TRIGGERING AN AUTOMOBILE REVOLUTION IN INDIA

Section 1 Group 11
Nitish Prachi Kiran Rakesh Sebastian 12144 12147 12181 12150 12161

Few players : Hindustan Motors, PAL and Standard Produced cars that were large, expensive and had poor mileage Hence not affordable to middle class Low volume of cars sold The government felt the need to produce small passenger cars

The Government of India by an Act of the Parliament acquired Maruti Limited in October 1980 and renamed the company as Maruti Udyog Limited (MUL). After acquiring the loss making Maruti Limited, the Government of India established Maruti Udyog Limited (MUL) as a public sector company in February 1981 through the act of parliament. The then prime minister of India, Indira Gandhi had a personal interest to make this project a success in order to fulfill the dreams of her son, Sanjay Gandhi, who had struggled with such a project for a few years before he passed away in an accident.

Porters Five forces Model for Auto Industry (1983)

Buyers Bargaining Power(Low)

Potential New Entrants(HIGH)

MUL was Govt owned with 26% stake to Suzuki Indira Gandhi Had personal Interest
Suzuki invested in suppliers Suppliers Bargaining and gave Power(HIGH) them technical knowhow

Substitute Products(Moderate)

Rivalry Among Industry(LOW)

Only 3 players, who targeted affluent class

*Amount in million Rupees invested by Suzuki Motors

*No. of Suzuki Motors employees deputed to work in manufacturing units of Indian partners

The demand for cars increased from 15,714 in 1960 to 30,989 in 1980 at a CAGR of only 3.5%. Contrary, to the logic of most foreign automobile manufacturers, Suzuki Motor predicted Indian market potential to rise to 200,000 cars per annum by the year 2000 which was greater than Suzukis production in Japan. Suzuki Motors also accepted the terms of the government in terms of its lower equity participation

Suzuki Motors Company agreed to 26% shareholding in MUL in 1982. Only after about six years did it invest additional amounts to raise its equity to 40% in 1989 and then to 50% in 1992. Suzuki Motors had committed to achieving 95 per cent indigenisation in five years.... Suzuki, however, had to face an uphill task in developing the vendor base

Appointed senior executives from BHEL, TATAs ,NTPC to the board of Maruti. Provided tax breaks and financial assistance in the initial years. Suzuki was given a free hand in production decisions also they welcomed the Japanese way of manufacturing.

Knowing that Indians were not used to the Japanese way of management fresh engineers were hired from top colleges and molded in the Japanese way of manufacturing.
Licenses for component companies were given to the people with political clout knowing that influence in society was necessary fot their success.

THE FINAL PRODUCT

MUL launched its first car Maruti800 on December 14, 1983 at initial price of Rs. 47,500.Mr. HarpalSingh, the first Maruti owner, still drives the car after 26 years.

Focus It was the only company to do a market survey and a price survey to decide the final product and price Size Being one of the very first entrant in the market MUL has been able to raise its capacity levels in a phased manner. Low Initial investment The cost of installation and maintenance of an assembly line was much lower than what its competitors might have paid. Unique concessions from the government Being the company promoted by the government, MUL have received a lot of protection and also financial help early on which made it possible for MUL to fund its internal operational costs

Indigenous sourcing of components Over the years MUL had tried to use the built in capacities to produce the inputs indigenously and also trained its suppliers for producing almost all its requirements. High labour productivity MULs effective HR policies and use of quality circles and employee suggestion schemes have made employee more dedicated to the organisation.

Porters Five forces Model for Auto Industry (2010)

Buyers Bargaining Power(High)

Potential New Entrants(Moderate)

Substitute Products(Moderate)

Suppliers Bargaining Power(Moderate)

Rivalry Among Industry(High)

The industry is typically capital intensive and thus involves high fixed costs. Slow market growth. Low switching cost.

Increasing Two wheelers/Motor Cycle Market, Because of rising fuel prices. Public Transportation( Local trains, Metros, Buses) Advantage of Maruti: Maruti s Advantage Price performance comparison favors heavily towards Maruti in most product categories. Also the high availability and quality of services offered by Maruti gives the customer a better trade-off.

When buyer power is strong, the buyer is the one who sets the price in the market. For Maruti , the sales volumes have shown increasing trend over past so many years. Buyers get incentives in the form of cost discounts and better after sales services.

 Power Steel is a major input in this industry and so

steel prices have a sharp and immediate impact on the product price. Substitute inputs are restricted to non critical or additional components like electronic gadgets and interior design components. The industry being capital intensive switching costs of suppliers is high, other than steel as raw material which is highly price sensitive and the firm may easily move towards a supplier with lower cost.

Encouragement of competition by the new policies and to avoid monopolistic activities. Liberal policies for foreign brands to enter into India. Patents and Proprietary knowledge ,MarutisR&D capability has evolved.

Passenger Vehicles(2010)

16.83% 46.07%

MUL Tata Mahindra Hyundai

14.15%

6.50%

Others
16.45%

* Only as far as 1997-98, Maruthi Suzuki enjoyed an 84% market share

Brand image

Consistently voted first in customer service and satisfaction Affordable small cars which serve the needs of average Indian customer Thus has a strong brand image as common mans car in India

Expertise in manufacturing small cars with high fuel efficiency :

Well developed sales network throughout India

Very strong knowledge of Indian market

Wide range of models