Maruti Suzuki has said it will not build a model to rival Tata’s Nano budget car – in fact it sees the model as a breeding ground for future customers.
Sales and marketing chief Mayank Pareek said: “We have no plans for a car in this segment. We do not have a plant that could build one.
“We are happy to continue building entry level cars at around the INR200,000 (US$4,500) mark. But the Nano at INR80,000 (US$1,800) along with the 93 million two-wheeler users in India, will create interest in cars and give people aspirations to better models.”
Maruti Suzuki currently has 54.5% market share of the 1.7m cars sold in India last year. A dominant position it has maintained since its first started producing cars in the country in 1983 – at one point in the 1980s in accounted for 80% of all cars sold in the country.
Last year the company could have built more although it was restricted by capacity at its two plants just south of Delhi. The original, in Gurgaon, and the newly-opened Manesar plant will be producing 1.2m vehicles a year by 2012 and there are plans to expand Manesar further with new assembly lines being built alongside the current facility complete with rail links to ports to handle an expected increase in exports as well as the domestic market.
Pareek says Maruti Suzuki is determined to cling on to its impressive market share, way ahead of Hyundai (18%) and Tata with 14%. Other “new entries” such as Fiat, Ford, and General Motors remain in single figures.
Others are on the way and the sales and marketing chief sees these, among other issues, as a threat as Maruti Suzuki agonises over the loss of even half a percent of market share.
Maruti Suzuki India Ltd was originally known as Maruti Udyog Ltd, a government company until the joint venture was established with the Japanese carmaker in 1981.
The company’s first car, a Maruti 800, rolled off the production line in December 1983 at its Gurgaon plant which now spreads over a sprawling 297-acres with three fully integrated production facilities.
Since then, Gurgaon has rolled out 8 million vehicles. Maruti Suzuki’s new plant, 25kms away at Manesar, was commissioned in February 2007 with an installed capacity of 100,000 vehicles a year on a 600 acre site. This has now increased to 300,000 annually.
The plants have full manufacturing capability including blanking, pressing, welding, painting, machining, engine assembly, vehicle assembly and inspection.
As further capacity is needed, so the Manesar factory will grow. It currently operates two shifts working six days a week and producing 1,100 units day.
These are the A-Star (Alto/Nissan Pixo) Swift, sedan version of the SX4 and the India specific Swift sedan, known as the Dzire, which went into production last year.
It has its own power station and water treatment works.
Pareek said the greatest threat to Maruti Suzuki’s dominance in the Indian market is complacency. “After 26 years of success you can get complacent – our survival is at stake. Only the paranoid will survive as more car makers come to India.”
Other threats are the road infrastructure, particularly in big cities, and any change in government economic policies although successive governments have pursued similar policies.
The country’s economy grew 26% last year. Pareek said:“We have seen amazing growth in India since 2000 thanks to political stability. A tight monetary policy could affect us, but there is no reason to introduce such a thing.
“If you look at other industries such as mobile telephones and air travel – which is growing at almost 50% a year – everything is pointing to growth. The availability of credit is good and very affordable. Around 70% of people in India purchase their cars with loans and whereas the interest was once 18% annually it is now around 8.9%.
“There are only 10 cars per thousand people in India right now, but the market is growing rapidly. Currently a third of buyers are purchasing for the first time, a third are replacing an old model and a third are buying a second car. Everything is pointing to robust growth.
Conservative estimates suggest that India’s annual new car market will double to more than 3 million units by 2015. But Pareek thinks it could easily be 4.5m or even 5m by then.
He bases his estimate on a number of growth statistics that have seen India’s economy maintain its relentless rise.
One of the key ones is that families start to buy their first car once annual income is at INR200,000 rupees, the starting price for Maruti Suzuki’s A Star. “By 2016 there will be 50m families in India earning at least that,” he says.
A major roadblock for car industry growth, however, is the road infrastructure, particularly in big cities.
Around the country, more and more towns and villages are becoming connected while there are plans for major highways connected north and south, west and east as well as a ‘quadralateral’ route connecting the major cities of Delhi, Mumbai, Chennai and Kolkata.
Pareek said: “50 years ago Indian roads were being built at a rate of half a km a day, in the 1990s this grew to 7kms a day, now it is 20kms daily. But we have a problem in the big cities where the infrastructure is crumbling.”
India’s big cities were not built for cars, car parks are rare and while roads are wide, users are ill disciplined and un-policed. Pedestrians and animals wander unrestricted along carriageways and cross over at random.
Pareek said: “Is the infrastructure keeping up? Yes and no. In urban areas it is crumbling under the weight. In places like Delhi, Bangalore and Mumbai it is very difficult to get around on the roads, but in the hinterlands things are improving fast.”
Maruti Suzuki has around 250 suppliers based in India including a number of its own joint venture businesses:
Asahi Glass Ltd Glass
Bellsonica Auto Components India Ltd Large sheet metal
Bharat Seats Ltd Seats
Caparo Maruti Ltd Large sheet metal
Climate Systems India Ltd Radiator assembly
Denso India Ltd Electrics
FMI Automotive Components Ltd Exhaust system components
Jay Bharat Maruti Ltd Large sheet metal/exhaust systems
Krishna Maruti Ltd Seat/headlining/door trim
Machino Plastics Ltd Bumpers/Instrument panel
Mark Exhaust Systems Ltd Exhaust systems/door sashes
Magneti Marelli Powertrain India Ltd Electronic control units
Nippon Thermostat India Ltd Thermostats/temperature sensors
SKH Metal Ltd Fuel tanks/sheet metal assembly
Sona Koyo Steering System Ltd Steering system/prop shaft
Suzuki Powertrain India Ltd Castings and engines