on an indefinite strike, demanding
among other things, revision of the incentive scheme offered and
implementation of a pension scheme. Employees struck work for six
hours in October 2000, irked over the suspension of nine employees,
going on a six-hour tools-down strike at its Gurgaon plant, demanding
revision of the incentive-linked pay and threatened to fast to death if the
suspended employees were not reinstated. About this time, the NDA
government, following a disinvestments policy, proposed to sell part of
its stake in Maruti in a public offering. The Staff union opposed this sell-
off plan on the grounds that the company will lose a major business
advantage of being subsidised by the Government.

The standoff with the management continued to December with a

proposal by the management to end the two-month long agitation rejected
with a demand for reinstatement of 92 dismissed workers, with four MUL
employees going on a fast-unto-death. In December the company's
shareholders met in New Delhi in an AGM that lasted 30 minutes. At the
same time around 1500 plant workers from the MUL's Gurgaon facility
were agitating outside the company's corporate office demanding
commencement of production linked incentives, a better pension scheme
and other benefits. The management has refused to pass on the benefits
citing increased competition and lower margins.
Current sales of automobiles
1. Maruti 800: Launched - 1983
2. Maruti Omni: Launched - 1984
3. Maruti Gypsy: Launched - 1985
4. Maruti Alto: Launched - 2000
5. Maruti Wagon-R: Launched - 2002
6. Maruti Versa: Launched - 2003
7. Maruti Grand Vitara Launched - 2004
8. Maruti Suzuki Swift: Launched - 2005
9. Maruti Suzuki SX4: Launched - 2007
10. Maruti Swift Dzire: Launched - 2008
11. Maruti Suzuki A-STAR: Launched - 2008
12. Maruti Suzuki Ritz: Launched - 2009
13. Maruti Suzuki Estilo: Launched - 2009

Authorized service stations

Maruti is one of the companies in India which has unparalleled service

network. To ensure the vehicles sold by them are serviced properly,
Maruti has 2628 listed Authorized service stations and 30 Express
Service Stations on 30 highways across India.

Service is a major revenue generator of the company. Most of the service

stations are managed on franchise basis, where Maruti trains the local
staff. Other automobile companies have not been able to match this
benchmark set by Maruti. The Express Service stations help many
stranded vehicles on the highways by sending across their repair man to
the vehicle.
Maruti insurance

Launched in 2002 Maruti provides vehicle insurance to its customers

with the help of the National Insurance Company, Bajaj Allianz, New
India Assurance and Royal Sundaram. The service was set up the
company with the inception of two subsidiaries Maruti Insurance
Distributors Services Pvt. Ltd and Maruti Insurance Brokers Pvt. Limited.

This service started as a benefit or value addition to customers and was

able to ramp up easily. By December 2005 they were able to sell more
than two million insurance policies since its inception[

Maruti Finance

To promote its bottom line growth, Maruti launched Maruti Finance in

January 2002. Prior to the start of this service Maruti had started two joint
ventures Citicorp Maruti and Maruti Countrywide with Citi Group and
GE Countrywide respectively to assist its client in securing loan. Maruti
tied up with ABN Amro Bank, HDFC Bank, ICICI Limited, Kotak
Mahindra, Standard Chartered Bank, and Sundaram to start this venture
including its strategic partners in car finance. Again the company entered
into a strategic partnership with SBI in March 2003. Since March 2003,
Maruti has sold over 12,000 vehicles through SBI-Maruti Finance. SBI-
Maruti Finance is currently available in 166 cities across India.

"Maruti Finance marks the coming together of the biggest players in

the car finance business. They are the benchmarks in quality and
efficiency. Combined with Maruti volumes and networked
dealerships, this will enable Maruti Finance to offer superior service
and competitive rates in the marketplace".

— Jagdish Khattar, Managing director of Maruti Udyog Limited in a

press conference announcing the launch of Maruti Finance on 7 January
2002
Citicorp Maruti Finance Limited is a joint venture between Citicorp
Finance India and Maruti Udyog Limited its primary business stated by
the company is "hire-purchase financing of Maruti vehicles". Citi Finance
India Limited is a wholly owned subsidiary of Citibank Overseas
Investment Corporation, Delaware, which in turn is a 100% wholly
owned subsidiary of Citibank N.A. Citi Finance India Limited holds 74%
of the stake and Maruti Udyog holds the remaining 26%. GE Capital,
HDFC and Maruti Udyog Limited came together in 1995 to form Maruti
Countrywide. Maruti claims that its finance program offers most
competitive interest rates to its customers, which are lower by 0.25% to
0.5% from the market rates.maruti is the best car in the world

Accessories

India's Corps of Military Police personnel patrolling the Wagah border

crossing in the Punjab in a Maruti Gypsy.

Many of the auto component companies other than Maruti Udyog started
to offer components and accessories that were compatible. This caused a
serious threat and loss of revenue to Maruti. Maruti started a new
initiative under the brand name Maruti Genuine Accessories to offer
accessories like alloy wheels, body cover, carpets, door visors, fog lamps,
stereo systems, seat covers and other car care products. These products
are sold through dealer outlets and authorized service stations throughout
India.
Maruti Driving School

A Maruti Driving School in Chennai

As part of its corporate social responsibility Maruti Udyog launched the

Maruti Driving School in Delhi. Later the services were extended to other
cities of India as well. These schools are modelled on international
standards, where learners go through classroom and practical sessions.
Many international practices like road behaviour and attitudes are also
taught in these schools. Before driving actual vehicles participants are
trained on simulators.

"We are very concerned about mounting deaths on Indian roads.

These can be brought down if government, industry and the
voluntary sector work together in an integrated manner. But we felt
that Maruti should first do something in this regard and hence this
initiative of Maruti Driving Schools."
— Jagdish Khattar, at the launch ceremony of Maruti Driving School, Bangalore

Exports

Maruti Suzuki has helped India emerge as the fourth largest exporter of
automobiles in Asia. Shown here is Maruti Gypsy in Malta.

Maruti Exports Limited is the subsidiary of Maruti Udyog Limited with

its major focus on exports and it does not operate in the domestic Indian
market. The first commercial consignment of 480 cars were sent to
Hungary. By sending a consignment of 571 cars to the same country
Maruti crossed the benchmark of 300,000 cars. Since its inception export
was one of the aspects government was keen to encourage. Every
political party expected Maruti to earn foreign currency.

Angola, Benin, Dijibouti, Ethiopia, Europe, Kenya, Morocco, Sri Lanka,

Uganda, Chile, Guatemala, Costa Rica and El Salvador are some of the
markets served by Maruti Export.

“Equity Research Report of MUL

 As well as Analysis”

Maruti Suzuki India Ltd Company Snapshot

Business Description:

Maruti Suzuki India Ltd. The Group's principal activity is to manufacture,

purchase and sale of Maruti Vehicle and Spare parts. The Group is a
subsidiary of Suzuki Motor Corporation. The other activities of the Group
comprises of facilitation of Pre-Owned Cars, Fleet Management and Car Financing.
The Group also provides services like framing of customized car policies, economical
leasing of cars, maintenance management, registration and insurance management,
emergency assistance and accident management. The product range includes ten basic
models with more than 50 variants. The Groups operations are in 1200 towns and cities
with 2628 workshops and also exports cars to other countries.

Stock Data: Recent Stock Performance:

Current Price (10/23/2009): 1,517.35

1 Week 0.1% 13 Weeks -7.5%
(Figures in Indian Rupees) 4 Weeks 10.1% 52 Weeks 184.4%

Maruti Suzuki India Ltd Key Data:

Ticker: 532500 Country: INDIA

 Exchanges: BOM Major Industry: Automotive

Diversified Automotive
Sub Industry:
Mfrs.

206,638,000,000
2009 Sales Employees: 7,159
(Year Ending Jan 2010).

Currency: Indian Rupees Market Cap: 438,377,679,541

Fiscal Yr Ends: March Shares Outstanding: 288,910,060

Share Type: Ordinary Closely Held Shares: 156,618,440

MARUTI UDYOG LIMITED – Managing competition successfully

Maruti Udyog Limited (MUL) was established in Feb 1981 through an

Act of Parliament, to meet the growing demand of a personal mode of
transport caused by the lack of an efficient public transport system. It was
established with the objectives of - modernizing the Indian automobile
industry, producing fuel efficient vehicles to conserve scarce resources
and producing indigenous utility cars for the growing needs of the Indian
population. A license and a Joint Venture agreement were signed with the
Suzuki Motor Company of Japan in Oct 1983, by which Suzuki acquired
26% of the equity and agreed to provide the latest technology as well as
Japanese management practices. Suzuki was preferred for the joint
venture because of its track record in manufacturing and selling small
cars all over the world. There was an option in the agreement to raise
Suzuki’s equity to 40%, which it exercised in 1987. Five years later, in
1992, Suzuki further increased its equity to 50% turning Maruti into a
non-government organization managed on the lines of Japanese
management practices.

Maruti created history by going into production in a record 13 months.

Maruti is the highest volume car manufacturer in Asia, outside Japan and
Korea, having produced over 5 million vehicles by May 2005. Maruti is
one of the most successful automobile joint ventures, and has made
profits every year since inception till 2000-01. In 2000-01, although
Maruti generated operating profits on an income of Rs 92.5 billion, high
depreciation on new model launches resulted in a book loss.
COMPANY HISTORY AND BACKGROUND

The Evolution

Maruti’s history of evolution can be examined in four phases: two phases

during pre-liberalization period (1983-86, 1986-1992) and two phases
during post-liberalization period (1992-97, 1997-2002), followed by the
full privatization of Maruti in June 2003 with the launch of an initial
public offering (IPO).The first phase started when Maruti rolled out its
first car in December 1983. During the initial years Maruti had 883
employees, a capital of Rs. 607 mn and profit of Rs. 17 mn without any
tax obligation. From such a modest start the company in just about a
decade (beginning of second phase in 1992) had turned itself into an
automobile giant capturing about 80% of the market share in India.
Employees grew to 2000 (end of first phase 1986), 3900 (end of second
phase 1992) and 5700 in 1999. The profit after tax increased from Rs
18.67 mn in 1984 to Rs. 6854.54 mn in 1998 but started declining during
1997-2001.

During the pre-liberalization period (1983-1992) a major source of

Maruti’s strength was the wholehearted willingness of the Government
of India to subscribe to Suzuki’s technology and the principles and
practices of Japanese management. Large number of Indian managers,
supervisors and workers were regularly sent to the Suzuki plants in Japan
for training. Batches of Japanese personnel came over to Maruti to train,
supervise and manage. Maruti’s style of management was essentially to
follow Japanese management practices.

The Path to Success for Maruti was as follows:

(a) teamwork and recognition that each employee’s future growth and
prosperity is totally dependent on the company’s growth and prosperity
(b) strict work discipline for individuals and the organization (c) constant
efforts to increase the productivity of labor and capital (d) steady
improvements in quality and reduction in costs (e) customer orientation
(f) long-term objectives and policies with the confidence to realize the
goals (g) respect of law, ethics and human beings. The “path to success”
translated into practices that Maruti’s culture approximated from the
Japanese management practices.

Maruti adopted the norm of wearing a uniform of the same color and
quality of the fabric for all its employees thus giving an identity. All the
employees ate in the same canteen. They commuted in the same buses
without any discrimination in seating arrangements. Employees reported
early in shifts so that there were no time loss in-between shifts.
Attendance approximated around 94-95%. The plant had an open office
system and practiced on-the-job training, quality circles, kaizen activities,
teamwork and job- rotation. Near-total transparency was introduced in the
decision making process. There were laid-down norms, principles and
procedures for group decision making. These practices were unheard of
in other Indian organizations but they worked well in Maruti. During the
pre- liberalization period the focus was solely on production. Employees
were handsomely rewarded with increasing bonus as Maruti produced
more and sold more in a seller’s market commanding an almost
monopoly situation.

INDUSTRY ANALYSIS

GLOBAL FOUR WHEELER INDUSTRY

Evolution

The automobile industry has undergone significant changes since Henry

Ford first introduced the assembly line technique for the mass production
of cars. Production concepts, processes and the associated technologies
have changed dramatically since the first cars were built. Some 70 years
ago, car assembly was primarily manual work. Today, the process of car
assembly is almost fully automated. In the old days, firms attached
importance to the production of virtually every part in a single plant,
while today, carmakers concentrate on only a few specific production
stages (i.e. car assembly). Parts and module production, services and
related activities have been shifted to other, specialised firms
(outsourcing of production steps).Since the 1980s, it has become clear
that further productivity gains to retain competitiveness can be possible
only by outsourcing and securing greater flexibility. For example, firms,
especially small car producers whose markets have been threatened by
imports, have diversified their production programmes (e.g. by building
off-road cars or convertibles) thereby introducing greater flexibility in the
production process. Also, firms and their production have become more
internationalized in lieu of outsourcing.

Current Scenario

The global passenger car industry has been facing the problem of excess
capacity for quite some time now. For the year 2002, the global capacity
in the automotive industry was 75 million units a year, against production
of only 56 million units (excess capacity estimated at 25%). Efforts to
shore up capacity utilization have prompted severe price competition,
thus affecting margins and forcing fundamental changes in the industry.
The pressure on sales and margins is driving players to emerging markets
in pursuit of better growth opportunities and/or access to low-cost
manufacturing bases.

• The concept of selling in the passenger car industry is changing from

original sales towards lifecycle value generation, encompassing
financing, repairs & maintenance, cleaning, provision of accessories, and
so on.

• Vehicle manufacturers are moving into completely new materials and

technologies—partly guided by environmental legislation—in striving to
come up with radically different products. Some of these new
technologies involve parts that can be bolted on to an existing vehicle
with relatively few implications for the rest of the vehicle. Others are
much more fundamental, and are likely to have a profound impact
throughout the supply chain. The examples include battery, electric or
hybrid power trains, and alternatives to the all-steel body. Carmakers are
increasingly outsourcing component production, and focusing on product
design, brand management and consumer care, in contrast to the
traditional emphasis on manufacturing and engineering.

• The increasing need to attain global scales underscores the importance

of platform sharing among carmakers. All original equipment
manufacturers (OEMs) are trying to reduce the number of vehicle
platforms, but raise the number of models produced from each platform.
This means producing a number of seemingly distinct models from a
common platform.

• As in manufacturing, distribution in the automobile industry is

undergoing significant changes, involving Internet use, retailer
consolidation, and unbundling of services provided by retailers.

INDIAN FOUR WHEELER INDUSTRY

Evolution

The Indian automobile industry developed within the broader context of

import substitution during the 1950s. The distinctive feature of the
automobile industry in India was that in line with the overall policy of
State intervention in the economy, vehicle production was closely
regulated by an industrial licensing system till the early 1980s that
controlled output, models and prices. The cars were built mostly by two
companies, Premier Automobiles Limited and HM. However, the Indian
market got transformed after 1983 following the relaxation of the
licensing policy and the entry of MUL into the car market. In 1991, car
imports were insignificant, while component imports were equivalent to
20% of the domestic production, largely because of the continuing import
of parts by MUL. The liberalization of the Indian automotive industry
that began in the early 1990s was directed at dismantling the system of
controls over investment and production, rather than at promoting foreign
trade. Multinational companies were allowed to invest in the assembly
sector for the first time, and car production was no longer constrained by
the licensing system. However, QRs on built-up vehicles remained and
foreign assemblers were obliged to meet local content requirements even
as export targets were agreed with the Government to maintain foreign
exchange neutrality. The new policy regime and large potential demand
led to inflows of foreign direct investment (FDI) by the mid-1990s. By
the end of 1997, Daewoo, Ford India, GM, DaimlerChrysler and Peugeot
had started assembly operations in India. They were followed by Honda,
HMIL, and Mitsubishi.

Current Scenario

Major Players
Bajaj Tempo Limited, DaimlerChrysler India Private Limited, Fiat India
Automotive Private Limited, Ford India Limited, General Motors India
Limited, Hindustan Motors Limited, Honda Siel Cars India Limited,
Hyundai Motor India Limited, Mahindra & Mahindra Limited, Maruti
Udyog Limited, Skoda Auto India Limited, Tata Motors Limited, Toyota
Kirloskar Motors Limited.

Current scenario in Passenger Car Category

The dominant basis of competition in the Indian passenger car industry

has changed from price to price-value, especially in the passenger car
segment. While the Indian market remains price sensitive, the
stranglehold of Economy models has been slackening, giving way to
higher-priced products that better meet customer needs. Additionally, a
dominant trend in the Indian passenger car segment is the increasing
fragmentation of the market into sub-segments, reflecting the increasing
sophistication of the Indian consumer. With the launch of new models
from FY2000 onwards, the market for MUVs has been redefined in India,
especially at the upper-end. Currently, the higher-end MUVs, commonly
known as Sports Utility Vehicles (SUVs), occupy a niche in the urban
market, having successfully shaken off the tag of commercial vehicles
attached to all MUVs till recently. Domestic car manufacturers are now
venturing into areas such as car financing, leasing and fleet management,
and used-car reconditioning/sales, to complement their mainstay-business
of selling new cars.

COMPETITIVE FORCES IN INDIAN PASSENGER CAR

MARKET

Critical Issues and Future Trends

The critical issue facing the Indian passenger car industry is the
attainment of break-even volumes. This is related to the quantum of
investments made by the players in capacity creation and the selling price
of the car. The amount of investment in capacities by passenger car
manufacturers in turn depends on the production

Threat from the new players: Increasing

· Most of the major global players are present in the Indian market;
few more are expected to enter.

· Financial strength assumes importance as high are required for

building capacity and maintaining adequacy of working capital.

Access to distribution network is important.

Lower tariffs in post WTO may expose Indian companies to threat

of imports.

Rivalry within the industry: High

· There is keen competition in select segments. (compact and mid

size segments).

· New multinational players may enter the market.

Market strength of suppliers: Low

A large number of automotive components suppliers.

Automotive players are rationalizing their vendor base to achieve

consistency in quality.

Market strength of consumers: Increasing

· Increased awareness among consumers has increased expectations.

Thus the ability to innovate is critical.

· Product differentiation via new features, improved performance

and after-sales support is critical.

· Increased competitive intensity has limited the pricing power of

manufacturers.

Threat from substitutes: Low to medium

With consumer preferences changing, inter product substitution is

taking place (Mini cars are being replaced by compact or mid sized
cars).Setting up integrated manufacturing facilities may require higher
capital investments than establishing assembly facilities for semi knocked
down kits or complete knocked down kits.

In recent years, even though the ratio of sales to capacity (an important
indicator of the ability to reach break-even volumes) of the domestic car
manufacturers have improved, it is still low for quite a few car
manufacturers in India. India is also likely to increasingly serve as the
sourcing base for global automotive companies, and automotive exports
are likely to gain increasing importance over the medium term. However,
the growth rates are likely to vary across segments. Although the Mini
segment is expected to sustain volumes, it is likely to continue losing
market share; growth in the medium term is expected to be led largely by
the Compact and Mid-range segments. Additionally, in terms of engine
capacity, the Indian passenger car market is moving towards cars of
higher capacity. This apart, competition is likely to intensify in the SUV
segment in India following the launch of new models at competitive
prices.

COMPETITOR ANALYSIS

HYUNDAI MOTOR INDIA LIMITED

Hyundai Motor India Limited (HMIL) is a wholly owned subsidiary of

Hyundai Motor Company, South Korea and is the second largest and the
fastest growing car manufacturer in India . HMIL presently markets over
25 variants of passenger cars in six segments. The Santro in the B
segment, and Getz in the B+ segment.

HYUNDAI SANTRO

We are mainly going to concentrate on the various marketing and

positioning strategies of Hyundai Santro as against that of Maruti Zen
and Alto and Hyundai Getz as against Maruti Swift.
POSITIONING OF SANTRO

The old positioning of the Santro was that pf a ‘family car’, this
positioning strategy was changed in around 2002 and Santro was
repositioned as to that of ‘a smart car for young people.’

The target age group for the car had now shifted from 30-35 years to 25-
30 years. The repositioning followed the face-lifts the car has been
getting from time to time in the form of engine upgradation, new power
steering, automatic transmission, etc, to keep the excitement around it
alive in the highly competitive small car market. The repositioning also
comes ahead of the possible launch of a new design Santro, and the super
B-segment car ‘Getz’, sometime in 2003.

The Santro was given a fresh new positioning — from a ‘complete

family car’ to a ‘sunshine car’ denoting a fresh new attitude and a
‘changing your life’ positioning.As the average age of a car owner has
declined from around 30-35 three years ago to 25-30, primarily because
of changing lifestyles, cheap and easily available finance, etc. the
company thought that instead of promoting the Santro as a family car, it
should be promoted as a car that can change the life of a young person
since many of the buyers were young buyers.

HYUNDAI’S PRICING STRATEGY

With the launch of Maruti Swift recently a price war was expected to
kick in . Immediately after maruti raised prices on its debutante Hyundai
Motor India hit back with a Rs 16,000-19,000 markdown on three new
variants of Santro Xing.

The company has introduced the XK and XL variants at a lower tag of Rs

3,26,999 and Rs .3,45,999 respectively.The new price variants are likely
to give Maruti’s existing B-segment models, Zen and WagonR a run for
their money. Hyundai has also launched a new non-AC variant of the
Santro at Rs 2.79 lakh, a tad higher than what the existing non-Ac Santro
costs. The next offensive is due from Maruti. With the Santro’s new price
positioning, Zen and particularly WagonR may be due for a correction, or
at least a limited-period subvention. If that happens the domino effect
will kick in across the B-segment.
Hyundai is positioning its new variants on the tech platform. Strapped
with 1.1 litre engine with eRLX Active Intelligence technology, the new
variants also come with new colour-coordinated interiors, a new front
grill and a 4-speed AC blower that makes the air conditioning more
efficient.

TATA MOTORS

Established in 1945, Tata Motors is India's largest and only fully

integrated automobile company. Tata Motors began manufacturing
commercial vehicles in 1954 with a 15-year collaboration agreement with
Daimler Benz of Germany.

TATA INDICA – Tata motors flagship brand

The company's passenger car range comprises the hatchback Indica, the
Indigo sedan and the Marina, its station wagon variant, in petrol and
diesel versions.The Tata Indica, India's first indigenously designed and
manufactured car, was launched by Tata Motors in 1999 as part of its
ongoing effort towards giving India transport solutions that were
designed for Indian conditions. Currently, the company's passenger cars
and multi-utility vehicles have a 16-per cent market share.

POSITIONING OF INDICA

Tata has positioned Indica as `more car per car'. The new car offers
more space, more style, more power and more options. Emphasizing the
delivery of world class quality. They have tried to redefine the small car
market as it has been understood in India.True to its "More car per car"
positioning, the Indica CNG offers all the core benefits of the Indica
combined with the advantage of CNG. One of the most popular
advertisements on television currently, is the one where the guy portrayed
as the ‘loveable liar’, gets socked everytime he lies ; but not when he
speaks about the Indica thus implying- “ must be true”. Elaborating on
the campaign, the new ad was launched with the intention of giving the
Indica V2 brand a touch of youthfulness.

TATA’S PRICING STRATEGY

After the price war being triggered off by Hyundai being the first
company to introduce what came to be known as, pricing based on
customer's value perceptions , all others followed suit.Telco's Indica
came in the range of Rs 2.56 lakh to Rs 3.88 lakh with 4 models.

The price-points in the car market were replaced by price-bands. The

width of a price-band was a function of the size of the segment being
targeted besides the intensity of competition. The thumb rule being 'the
higher the intensity, the wider the price-band.'

KEY STRATEGIC INITIATIVES BY MARUTI

A) TURNAROUND STRATEGIES MARUTI FOLLOWED

Maruti was the undisputed leader in the automobile utility-car segment

sector, controlling about 84% of the market till 1998. With increasing
competition from local players like Telco, Hindustan Motors, Mahindra
& Mahindra and foreign players like Daewoo, PAL, Toyota, Ford,
Mitsubishi, GM, the whole auto industry structure in India has changed in
the last seven years and resulted in the declining profits and market share
for Maruti. At the same time the Indian government permitted foreign
car producers to invest in the automobile sector and hold majority stakes.

In the wake of its diminishing profits and loss of market share, Maruti
initiated strategic responses to cope with India’s liberalization process
and began to redesign itself to face competition in the Indian market.
Consultancy firms such as AT Kearney & McKinsey, together with an
internationally reputed OD consultant, Dr. Athreya, have been consulted
on modes of strategy and organization development during the redesign
process. The redesign process saw Maruti complete a Rs. 4000 mn
expansion project which increased the total production capacity to over
3,70,000 vehicles per annum. Maruti executed a plan to launch new
models for different segments of the market. In its redesign plan, Maruti,
launches a new model every year, reduce production costs by achieving
85-90% indigenization for new models, revamp marketing by increasing
the dealer network from 150 to 300 and focus on bulk institutional sales,
bring down number of vendors and introduce competitive bidding.
Together with the redesign plan, there has been a shift in business focus
of Maruti. When Maruti commanded the largest market share, business
focus was to “sell what we produce”.
The earlier focus of the whole organization was "production, production
and production" but now the focus has shifted to "marketing and
customer focus". This can be observed from the changes in mission
statement of the organization:

1984: "Fuel efficient vehicle with latest technology".

1987: "Leader in domestic market and be among global players in the

overseas market".

1997: "Creating customer delight and shareholders wealth".

Focus on customer care has become a key element for Maruti. Increasing
Maruti service stations with the scope of one Maruti service station
every 25 km on a highway. To increase its market share, Maruti
launched new car models, concentrated on marketing and institutional
sales. Institutional sales, which currently contributes to 7-8% of Maruti’s
total sales. Cost reduction and increasing operating efficiency were
another redesign variable. Cost reduction is being achieved by reaching
an indigenization level of 85-90 percent for all the models. This would
save foreign currency and also stabilize prices that fluctuate with
exchange rates. However, change in the mindset was not as fast as
required by the market. Maruti planned to reduce costs, increase
productivity, quality and upgrade its technology (Euro I&II, MPFI). In
addition, it followed a high volume production of about 400,000
vehicles / year, which entailed a smooth relationship between the workers
and the managers.

Post 1999, the market structure changed drastically. Just before this
change, Maruti had wasted two crucial years (1996-1998) due to
governmental interventions and negotiation with Suzuki of Japan about
the break-up of the share holding pattern of the company. There was a
change in leadership, Mr. Sato of Suzuki became the Chairman in June
1998, and the new Mr.J. Khatter was appointed as the new Joint MD.
Khatter was a believer in consensus decision making and participative
style of management.As a result of the internal turmoil and the changes
in the external environment, Maruti faced a depleting market share,
reducing profits, and increase in inventory levels, which it had not faced
in the last 18 years.

After their fall in market share they redesigned their strategies and
through their parent company Suzuki they learned a lot.The
organizational learning of Maruti was moderately successful, the cost was
relatively inexpensive as Maruti had its strong Japanese practices to fall
back upon. With the program of organizational redesign, rationalization
of cost and enhanced productivity, Maruti bounced back to competition
with 50.8% market share and 40% rise in profit for the FY2002-2003.

B) CURRENT STRATEGIES FOLLOWED BY MUL

I. PRICING STRATEGY - CATERING TO ALL SEGMENTS

Maruti caters to all segment and has a product offering at all price points.
It has a car priced at Rs.1,87,000.00 which is the lowest offer on road.
Maruti gets 70% business from repeat buyers who earlier had owned a
Maruti car. Their pricing strategy is to provide an option to every
customer looking for up gradation in his car. Their sole motive of having
so many product offering is to be in the consideration set of every
passenger car customer in India. Here is how every price point is covered.

II. OFFERING ONE STOP SHOP TO CUSTOMERS OR

CREATING DIFFERENT REVENUE STREAMS

Maruti has successfully developed different revenue streams without

making huge investments in the form of MDS, N2N, Maruti Insurance
and Maruti Finance. These help them in making the customer experience
hassle free and helps building customer satisfaction.

Maruti Finance: In a market where more than 80% of cars are financed,
Maruti has strategically entered into this and has successfully created a
revenue stream for Maruti. This has been found to be a major driver in
converting a Maruti car sale in certain cases. Finance is one of the major
decision drivers in car purchase. Maruti has tied up with 8 finance
companies to form a consortium. This consortium comprises Citicorp
Maruti, Maruti Countrywide, ICICI Bank, HDFC Bank, Kotak Mahindra,
Sundaram Finance, Bank of Punjab and IndusInd Bank Ltd.( erstwhile-
Ashok Leyland Finance).

Maruti Insurance : Insurance being a major concern of car owners.

Maruti has brought all car insurance needs under one roof. Maruti has
tied up with National Insurance Company, Bajaj Allianz, New India
Assurance and Royal Sundaram to bring this service for its customers.
From identifying the most suitable car coverage to virtually hassle-free
claim assistance it's your dealer who takes care of everything. Maruti
Insurance is a hassle-free way for customers to have their cars repaired
and claims processed at any Maruti dealer workshop in India.

True Value – Initiative to capture used car market

Another significant development is MUL's entry into the used car market
in 2001, allowing customers to bring their vehicle to a 'Maruti True
Value' outlet and exchange it for a new car, by paying the difference.
They are offered loyalty discounts in return.This helps them retain the
customer. With Maruti True Value customer has a trusted name to entrust
in a highly unorganized market and where cheating is rampant and the
biggest concern in biggest driver of sale is trust. Maruti knows its
strength in Indian market and has filled this gap of providing trust in
Indian used car market. Maruti has created a system where dealers pick
up used cars, recondition them, give them a fresh warranty, and sell them
again. All investments for True Value are made by dealers. Maruti has
build up a strong network of 172 showrooms across the nation. The used
car market has a huge potential in India. The used car market in
developed markets was 2-3 times as large as the new car market.

N2N: Car maintenance is a time-consuming process, especially if you

own a fleet. Maruti’s N2N Fleet Management Solutions for companies,
takes care of the A-Z of automobile problems. Services include end-to-
end backups/solutions across the vehicle’s life: Leasing, Maintenance,
Convenience services and Remarketing.

Maruti Driving School (MDS): Maruti has established this with the
goal to capture the market where there is inhibition in buying cars due to
inability to drive the car. This brings that customer to Maruti showroom
and Maruti ends up creating a customer.
III. REPOSITIONING OF MARUTI PRODUCTS

Whenever a brand has grown old or its sales start dipping Maruti makes
some facelifts in the models. Other changes have been made from time to
time based on market responses or consumer feedbacks or the competitor
moves. Here are the certain changes observed in different models of
Maruti.

Omni has been given a major facelift in terms of interiors and exteriors
two months back. A new variant called Omni Cargo, which has been
positioned as a vehicle for transporting cargo and meant for small traders.
It has received a very good response from market. A variant with LPG is
receiving a very good response from customers who look for low cost of
running.

Versa prices have been slashed and right now the lowest variant starts at
3.3 lacs. They decreased the engine power from 1600cc to 1300cc and
modified it again considering consumers perception. This was a result of
intensive survey done all across the nation regarding the consumer
perception of Versa.

Esteem has gone through three facelifts. A new look last year has helped
boost up the waning sales of Esteem.

Baleno was launched in 1999 at 7.2 lacs. In 2002 they slashed prices to
6.4 lacs. In 2003 they launched a lower variant as Baleno LXi at 5.46
lacs. This was to reduce the price and attract customers.

Wagon-R was perceived as dull boxy car when it was launched. This
made it a big failure on launch. Then further modifications in engine to
increase performance and a facelift in the form of sporty looking grills on
the roof. Now it’s of the most successful models in Maruti stable.

Zen has been modified four times till date. They had come up with a
limited period variant called Zen Classic. That was limited period offer to
boost short term sales.
Maruti 800 has so far been facelifted two times. Once it came with MPFi
technology and other time it came up with changes in front grill, head
light, rear lights and with round curves all around.

IV. CUSTOMER CENTRIC APPROACH

Maruti’s customer centricity is very much exemplified by the five times

consecutive wins at J D Power CSI Awards. Focus on customer
satisfaction is what Maruti lives with. Maruti has successfully shed off
the public- sector laid back attitude image and has inculcated the
customer-friendly approach in its organization culture. The customer
centric attitude is imbibed in its employees. Maruti dealers and
employees are answerable to even a single customer complain. There are
instances of cancellation of dealerships based on customer feedback.

Maruti has taken a number of initiatives to serve customer well. They

have even changed their showroom layout so that customer has to walk
minimum in the showroom and there are norms for service times and
delivery of vehicles. The Dealer Sales Executive, who is the first
interaction medium with the Maruti customer when the customer walks
in Maruti showroom, is trained on greeting etiquettes. Maruti has proper
customer complain handling cell under the CRM department. The Maruti
call center is another effort which brings Maruti closer to its customer.
Their Market Research department remains on its toes to study the
changing consumer behaviour and market needs.Maruti enjoys seventy
percent repeat buyers which further bolsters their claim of being customer
friendly. Maruti is investing a lot of money and effort in building
customer loyalty programmes.

V. COMMITTED TO MOTORIZING INDIA

Maruti is committed to motorizing India. Maruti is right now working

towards making things simple for Indian consumers to upgrade from two-
wheelers to the car. Towards this end, Maruti partnerships with State
Bank of India and its Associate Banks took organized finance to small
towns to enable people to buy Maruti cars. Rs. 2599 scheme was one of
the outcomes of this effort.
Maruti expects the compact cars, which currently constitute around 80%
of the market, to be the engine of growth in the future.

Robust economic growth, favorable regulatory framework, affordable

finance and improvements in infrastructure favor growth of the passenger
vehicles segment. The low penetration levels at 7 per thousand and rising
income levels will augur well for the auto industry.

Maruti is busy fine-tuning another innovation. While researching they

found that rural people had strange notions about a car - that the EMI
(equated monthly instalments) would range between Rs 4,000 and Rs
5,000. That, plus another Rs 1,500-2,000 for monthly maintenance,
another Rs 1,000 for fuel (would be the cost of using the car). To counter
that apprehension, the company is working on a novel idea. Control over
the fuel bill is in the consumer's hands. But, maintenance need not be.
Says Khattar: "What the company is doing now is saying how much you
spend on fuel is in your hands anyway. As far as the maintenance cost is
concerned, if you want it that way, we will charge a little extra in the EMI
and offer free maintenance."

VI. DISINVESTMENT AND IPO OF MARUTI UDYOG LIMITED

It was a long and tough journey, but a rewarding one at the end. A reward
worth Rs 2,424 crore, making it the biggest privatization in India till date.
The size of Maruti’s sell- off deal is proof of its success. On the
investment of Rs 66 crore it made in 1982, when Maruti Udyog Limited
(MUL) was formally set up, the sale represents a staggering return of 35
times The best part of the deal is the Rs 1,000 crore control premium the
Government has been able to extract from Suzuki Motor Corporation for
relinquishing its hold over India’s largest car company. Now looking at
the strategy point of it – for Suzuki, of course, complete control of MUL
means a lot. Maruti is its most profitable and the largest car company
outside Japan. Suzuki will now be in the driver’s seat and will not have to
mind the whims and fancies of ministers and bureaucrats. “Decisions will
now become quicker. The response to changing market conditions and
technological needs will be faster,” says Jagdish Khattar, managing
director, MUL. After the disinvestment Suzuki became the decision
maker at MUL. They flowed fund in India for the major revamp in MUL.
Quoting from the report that appeared in The Economic Times, 4th April
2005, -

The Indian car giant Maruti Udyog Limited has finalized its two mega
investment plans — a new car plant and an engine and transmission
manufacturing plant. Both the projects will be implemented by two
different companies. At its meeting the company's board approved a total
investment of Rs3,271.9 crore for these two ventures, which will be
located in Haryana.

The above signifies when GOI was a major stakeholder in the MUL
strategies which lead to investment have had a bureaucracy factor in it but
after the disinvestment strategy followed is a TOP DOWN approach with
a fast implementation.

Suzuki's proposed two-wheeler facility in India, would start making

motorcycles and scooters by the end of 2005 through a joint venture, in
which Maruti has 51 per cent stake. The two-wheeler unit will have a
capacity of 250,000 units a year.

The disinvestment followed by IPO gives the insight in the fact that now
all the strategic decisions are taken by Maruti Suzuki Corporation.
Disinvestment had helped by removing the red tape and bureaucracy
factor from its strategic decision making process.

VII. REALISATION OF IMPORTANCE OF VEHICLE

MAINTENANCE SERVICES MARKET

In the old days, the company's operations could be boiled down to a

simple three-box flowchart. Components came from the 'vendors' to the
'factory' where they were assembled and then sent out to the 'dealers'. In
this scheme, you know where the company's revenues come from. The
new scheme is more complicated. It revolves around the total lifetime
value of a car.

Work on this began in 1999, when a MUL team, wondering about new
revenue streams, traveled across the world. Says R.S. Kalsi, general
manager (new business), MUL: "While car companies were moving from
products to services, trying to capture more of the total lifetime value of a
car, MUL was just making and selling cars." If a buyer spends Rs 100 on
a car during its entire life, one-third of that is spent on its purchase.
Another third went into fuel.

And the final third went into maintenance. Earlier, Maruti was getting
only the first one-third of the overall stream. As the Indian market
matured, customers began to change cars faster. Says Kalsi: "So the
question was, if a car is going to see three users in, say, a life span of 10
years, how can I make sure that it comes back to me each time it changes
hands ? So Maruti has changed gears to take a big share of this final one-
third spent on maintenance. Maintenance market has a huge market
potential. Even after having fifty lakh vehicles on road Maruti is only
catering to approximately 20000 vehicles through its service stations
everyday.

For this they are conducting free service workshops to encourage

consumers to come to their service stations. Maruti has increased its
authorized service stations to 1567 across 1036 cities. Every regional
office is having a separate services and maintenance department which
look after the growth of this revenue stream.

VIII. PLAYING ON COST LEADERSHIP

Maruti is the price dictator in Indian automobile industry. It’s the low
cost provider of car. The lowest car on road is from Maruti stable i.e.
Maruti 800. Maruti achieves this through continuous improvements in
operational efficiency and productivity.

The company has set itself (and its vendors) the target of a 50%
improvement in productivity and a 30% reduction in costs in three years.
The ability to keep lowering the prices sets Maruti apart from other
players in the league. Maruti spread the overheads over a larger base.

The impressive sales and profits were the result of major efforts within
the company. Maruti also increased focus on vendor management. Maruti
consolidated its vendor base. This has provided its vendors with higher
volumes and higher efficiencies. Maruti does that by working with
vendors, assuring them that for every drop in price, volumes will go up.
Maruti is now encouraging its vendors to develop R&D capability for
specialized components. Based upon such activities, product
competitiveness in the market will further increase.

Maruti also made strides in applying IT to manufacturing. A new Vehicle

Tracking System improved efficiency on the shop floor and enhanced
quality control. The e Nagare system, adopted from Suzuki Motor
Corporation, smoothened Maruti’s Just In Time operations.

C) MAJOR FUTURE STRATEGIES

I. PHASING OUT ZEN IN 2007

The launch of Swift and phasing out Zen is a strategic move. Alto was
launched keeping in mind that it will take over Maruti 800 market in
future. Perhaps being the flagship product phasing out of Maruti 800
faced lots of resistance from dealers all over. Another reason behind not
phasing out Maruti 800 was the fear of brand shift of customers to other
competitor’s product. Swift was launched in May, 2005 in the price band
starting from 4 lacs. Before launch of Swift Maruti management had
decided that they will phase out Zen since it had already came up with
two modifications. The major reason behind this decision was
cannibalization of Wagon R and Swift due to overlapping of price band.
It is a rational decision to kill a product before it starts facing the decline
stage in product cycle. Maruti is offering Rs. 3000.00 more margins to
dealer on the sale of Wagon-R as compared to Zen. This is to let dealer
push Wagon R instead of Zen.

II. MARUTI PLANS FOR A BIG DIESEL FORAY

The new car manufacturing company, called Maruti Suzuki Automobiles

India Limited, will be a joint venture between Maruti Udyog and Suzuki
Motor Corporation holding a 70 per cent and 30 per cent stake
respectively. The Rs1,524.2 crore plant will have a capacity to roll out 1
lakh cars per year with a capacity to scale up to 2.5 lakh units per annum.
The new car manufacturing plant will begin commercial production by
the end of 2006.
Maruti would set up a diesel engine plant at Gurgaon in line with its plan
to become a major player in diesel vehicles in a couple of years. This has
been done in the wake of major competition from Tata Indica and meets
the growing demand of diesel cars in India. While the annual growth in
the diesel segment was 13 per cent in the last three years, it was 19-20 per
cent in the first quarter (April-June) of the current fiscal.

Maruti has currently an insignificant presence in diesel vehicle. It will

manufacture new generation CRDI (common rail direct injection) engines
in collaboration with Fiat-GM Opel and engines will be of 1200 cc. The
plant with a capacity to produce one lakh diesel engines would be
operational in 2006. At present, Peugeot of France, supplies diesel
engines for Maruti's Zen and mid-sized Esteem models. This will further
reduce the imported component in Maruti vehicles, making them more
competitive in the Indian market.

III. MARUTI PLANS FOR A NEW ENGINE AND

TRANSMISSION PLANT

The engine and the transmission plant will be owned by Suzuki

Powertrain India Limited in which Suzuki Motor Corporation would hold
51 per cent stake and Maruti Udyog holding the balance. The ultimate
total plant capacity would be three lakh diesel engines. However, the
initial production would be 1 lakh diesel engines, 20,000 petrol engines
and 1.4 lakh transmission assemblies. Investment in this facility will be
Rs.1,747.7 crore. The commercial production will start by the end of
2006.

IV. INDIA AS EXPORT HUB FOR MARUTI

Three years back as an experiment, based on the increasing design

capabilities of suppliers in countries like India, McKinsey did an exercise
to figure out just how much money could be saved if automobiles were to
be made in overseas locations like India, Mexico and South Africa -- an
automobile BPO, so to speak. The result was staggering: the industry
stands to gain $ 150 billion annually in cost savings, and an additional $
170 billion annually in new revenues once demand shoots up following
the drop in prices, and the combination of which means a 25 per cent
increase in existing revenue levels.
According to the study, over 90 per cent of automobiles today are sold in
the countries they are made in, so there's a lot of money to be made by
shifting the production overseas.

Till recently, just 100,000 cars produced in low-cost countries were

exported to high-cost ones -- presumably this figure is going up now that
Altos from Maruti, Santros from Hyundai, Indicas from Tata Motors, and
Ikons from Ford, among others, are being regularly exported out of India.

Yet, as McKinsey points out, since it just costs $ 500 and just three weeks
(and both figures are falling) to ship out a car to anywhere in the world,
why produce cars in high-wage islands? If a car was produced in India
instead of in Japan, the study says, it will cost 22-23 per cent less, after
factoring in higher import duties for components/steel, lower levels of
automation, and transport costs.

In August, 2003 Maruti crossed a milestone of exporting 300,000

vehicles since its first export in 1986. Europe is the largest destination of
Maruti’s exports and coincidentally after the first commercial shipment of
480 units to Hungary in 1987, the 300,00 mark was crossed by the
shipment of 571 units to the same country. The top ten destination of the
cumulative exports have been Netherlands, Italy, Germany, Chile, U.K.,
Hungary, Nepal, Greece, France and Poland in that order.

The Alto, which meets the Euro-3 norms, has been very popular in
Europe where a landmark 200,000 vehicle were exported till March 2003.
Even in the highly developed and competitive markets of Netherlands,
UK, Germany, France and Italy Maruti vehicles have made a mark.
Though the main market for the Maruti vehicles is Europe, where it is
selling over 70% of its exported quantity, it is exporting in over 70
countries.

Maruti has entered some unconventional markets like Angola, Benin,

Djibouti, Ethiopia, Morocco, Uganda, Chile, Costa Rica and El Salvador.
The Middle-East region has also opened up and is showing good potential
for growth. Some markets in this region where Maruti is, are Saudi
Arabia, Kuwait, Bahrain, Qatar and UAE.

The markets outside of Europe that have large quantities, in the current
year, are Algeria, Saudi Arabia, Srilanka and Bangladesh. Maruti
exported more than 51,000 vehicles in 2003-04 which was 59% higher
than last year. In the financial year 2003-04 Maruti exports contributed to
more than 10% of total Maruti sales.

V. MARUTI EMERGING AS R&D HUB FOR SUZUKI MOTOR

CORPORATION

Japanese auto major Suzuki is all set to convert Maruti Udyog Ltd’s
research and development (R&D) facility as its Asia hub by 2007 for the
design and development of new compact cars, according to a top official
of the firm. The country’s leading car manufacturer will make substantial
investments to upgrade its research and development centre at Gurgaon in
Haryana for executing design and development projects for Suzuki. This
includes localisation, modernisation and greater use of composite
technologies in upcoming models.

The company will be hiring more software engineers and technocrats to

handle Suzuki’s R&D projects. Investment would be more in terms of
manpower than in infrastructure, which is already in place. Apart from
working on innovative features, the R&D teams will focus on latest
technologies using CAD-CAM tools to roll out new models that will meet
the needs of MUL’s diverse customers in the future.

The reasons as to why it can be good for R&D is that

Ø Firstly the cost involved in R&D and infrastructure is low in India as

compared to other countries. Also the technical skills are abundantly
available; again at a cheaper cost.

Ø Secondly, India is growing as an export hub along with the Indian

market growing aggressively into becoming an attractive one for
investors.
Ø Thirdly, Suzuki’s investment in India, is also important as it has
completely divested now as a result MUL will now become a 100%
subsidiary of Suzuki in the coming year.

KEY SUCCESS FACTORS

(1)The Quality Advantage

Maruti Suzuki owners experience fewer problems with their vehicles than
any other car manufacturer in India (J.D. Power IQS Study 2004). The
Alto was chosen No.1 in the premium compact car segment and the
Esteem in the entry level mid - size car segment across 9 parameters.

(2)A Buying Experience Like No Other

Maruti Suzuki has a sales network of 307 state-of -the-art showrooms

across 189 cities, with a workforce of over 6000 trained sales personnel
to guide MUL customers in finding the right car.

(3)Quality Service Across 1036 Cities

In the J.D. Power CSI Study 2004, Maruti Suzuki scored the highest
across all 7 parameters: least problems experienced with vehicle serviced,
highest service quality, best in-service experience, best service delivery,
best service advisor experience, most user-friendly service and best
service initiation experience.

92% of Maruti Suzuki owners feel that work gets done right the first time
during service. The J.D. Power CSI study 2004 also reveals that 97% of
Maruti Suzuki owners would probably recommend the same make of
vehicle, while 90% owners would probably repurchase the same make of
vehicle.
(4)One Stop Shop

At Maruti Suzuki, customers will find all car related needs met under one
roof. Whether it is easy finance, insurance, fleet management services,
exchange- Maruti Suzuki is set to provide a single-window solution for
all car related needs.

(5) The Low Cost Maintenance Advantage

The acquisition cost is unfortunately not the only cost customers face
when buying a car. Although a car may be affordable to buy, it may not
necessarily be affordable to maintain, as some of its regularly used spare
parts may be priced quite steeply. Not so in the case of a Maruti Suzuki.
It is in the economy segment that the affordability of spares is most
competitive, and it is here where Maruti Suzuki shines.

(6)Lowest Cost of Ownership

The highest satisfaction ratings with regard to cost of ownership among

all models are all Maruti Suzuki vehicles: Zen, Wagon R, Esteem, Maruti
800, Alto and Omni.

(7) Technological Advantage

It has introduced the superior 16 * 4 Hypertech engines across the entire

Maruti Suzuki range. This new technology harnesses the power of a
brainy 16-bit computer to a fuel-efficient 4-valve engine to create
optimum engine delivery. This means every Maruti Suzuki owner gets
the ideal combination of power and performance from his car.

FUTURE CHALLENGES

Ø Maruti has always been identified as a traditional carmaker producing

value-for-money cars and right now the biggest hurdle Maruti is facing is
to shed this image. Maruti wants to change it for a more aggressive
image. Maruti Baleno has failed due to one of the major reasons being
that customers could not identify Maruti with a car as sophisticated as
Maruti Baleno. Maruti is looking forward to bring about a perception
change about the company and its cars. Maruti started the exercise with
the new-look Zen, and Suzuki's decision to pick India as one of the first
markets for this radically different-looking car gave this endeavor a new
thrust. Maruti has also changed its logo at the front grill. It has replaced
the traditional Maruti logo on grill ‘stylish ‘M’ with S’. The major thrust
in the facelift endeavour is with the launch of 1.3 litre Swift. It’s a style
statement from Maruti to Indian market.

Ø The next threat Maruti faces is the growing competition in compact

cars. Companies like Toyota, Ford, Honda and Fiat are planning to come
out with small segment cars in near future.Ford is launching Focus and
Fiesta, GM is launching Aveo in 2006, Chevrolet is launching Spark in
2006, Hyundai is launching its new compact car in 2006, Honda is
launching Jazz in 2006, GM is has reduced prices of its Corsa, Fiat is
coming up with Panda and new Fiat Palio, Skoda is launching Fabia. All
this will pose a major threat to Maruti leadership in compact cars.

Ø New emission norms like Bharat Stage 3 which has come into effect
from April 2005 has increased car prices by Rs.20000 and Bharat Stage 4
which is coming into force in 2007 will contribute in increasing car prices
further. This could be of concern to Maruti which is low cost provider of
passenger cars.

Ø Rise in petrol prices and growing popularity of other substitute fuels

like CNG will be another threat to Maruti. There is also a threat to Suzuki
from R&D investment by Toyota and Honda in Hybrid cars. Hybrid cars
could run on both petrol and gaseous fuels.

Ø There is a threat to Maruti models ageing. Maruti models like Maruti

800 which is in market for the last twenty years and others like Zen and
Esteem which have also entered the decline phase are the other threats.
Maruti is planning phasing out Zen in 2007 and there were rumors of
phasing out Maruti 800 also. This all makes Suzuki to replace these
brands with new launches . As Swift and Wagon R are replacing the Zen
market. Maruti will have to keep on making modifications in its present
models or its models will face extinction.