Maruti’s diminishing halo
It is by far the largest selling carmaker in India, but its success is led largely by age old cars like Alto, Wagon R and even Swift. With parent Suzuki in a state of disarray and more dependent on Maruti than ever before and a product pipeline that is drying up and consists mostly of refreshes, Maruti Suzuki’s indefatigable halo in India is diminishing. What is even more disturbing is its complacency amply reflected in the deadlock between management and workers at its newest Manesar factory.
Almost 5 years ago in 2006, Maruti Suzuki was like an all conquering giant that was the king of all it surveyed. It was celebrating the runaway success of the Swift on its first anniversary with which it had defeated its arch rival Hyundai’s ambitions with the super hatch Getz. It had weathered the crisis of 2000-01 when a three month labour strike at Gurgaon had threatened to destroy it forever and emerged stronger as a private company with negligible government control. Further, its clout and stature in the domestic market was such that global heavyweights were still pondering whether to venture into India at all or not.
Five years hence however, things have changed and not necessarily for the better. It still commands the lion’s share of the passenger car market that has become one of the world’s fastest growing markets. But its hold on the market seems to be loosening a little bit with its market share falling below 50% for the first time in a year in 2010. What is worse, the market looks to be more amenable towards newer entrants. See chart
A top official of a European firm that has been in India for over a decade now, said last week that though Maruti remains a giant in India, he is encouraged by what he is seeing in the market today and is more concerned with what Hyundai is up to than Maruti. It is not very difficult to see why.
Unlike Maruti, Hyundai’s parent firm in Korea is on a very solid footing and as its twin successes in i10 and i20 show, its products are also finding a greater resonance in the market. Maruti on the other hand is still relying mostly on age old platforms and products like the Alto, Wagon R and Estilo. Even its super global success Swift that has always gone from strength to strength in India, is over 5 years old now and can hardly be called a new product.
Further, the firm’s product pipeline consists mostly of refreshes. Its latest big success was the Alto k10, a peppier meatier version of the largest selling car in India. Its last launch was the diesel version of the SX4 and its next 2 big launches would be the new Swift and Dzire. Hardly a new product at sight unless you crystal gaze into the New Delhi Auto Expo next year where it may launch the RIII multi utility van.
Contrast this with Hyundai, Toyota, Honda or VW. The Korean maker is in the last stages of developing and testing its Alto rivalling 800cc car. Though it shares part of the platform with the Santro, it looks and feels like a new car and will be positioned lower than the Santro. Toyota will launch the Etios Liva small car next month that is built specifically for India and so too would Honda with its Brio small car in September. Volkswagen on the other hand would perhaps be the most aggressive of the lot and is developing the A00 small car with India in mind.
Maruti’s strength: Its network but for how long?
As much as its cars that scored superlatively high on value for money aspects, its sales and service network has been one big reason for the carmaker’s success. And unlike on the product front, where it has precious little to show, it is not sitting idle on the network expansion front. It already has a 1000 strong dealer network, good three times more than second in line Hyundai and for the last three years has expanded this faster than anybody else. By 2015, the number would double to 2000 covering 800 cities while its service network by that time would touch an astounding 4,200 outlets.
In India, a robust sales and service network is valued more than in any other market in the world. A deeper penetration in the rural market, which at times is more lucrative, means it is able to sell cars where nobody else is. In effect, the populace around that region has no choice but to buy a Maruti. An equally robust service network is also significant as a customer also looks at ease of servicing of the vehicle. On both these counts, Maruti’s dominance is unquestionable.
This dominance is however also a factor of the number of years spent by a company in India and on those counts too, there is no firm to rival Maruti. But sooner than later a Hyundai, VW or Toyota, who share an ambition to rule the Indian roads one day, would achieve a penetration good enough for it to challenge Maruti’s supremacy. It is then, that Maruti’s lack of new products would coincide with Indian automobile consumer’s growing maturity giving the others a chance to vault to the top.
Maruti’s deep penetration is an insurance against a drop in market share that was witnessed in the late 90s. But it is unlikely that it would rescue it from the ill effects of a dry product pipeline. If not today, Maruti would desperately need another revolutionary car like the Swift in 2-3 years time.
Maruti’s bane: complacency bordering on arrogance?
Even as the top officials in the firm publicly profess humility, years of unchallenged supremacy has harboured complacency and arrogance that has seeped into both the company and dealer level. Not very long ago, Maruti dealers were one of the most professional and customer centric in the industry. While it is difficult to prove otherwise, it is no longer a homogenous truth.
The number of calls that yours truly gets as complaints against one Maruti dealer or the other every week is proof enough that things have changed for the worse. There was a time though when the only words that I heard about a Maruti dealer was a good one. Now no more.
The problem could be psychological. Suzuki is in an uncharted territory in India where it has no rival to look up to and no target to meet. In Japan on the other hand, Suzuki is more of an also ran easily pummelled by Toyota, Honda and Nissan, companies that have less than 1% market share in India. The role of a Goliath is unknown to Suzuki.
The worker’s strike at Manesar that began last Saturday also shows that the top official’s attitude is no different. What could have been settled in a matter of a day or two let alone averted altogether, has been allowed to fester for close to a week now.
On the face of it, there is little to fault the workers with who are demanding a separate independent union specifically to cater to the needs of the Manesar factory. The company however, instead of looking at a speedy resolution, is harping on a technical issue of it not being given a prior notice of the strike. So far, it has done precious little other than calling the strike illegal and axing 11 workers for indiscipline, which has further polarised the environment.
Maruti has had an enviable industrial relations track record in an industry that is prone to strikes. This is the first such labour unrest that the company is witnessing in 11 years. Then, the company had successfully and wisely stayed firm and weathered a 3 month crisis period. Times however have changed and though it intends to repeat the same formula, Manesar 2011 is no Gurgaon 2000.
As is evident in this instance, it is the firm’s arrogance that is stopping it bending a little to its own workers. In the long run that may prove to be its Achilles’ heel.