The Indian Passenger Car Industry

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The Indian Passenger Car Industry

The Great Indian Car Race Begins

With the entry of the first indigenously designed and developed small car,
Indica from the House of Tatas, the great Indian car race has well and truly
begun. Launching the car on December 30, 1998, Chairman of TELCO Mr Ratan
Tata said, “We started the Indica project with a commitment to develop a car for
the Indian market that could be benchmarked against the world’s best in terms
of features, looks and performance - and yet offers a great value proposition. A
car designed for India rather than adapted for India. Today that vision has
become a reality.”
The pricing of the car at Rs 2.5 lacs offers direct competition to the ubiquitous
Maruti 800 which so far went unchallenged. With the other new entrants (Santro
from Hyundai and Matiz from Daewoo) into the small car segment priced higher
(at Rs 3 lacs plus), the threat from Indica has forced Maruti to slash down the
prices of the popular Maruti 800 by almost Rs 25,000 to bring it down to Rs 1.85
lacs. Simultaneously, the company also slashed the prices of the Omni and Zen
models as well as announced a stripped down version of the Zen at a lower price
(Rs 2.95 lacs)
Announcing the price cuts, Maruti Udyog’s Managing Director Mr R S S L N
Bhaskarudu denied any linkage between the move and Indica’s launch. However
he admitted the desire to “protect our turf” which prompted the company to
take this step which he said “the company had been planning for a long time.”

Industry Overview
The automobile industry is one of the most significant industries in developed
economies. In US for example, the industry employs about 18% of the industrial
work force and contributes close to 5% of the country’s Gross National Product
(GNP). However, in India, the automobile industry is yet to gain such level of
prominence in the economy; its contribution to the country’s GNP is just 3 per
cent. In terms of vehicle density, India accounts for 275 people per vehicle as
compared to 1.4 in the US.

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Historical Background

The first car was imported into India in 1898. The early years of the century saw
the first taxicabs in Bombay. With a large population spread over large
distances, India offered a great potential market which foreign manufacturers
were quick to recognise. After close to five decades of imports and assembly,
the automotive industry achieved full status with the setting up of two
manufacturing plants in 1947-48. Hindustan Motors (HM) and Premier
Automobiles Limited (PAL) were the two pioneers in the industry who took the
lead in establishing the industry in India.

On the policy side, the automotive industry in India has long suffered
victimisation and isolation at the hands of Indian policy makers. The tag of a
‘luxury’ product that has been attached to it, made it unpalatable to the Indian
government which tried to define it’s outlook with a socialist perspective. The
license raj, discriminatory regulatory framework and excessive tariffs ensured
restrictions on capacities and price controls. The investments that came about
to be promoted focussed on development of transport infrastructure for the
‘common man’ - namely the Indian Railways and road-based public transport
system. As a result the industry was saddled with a large technological gap that
kept widening for a good 35 years after independence.

Evolution of the Passenger Car Industry

The Regulated Phase - 1953 to 1983


The Tariff commission set up in 1953 to examine ways of establishing an
indigenous automotive industry, recommended that the government diasallow
assemblers of imported kits. The then limited market was thereby made
available only to units which had a genuine programme for progressive
manufacture. In addition, the models and makes were also limited so as to
ensure an economically feasible volume of output for each model. The year 1954

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saw General Motors and Ford leaving India. The car industry segment was
thereby limited to companies with long term plans for indigenous
manufacturing.

Table 1 : No. of Registered Cars in India (in ‘000s)

Year No. of Cars Year No. of Cars


1950-51 148 1991-92 2461
1960-61 256 1992-93 2550
1970-71 539 1993-94 2654
1980-81 900 1994-95 2876
1990-91 2266 1995-96 3139
Source : Statistical Abstract India, 1997
Hindustan Motors (HM) started by the Birla Brothers entered a tie-up with Morris
(Nuffield) of UK to manufacture it’s Morris range of cars under the brand name
Hindustan. The first Hindustan, which rolled out in 1949 was followed by the
much celebrated Ambassador in 1957. The protectionist policies which
dominated the industry and the lack of competition served to prevent HM from
making any significant efforts for marketing it’s products. The guaranteed
market also prevented any efforts in the direction of new product development
and innovations and upgradations in the existing product line, so much so that
the first substantial change in terms of the engine was made in 1993, with the
introduction of Contessa’s Isuzu engine in the Ambassador model.

The other company which thrived under the policy umbrella was the Hirachand
group’s Premier Automobiles Limited (PAL) which entered the cars segment in
1951 (after first producing light and medium Dodge trucks for the Indian Army).
PAL entered into a tie-up with Fiat in 1951 to manufacture Fiat 500 and another
one in 1954 to manufacture Millicento.

Standard Motor Products of India Limited (SMPIL) was the third player in this
regulated phase. SMPIL, remained a regional player, concentrating on the
southern market, and competing with PAL in the small car segment.. The
recessionary trends which hit the economy as an outcome of the oil shock saw
a lot of Indian industries struggling to cope with the pressure. The oil shock
combined with the hike in fuel prices saw SMPIL close down in the early 70s.

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During this phase, the other two players HM and PAL had clearly demarcated
segments and there was no fear of competition for them. The primary focus of
these manufacturers revolved around increasing the indigenisation content. PAL
introduced Fiat 1100 Delite in 1964 and rechristened it as Padmini. The phase
1969-80 with further tightening of import controls, high levels of tariffs, capital
goods import restrictions and industrial entry barriers in the form of licensing
capacity regulations, protected the two domestic players.

Firm Annual Model


Licensed
Capacity in
1956
Hindustan Motors 18,000 Ambassador, Hindustan
Premier Automobiles 12,000 Millicento
Limited Padmini (Fiat 1100 Delite)
Standard Motor Products 6000 Standard
of India Limited
Source : International Journal of Technology Management, 1998, Vol 15, Nos 6/7
B. Bowonder, “Competitive and Technology Management Strategy: a case study
of TELCO
Table 2 : Initial Players in the Passenger Cars Market

Model As of As of As of As of As of
1956 1960 1961 1963 1965
Hindusta 50.0 70.5 74.5 76.9 81.0
n
Padmini 30.0 47.0 49.0 64.1 74.0
Standard 20.0 32.5 44.0 60.2 75.0
Source : Automotive Industry of India 1964-65, AIAM Brochure
Table 3 : % Growth in Indigenisation Content

The Growth Phase : 1983-1993


The year 1984 saw the winds of change in terms of easing the pressure from
policy regulations which provided a momentum to the growth of automotive
sector in India. Although automobiles were still on the list of industries requiring
government approval for foreign investment, applications for expansion and
modernisation were given favourable treatment. The ‘big step’ forward in terms

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of allowing foreign investment in all automotive segments gave a significant
fillip to the industry. Companies were also given greater leeway in their
operations with the easing up of restrictions like Monopolies and Restrictive
Trade Practices (MRTP), thereby allowing capacity expansions, to achieve
improved economies of scale.
The entry of Suzuki in 1983-84, through a joint venture with the GoI to form
Maruti Udyoug Limited (MUL) and the launching of Maruti 800 brought about a
significant technological shift in the industry. Though the shift in terms of
technology was only a one-time infusion by Suzuki, still the gap between MUL
and the others was large enough to provide a significant edge to MUL. With
strong backing from the then Prime Minister’s son, Sanjay Gandhi, various
approvals came easily and with excise and sales tax advantages, the launch of
the ‘People’s Car’ was a phenomenal success.

The critical success factor for the company was not only the access to product
and technology from Suzuki but also the efficient management practices and
work culture which it inherited from the foreign partner. The entry of MUL also
saw the pressure on auto-component manufacturers increase (in terms of
quality and cost) as the JV seeked to incorporate new vendor management and
development techniques in the Indian environment for the first time. In addition,
the low price and modern sleek design made the car a much sought after
vehicle in the supply-constrained market. Maruti 800, since then has been an
unparalleled success in terms of exploding the passenger car market and the
spiralling sales volume and market share that it has notched up.

The company launched a higher end luxury model named Maruti 1000 in 1991.
This was the first ever attempt at segmenting the Indian automobile market by
any car manufacturer. Following the identification of a higher segment, the
Indian giant Telco made a foray into the passenger car market with its Tata
Sierra and Tata Estate models, positioning both at the higher segment. This
phase also saw a significant increase in the number of options available as it
witnessed introduction of new models by all the existing players in the country.

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The Competitive Phase : Post 1993
The recession in the automobile industry in the early 90s due to various factors
like increase in petrol and diesel prices, high interest rates, high excise duty and
depreciation of the rupee saw a significant fall in demand with sales coming
down by 37%. The delicensing of the industry in 1993 and liberalising of the
foreign investment norms saw the entry of a large number of international
players which transformed the dynamics of the industry completely.
The Korean auto major, Daewoo was one of the first to enter the industry in
1995 as an outcome of the liberalisation moves. Peugeot, Ford, General Motors
and Mercedes Benz were quick to follow with almost all of them taking the joint
venture option to set up operations in India. From a supply driven industry, the
passenger cars segment of the industry increasingly saw innovative technology
and marketing skills emerge as formidable dimensions of competition in the new
environment. The easing of restrictions and simplification of procedures saw
sales increase at a rate of 25 to 35 percent per annum thereafter. The several
joint ventures signed between foreign majors and domestic players buoyed up
the demand on the one hand and increased competition levels on the other. The
premium segment of the car market which was virtually non-existent till the
early 90s witnessed crowding by some of the new players and changed
significantly.
Population Urban Population Cars(95-
(1991) (1991) 96)
Andhra Pradesh 665 179 128653
Arunachal Pradesh 9 1 1168
Assam 224 25 38943
Bihar 864 113 86265
Delhi 94 85 633852
Goa 12 5 27047
Gujarat 413 142 252724
Haryana 165 40 43815
HP 52 4 10394
J&K 77 18 24050
Karnataka 450 139 204303
Kerala 291 76 171801
MP 662 153 92013
Mah. 789 305 413639
Manipur 18 5 3271
Megh. 18 3 7513
Mizo. 7 3 1414
Naga. 12 2 20533
Orissa 317 42 28621

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Pun. 203 59 93278
Raj. 440 100 79975
Sikkim 4 0.37 519
TN 559 190 296088
Trip. 28 4 3587
UP 1391 276 131848
WB 681 187 282526
A&N Islands 3 0.7 588
Chandigarh 6.4 6 40873
D&N Haveli 1.4 0.1 2301
Daman & Diu 1 0.5 4317
Laksh. 0.5 0.3 6
Pond. 8 5.1 13528
Source : Statistical Abstract India, 1997
Table 4 : State-wise Population and Motor Vehicles

International Automotive Industry and Worldwide Trends


Traditionally, the international auto industry has been dominated by US,
Western Europe and Japan with the US boasting of the largest car markets in the
world. The two largest car manufacturers in the US are General Motors and Ford
with 36 per cent and 23 per cent of the market share respectively.

The most significant trend in the international auto industry is the movement of
manufacturing away from traditional locations like Europe and North America to
the Asia-Pacific. This is primarily driven by low rates of growth (1%) in demand
in the large and mature markets of Europe and North America, as compared to
high growth rates (upto 8%) expected in the emerging economies though with
smaller volumes. The planned production capacity is expected to increase
significantly in the next few years, with major auto makers ramping up
production in the region in the coming years.

Another important trend is the increasing importance of product quality as a


differentiating variable, with companies using superiority in quality as a
significant repeat purchase and retaining factor. The rise in average age of
vehicles as well as delay in purchases of new vehicles is a significant pointer in
this direction

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On the sales and distribution front, major changes include a trend towards fewer
but larger dealerships aimed at high unit volume. The automotive retail industry
is increasingly witness to the superstore phenomena. A parallel development in
the auto retail sector is the use of information technology to let prospective
customers configure their product by trying out variations of accessories, colours
etc. Car booking over the internet is also another significant development.

New product development times are getting compressed as concepts such as


‘simultaneous engineering’ gain prominence and acceptance. Lead time
from ‘first sketch’ to production of the model is down from five years to three
years, as number of testing iterations go down and quality gets a further boost.
Customers have a wider basket of choices as far as number of designs are
concerned and quality increasingly encompasses not just the degree of
perfection or durability but also features such as styling, performance and safety
features.

Besides the above, the paradigm that seems set to redefine manufacturing and
supply chain co-ordination in the auto industry is the concept of lean
production. With increasing product variety and features catering to changing
customer demand and preferences, running smaller batch sizes and adoption of
leaner production methods, will hold the key to manufacturing competitiveness.
If this is adopted by companies in letter and spirit, significant advantages of
reduced inventory, lower rework and increased responsiveness to customers can
be derived.

The Indian Passenger Car Industry in 1998


Following the liberalisation of the industry in 1993, the passenger car industry
led the industrial boom in the subsequent years. The industry saw growth rates
of between 20 to 40% in the next three years. MUL, the dominant player in the
industry (with over 80% market share) is facing a wave of competition with the
entry of a large number of foreign auto majors. Success factors in the industry
are witnessing a significant change with focus encompassing production, the
supply chain and also sales and distribution.

8
The year 1998 saw a significant downturn in the growth rates due to a general
slowdown in the economy. Car sales fell short of expectations with most auto
majors having overestimated the size, growth and competitive intensity of the
passenger car market.
Table 5 - Passenger Car Sales (Post-liberalisation)
Year Car Sales
1993-94 207658
1994-95 264468
1995-96 348146
1996-97 407539
1997-98 (8 months) 266417
Source : “Taking on Maruti ,“ Express Investment Week (January 19-25, 1998)

Segmentation of the Passenger Car Market


Price, the most significant factor contributing to the purchase decision of a car
buyer, can be used as an effective segmentation variable for analysing the
passenger car market. (The other significant variables like technology, comfort,
usage, status associated with brand and benefits the car offers, have a positive
correlation with the price.)

The passenger car market can be broken into three broad segments
• The small-car segment - priced below Rs 4 lacs
• The premium segment - priced between Rs 4 lacs and Rs 8.0 lacs
• The luxury car segment - priced above Rs 8 lacs
Clas Urba Rura Tota
s n l l
85- 87- 89- 92- 85- 87- 89- 92- 85- 87- 89- 92-
86 88 90 93 86 88 90 93 86 88 90 93
L 42.1 40.3 37.1 38.4 73.6 68.8 67.3 65.5 65.2 61.0 58.8 58.5
LM 35.8 35.5 34.8 33.0 21.4 25.8 23.9 22.6 25.2 28.4 26.9 25.4
M 15.2 16.2 17.9 16.1 4.0 4.3 7.1 7.2 6.9 7.6 10.1 10.4
UM 3.9 5.0 6.5 7.6 0.7 0.7 1.2 2.3 1.5 1.9 2.7 3.7
U 3.1 3.1 3.8 4.9 0.3 0.4 0.5 1.4 1.1 1.1 1.4 2.3
Source : Markets for Consumer Products in India by SL Rao and I Natarajan
(NCAER)
Table 6 : Percentage distribution of households by income

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1985-86 1987-88 1989-90 1992-93
L Lower <=9000 <=11000 <=12500 <=18000
LM Lower Middle 9001-18000 11001- 12501- 18001-
22000 25000 36000
M Middle 18001- 22001- 25001- 36001-
30000 36000 40000 56000
UM Upper Middle 30001- 36001- 40001- 56001-
42000 50000 56000 78000
U Upper >42000 >50000 >56000 >78000
Source : Markets for Consumer Products in India by SL Rao and I Natarajan
(NCAER)
Table 7 : Basis for classification of households

The small car segment


This segment has been dominated by Maruti Udyog Limited (MUL) for over 14
years now, is also the fastest growing segment in the Indian passenger car
market. Of the other existing competitors in this segment, PAL has now moved
out of the segment, being unable to generate sales for it’s technologically
outdated product. HM is surviving with Ambassador primarily because of the
Government market where it is still a preferred vehicle. This segment which
accounts for over 80% of the total passenger car market is attracting a host of
new entrants. Price is acting as a significant entry barrier into this segment, with
new entrants being forced to benchmark against MUL, which has a depreciated,
high volume plant. In addition, high indigenous content (85% within 5 years of
going on-stream) adds to the cost advantage of MUL.
Sales
(Volume)
Model 1995-96 1996-97 1997-98
Maruti 800 141775 187223 181000
Maruti Omni 39470 46933 50672
Maruti Zen 21965 43205 74242
Ambassador 24627 24727 19855
Fiat Uno 1370 7482
Premier Padmini 19163 8716 4604
Small Car Sales Total 247000 312174 337855
Source : VANSCOM Database
Table 8 - Competing for the small car market share

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Potential Threats to Maruti 800
i. Matiz from Daewoo - launched in November 1998, is the earliest of the
challengers to Maruti 800. Priced at about Rs 3.5, Matiz differentiates
itself on size (spacious interiors), a technologically superior engine and
consequently fewer servicing problems. Fuel efficiency and engine power
and better product features are other differentiating factors that Matiz is
selling itself on.
ii. Santro from Hyundai - With a price of around Rs 3.0 lacs, Hyundai competes
as a technologically superior product as in the case of Matiz and better
product features. The company offers ‘value for money’ to the
increasingly discerning Indian car consumer.
iii. Indica from TELCO - Matches Maruti 800 on price (well almost) and the Zen
on power and performance. The only ‘indigenously manufactured car’
from the Indian automobile major is the domestic industry’s response to
the growing car market. With strong presence in other automobile
segments, TELCO plans to leverage it’s existing marketing infrastructure
to support Indica.
iv. Corsa from GM - likely to be launched in 1999, might be positioned at below
Rs 2.5 lacs to undercut Maruti 800 and Indica or just below Rs 3.5 lacs to
undercut Zen and other models in that range
v. Palio from Fiat - is again a ‘state-of-the-art’ offering which plans to repeat
it’s overseas success in India
vi. Fiesta from Mahindra Ford - with a jazzy, bubble shaped look, Ford plans to
replicate it’s success in US with a launch in 1999 in India.
Model Company Engine Power Max. Efficiency Price
cc bhp speed (Fuel)km Rs lacs
kmph /ltr
Maruti 800 MUL 796 39.5 140 14 1.85
Zen VX MUL 993 50 150 18 4
Matiz Daewoo 796 52 130 25 3.5
Santro Hyundai 999 55 140 17 3
Indica TELCO 1400 54 120 11 2.5
Corsa GM 1000-1600 NA 145 NA NA
Palio Fiat 1242 NA 110 NA NA
Fiesta Ford 1000-1800 NA 160 NA NA
Source : “War of the Wheels,“ India Today (October 19, 1998)

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Table 9 - How They Compare

The Premium Segment


This segment which is so defined by current Indian affordability standards, is
really the ‘Bread and Butter’ segment as far as worldwide experience goes, with
the models introduced in the segment. Almost all the new entrants have chosen
this segment for their entry into India. One of the primary reasons for the choice
of this segment is the inability to compete with MUL in the small car segment,
given MUL’s cost and incumbency advantages. In addition, most of the mid-size
models introduced in this segment are tried-and tested products for these auto
majors. But growth in this segment has been far below expectations for most
players because of overall economic slowdown in 1997-98 and overcrowding of
the segment, with too many players chasing too little volumes. In addition,
these auto majors also seem to have underestimated the price sensitivity of
Indian consumers who have shown their preference for the low priced small-car
segment.

Model Sales Sales Sales


Volume Volume Volume
1995-96 1996-97 1997-98
Esteem 39300 21000 17968
Cielo 9355 16866 10109
Honda City 1220
Opel Astra 7507 7548
Ford Escort 3603 6451
Tata Sierra & Estate 4102 6415 1749
Contessa 1199 2355 1155
Peugeot 599 2614 1292
Premium Segment 54555 60360 47492
Sales
Source : VANSCOM Database
Table 10 - Competing for the Premium segment

Model Sales Volume Sales Volume


(Ist Qtr. FY 1997-98) (Ist Qtr. FY 1998-99)
Esteem 4510 4575

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Cielo 2703 2529
Honda City 2720
Opel Astra 2546 982
Ford Escort 2086 884
Others 1128 490
Total 12973 12180
Source : VANSCOM Database
Table 11 - Falling Sales (Premium Segment)
The luxury car segment
This segment is currently occupied by Mercedes Benz which entered India
through a JV with TELCO. The product which has been positioned as a more as a
status symbol than as a utility product, has found volumes difficult to come by
from domestic sales. The total sales in 1996-97 were 2300 of which 1700 were
in the form of exports as compared to domestic sales of 1700 and export sales
of 3 in 1995-96. The company has since then decided to look at exports to boost
sales.

Entry First car Small Car Premium Luxury


Strategy introducti (< Rs 4 (Rs 4lacs- (> Rs
for MNC on lacs) 10.0 lacs) 10.0
lacs)
Daewoo JV (DCM) 1995 Matiz Cielo
Fiat JV (PAL), 1997 Palio* Uno,
Independent Palio*,
Siena*
GM India JV (HM) 1996 Opel Opel Astra
Corsa*
HM NA NA Ambassad Contessa
or
Honda JV (SIEL) 1996 City
Hyundai Independent 1998 Santro Santro,
Accent*
Mahindra- JV (M&M) 1996 Fiesta* Escort,
Ford Fiesta*
MUL JV (GoI) 1984 Maruti 800, Esteem,
Omni Cervo C*,

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Zen Wagon R*
Mercedes- JV (TELCO) 1996 E200
Benz series
Mitsubishi JV (HM) 1998 Lancer
PAL NA NA Padmini 118NE
PAL- JV (PAL) 1996 Peugeot
Peugeot 309
TELCO NA NA Indica Estate,
Sierra,
Safari
Source : VANSCOM Database
*Indicates Potential Entrants
Table 12 - Current Players in Various Segments

Structural Determinants of the Passenger Car Industry


Buyers
The passenger car in India is still not perceived as a need-based product, the
price of the car as a proportion of the income is still quite high, therefore the
buying process is quite ‘involved’, with the buyer going through a complex
decision process wherein he tends to evaluate all the available products/ choices
that he can possibly afford. Apart from being a substitute for the increasingly
crowded and user-unfriendly public transport systems in most cities and towns,
the car is seen as a status symbol for an average image-conscious middle class
person in India. It is seen to announce his social and economic success and
herald ‘his arrival’ as an upwardly mobile person, as he follows the typical
trajectory from owning a scooter to a ‘small car’ to multiple cars or a larger
premium end car.

Rising incomes of the middle class and changing attitudes and lifestyles in terms
of willingness to spend for comforts are critical factors influencing the purchase
of passenger cars. Strong influencing factors in the buying process include price,
established brand name, after sales service, availability of spares, operating
costs, perception of technology and quality associated with the product (and the
company).

More often than not, the purchase of the car is supported by loans and financial
schemes initiated both by car manufacturers as well as third party financial
service providers which are easily available now. The increasingly creative and

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attractive finance schemes for cars have given a major boost to the car sales as
they provide a viable alternative to personal savings for purchase of a car. The
car financing market increased from a turnover of Rs 7,000 million to Rs 35,000
million1. Besides the jump in quantum of financing, the car financing market has
also seen a significant degree of sophistication and value addition in terms of
services provided and the flexibility offered to the prospective buyer. Examples
of this kind of value addition and flexibility in financing schemes include car
swaps, financing for second-hand cars and lowering of EMIs 2 and have
contributed to hastening the car buyer’s decision process.

Notwithstanding the above factors which are common and applicable to all the
segments of the car market, the bargaining power of buyers varies across
segments, depending on which segment one is talking about.

i. The small car segment which was dominated by (and virtually restricted
to) MUL, thus far allowed restricted bargaining power to the buyer. The
only choice that the customer had was in terms of choosing the colour
and probably some accessories. This scenario changed in 1998 with the
entry of new players in this segment. As product variety increased and
the key players in the market are now trying to outdo each other by
offering innovative features and financial schemes supporting sales of
their vehicles.

Short term factors having a strong influence on sales include price,


structuring of financial schemes and advertising success in terms of
projecting ‘value for money’. Long term factors supporting strong growth
in this segment would include technological superiority and upgradation
and width and depth of after sales service and support.

ii. In the newly created premium segment, there is a large basket of choices
with limited perceived and actual differentiation amongst the available

1
The Quantum Stock Market Year Book, 1998, p.41
2
Equated monthly instalment

15
products. Price and technological superiority is going to play a significant
role in determining the structure of this segment. With limited possibility
of strong growth in this segment, the consumer is likely to look for price-
performance parity besides looks and style. Technology and service
quality could become long term differentiators.

iii. The luxury segment has a lot of snob value associated with it; a typical
buyer is therefore not driven by a strong need-based influence but instead
looks at the purchase more as a social status symbol. Price not being such a
critical factor for this segment, the buyer typically looks at the ‘exclusivity’
associated with either the product (or the car company) when making his
decision.

Role of Suppliers/ Vendors


Prior to the early 80s the high level of government intervention in the Indian car
market served to keep demand low and unpredictable as policies shifted over
time. This meant that the car manufacturers tended to make low-risk
incremental investments. The ‘protectionist’ environment in the automobile
industry hit the auto components industry just as badly, in terms of
development of technological capabilities and manufacturing practices. Auto-
ancillaries had little incentive to invest in either capacity or technology, which
led to a supply constraint for the car manufacturers, forcing them to
manufacture critical components in-house. Dependence on external suppliers
was limited, with only non-critical components being outsourced. This led to the
bargaining power of suppliers being on the lower side.

With the entry of MUL in the mid 80s, the introduction of Japanese management
techniques brought about a strong focus on incoming quality. With vendor
capability development becoming a focus area, outsourcing as a paradigm came
into being in the industry. Along with this came stronger manufacturer-supplier
relationships, a high degree of emphasis on quality and delivery performance

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etc which have since altered the dynamics in the auto-component industry. The
auto-component manufacturers have used these opportunites to develop their
capabilities so as to enable them to compete at global levels. Sundaram
Fasteners, an auto component manufacturer based in South India supplies
radiator caps to General Motors (GM) which goes to highlight the big strides that
some of the players in the auto-ancillary industry have taken in terms of
improving their quality and cost levels.

Notwithstanding isolated cases of excellence in terms of manufacturing


capabilities, the domestic auto-ancillary as a whole is not seen as a reliable and
dependable source for supply by most new MNC entrants. The pace of
development of the ancillary industries however, is likely to quicken with the
entry of MNCs into the automobile market. Most of these MNCs have shown a
preference for their worldwide suppliers in terms of getting them to set up
manufacturing facilities in India. With the prospective entry of global auto
component manufacturers like Delphi, the passenger car industry is likely to
increase the percentage of components being outsourced by the auto industry
as a whole. As a result of this, major improvements in quality and technology of
the auto-components are likely.

New Entrants
The passenger car manufacturing industry has high entry costs since the capital
requirements are on the higher side. Going by the investments between Rs
2000-3000 crores that have been made by some of the new entrants for
capacities ranging between 70,000 to 1.2 lac cars per annum. Access to
technology is also a critical factor in the industry, thereby making it virtually
impossible for a local player with no presence in the automobile industry to
make investments in it from scratch.

The industry also needs a minimum breakeven volume of sales for


manufacturing in a new location/ country to be viable. For e.g Hyundai’s 1.2 lacs
cars an year needs a capacity utilisation of at least 50% for breaking even. Most
of the new entrants into the premium segment are a case in the point with

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almost all of them struggling to recover their investments, given the sluggish
growth in the segment. Mercedes-Benz in the luxury car segment is looking at
exports to make local production viable in terms of economies of scale.

On the marketing and distribution front, access to distribution channels becomes


a significant factor in a geographically widespread country like India.
Incumbents like MUL with existing marketing infrastructure start with a great
advantage in an industry where marketing and distribution strengths are likely
to emerge as significant leveraging factors. Third party logistics (which is an
accepted paradigm in the auto industries in the more developed economies)
might emerge as an alternative mechanism for the new entrants to bridge this
gap. TVS for example is looking at managing the spare parts distribution for
Honda. This kind of an arrangement might slowly increase to encompass not just
spare parts for servicing but also automobiles and allied services like
transportation, warehousing etc.

The brand equity associated with a player is an important factor, since a car
purchase decision is a highly involved one and the buyer typically takes into
account most tangible and intangible factors associated with the product. Most
MNC manufacturers come in with an advantage as far as this factor goes, but
‘educating’ the Indian consumer will still take some doing thereby making
established brand equity a significant entry barrier. What might determine the
sustenance and thriving of a joint venture, would really be the complementary
nature of strengths and capabilities that the two partners bring to the table. The
long-run viability of the Mahindra-Ford JV (established in 1995-96) for example,
centers on Mahindra providing the marketing muscle while Ford brings its
technological strengths to the venture. It remains to be seen how well the two
players are able to leverage their existing capabilities to build a symbiotic
relationship.

Another important factor that is likely to play a key role in the Indian car market
is the introduction of diesel versions of the car models. With diesel as a fuel
being subsidised (The diesel-petrol price ratio has historically stood at 1: 3), the

18
diesel versions stand to hold a significant competitive advantage as compared
to the petrol driven cars. With operating costs likely to be lower, consumers are
likely to prefer the diesel cars, which may well see the ‘dieselisation’ of the
Indian car market.

Substitutes
The substitutes that may potentially effect the passenger car industry are two
wheelers, utility vehicles and public transport.

Two wheelers are a significant threat to the consumers of the ‘small car
segment’, since a lot of them could be first-time buyers. Designing of attractive
financing schemes could influence the buyer’s decision making process.

Utility vehicles like jeeps are looked at as rough terrain vehicles in India. Also,
utility vehicles are yet to emerge as an acceptable substitute for women drivers
in India. The pressure from utility vehicles therefore is not very significant,
except in the rural and other specific niche markets.

The two critical factors determining the significance of public transport as an


effective substitute are availability of adequate infrastructure and levels of
traffic congestion. Most cities in India (except probably Mumbai) offer poor
quality substitutes in terms of public transport. However, the increasing levels of
traffic congestion and potential development of urban transport infrastructure
could make public transport a viable alternative in the medium to long term.

Intensity of Rivalry/ Competition


The passenger car industry in general is seeing an increasingly intense form of
rivalry amongst the competing firms. Strong backing from the overseas parent
firms in terms of access to technology and financial muscle, should see the
industry proliferated with a host of product introductions in the next few years.
In addition, the saturation in the home markets for most of these MNCs has

19
made it imperative for these firms to find high-potential growth areas for their
products.

The small car segment is yet to heat up, but if all the new launches are able to
match the price offered by MUL for its small cars, the small car segment should
see some cutthroat competition from the manufacturer’s perspective and a
bonanza from the consumer’s perspective. Competitive moves by new entrants
in this segment are likely to be centred around offering of superior product
features and innovative technology at a reasonable price.

Lack of differentiation and slow growth in the much sought after premium
segment have made things difficult for a lot of firms. However, long term
potential in the Indian market combined with the possibility of using India as a
low cost manufacturing base is probably making these MNCs use the parent
firm’s backing to sustain it’s operations in India

Maruti Udyog Limited


A Revolution in the Indian Car market
Maruti Udyog Limited was set up as a 74:26 Joint Venture between the
Government of India and Suzuki Motor Corporation in 1983-84 to revive the
Indian automobile industry which had been beset with outdated technology and
unimaginative product development. GoI’s direct interest in the JV gave a huge
fillip to the auto industry in general and the passenger car segment in particular.
The plant set up at Gurgaon, near Delhi had an initial investment in 1983 of Rs
260 crore.

Maruti 800 was launched amidst much fanfare as the ‘common man’s car’. The
various excise concessions and other benefits handed out to the car helped the
company price it at Rs. 0.53 lac which was significantly lower than the products
offered by HM and PAL.
The plant initially produced three models, the 800cc car, the 800 cc van and the
Gypsy utility vehicle with production increasing from 40,000 in 1984 to upwards
of 3 lac vehicles in 1997-98. The sales showed a consistently strong growth with

20
the turnover increasing from Rs 120 crores in 1983 to Rs 7916 crores in 1997-98
and PAT increasing from Rs 3 crore in 1983 to Rs 501 crores. Even a four fold
increase in the price of Maruti 800 to almost Rs 2.0 lacs by 1999, has not
prevented the particular model from becoming one of the most ubiquitous sights
on the Indian road. This unparalleled success has seen MUL capture a market
share of close to 82% in 1998.
1991- 1992- 1993- 1994- 1996-
In
c Sales turnover 1913.7 2150.0 2796.6 4152.4 7666.9
5 2
Other income 94.99 74.41 129.67 277.25 293.91
Stock adjustments -22.98 20.01 -20.78 25.52 -63.93
Total Income 1985.7 2244.4 2905.4 4455.1 7896.9
1 7 9 7
E
x Raw Materials 1036.9 1176.4 1618.0 2419.2 4218.5
9 5 8 6
Power & Fuel 6.91 9.36 13.57 17.38 31.21
Employee cost 30.43 40.02 54.4 69.66 117.2
Other Mfg. expenses 25.38 84.48 38.12 47.05 76.94
Excise 590.43 651.32 703.96 1058 1888.7
2
Selling & 105.36 96.34 104.57 154.41 325.31
Administrative
expenses
Miscellaneous 32.91 38.35 71.94 91.81 173.75
Pre-operative 0 0 0 0 0
expenses
Operating profit 157.3 148.15 300.85 597.6 1065.2
7
Interest 92.85 75.13 91.55 177.55 76.93
Gross Profit 64.45 73.02 209.3 420.05 988.34
Depreciation 28.66 36.41 73.01 122.45 180.77
PBT 35.79 36.61 136.29 297.6 807.57
Taxes 6.72 0.03 50.17 50 300.15
PAT 29.07 36.58 86.12 247.6 507.42
Source : Capital Line Ole Database
All figures in Rs Crores
Table 13 : Profit & Loss Statements (MUL)

21
1991- 1992- 1993- 1994- 1996-
92 93 94 95 97
Share Capital 110.24 132.29 132.29 132.29 132.29
Reserves 151.68 219.13 292.10 519.87 1402.63
Total shareholder funds 261.92 351.42 424.39 652.16 1534.9
2

Secured Loans 124.95 89.53 22.13 13.89 2.50


Unsecured Loans 317.22 437.44 413.61 410.37 82.73
Total debt 442.17 526.97 435.74 424.26 85.23

Total Liabilities 704.09 878.39 860.13 1076.4 1620.1


2 5

Gross Block 412.61 632.50 958.08 1163.83 1647.00


Less : Accum. Depreciation 127.34 162.98 235.37 356.82 686.00
Net Block 285.27 469.52 722.71 807.01 961.00
Capital WIP 57.90 51.26 107.41 47.46 78.83

Investments 41.54 11.64 114.08 846.85 434.55


Current Assets, Loans &
Advances
Inventories 262.34 325.74 344.30 571.49 598.52
Sundry Debtors 53.18 32.76 48.54 86.63 230.72
Cash & Bank Balances 20.41 10.44 100.84 90.11 96.79
Loans & Advances 287.16 338.19 658.90 1121.10 531.77
Less : Current Liabilities
& Provisions
Current Liabilities 303.72 361.02 1233.9 2487.6 1267.8
0 4 9
Provisions 7.43 8.60 13.31 20.02 62.66

Net Current Assets 311.94 337.51 -94.63 - 127.25


638.33
Misc. Exp not w/o 7.44 8.46 10.56 13.43 18.52
Total Assets 704.09 878.39 860.13 1076.4 1620.1
2 5
Book Value 237.59 265.64 320.80 492.98 1160.27
Contingent Liabilities 149.68 396.99 380.14 229.00 511.62
Source : Capital Line Ole Database
All figures in Rs Crores
Table 14 : Balance Sheet (MUL)

Critical Success Factors

22
The phenomenal success of the car can be attributed to the significant
advantages that it had over Ambassador and Fiat that were the cars available at
that time in the Indian market.
Maruti offered a sleek, contemporary design and a light body which not only
made manoeuverability on Indian roads easy but also helped it gain popularity
with women who found it easy to drive as compared to the other models
available. Technologically, Maruti was a generation ahead with a mileage
offering of close to 20km/ litre as compared to mileages of around 10 km/litre
for the others. The only downside to the car was that the light bodyweight made
it easily susceptible to accidents and mishaps as the predominantly plastic
structure offered limited protection to the passengers.

Products and their Performance


Maruti 800
The most successful and largest selling model in the industry, Maruti 800, was
introduced in 1984-85. Priced at Rs 53,000, and offering superior technology, it
was positioned as the ‘people’s car meant for the average middle class family.
Today it commands a staggering 65 per cent of the total automobile sales. It is
the company’s cash cow and earns approximately half of the company’s
revenue.

Maruti Omni
Maruti Omni was also introduced in the mid 80’s as a multi-purpose vehicle. It
offered more space and combined the features of utility vehicles like Jeeps with
the aesthetic appeal of a passenger car. Safety considerations (limited
protection to driver and front seat) and lack of clear positioning has stifled the
sales for this product even though it continues to be produced by the company.
Recent revamp of the model in 1996-97 with more seating space has seen
demand pick up a bit but sales still remain disappointing.

Maruti Gypsy
Gypsy was introduced as a utility vehicle in the mid 80’s. MUL’s focus being
mainly on the car markets, limited attention has been given to this product.

23
Superiority in terms of ‘pick-up’ and speed amongst the utility vehicles has seen
it gain popularity amongst its major customers - the police and armed forces. It
has about a 7 per cent market share in the utility vehicle segment where it faces
stiff competition from the market leader Mahindra & Mahindra. It is exported to
Latin American countries as a farm vehicle. Other opportunities in niche markets
do exist which remain as yet untapped.

Maruti Zen
Suzuki’s international model Alto was named by Maruti as Zen for the Indian
market. This was introduced in 1993, in what was then the premium segment
and proved to be a success. Positioned as a product with superior technology, it
suffered from size comparison with Maruti 800 as higher price for similar looks
were not acceptable to the image-conscious car buyer. It was largely targeted at
the export market in Europe and it is only now that the domestic sales are
picking up.

Maruti Esteem
Introduced in the early 90’s, this model proved to be a big hit in the Indian
market. Initially christened Maruti 1000 , the later models came to be known as
the Esteem. It was the first car introduced in what is today’s premium segment
of the car market. It was positioned as a superior alternative for the car buyer
who was upgrading from the small car segment and who demanded exclusivity.
It has attained market leadership in the premium segment, but of late, itÕs
market share has been declining due to entry of new players.

The high degree of confidence reposed by the consumers in passenger cars from
the MUL stable is reflected by the high market share that the company
commands. Notwithstanding the lack of competition, MUL vehicles are seen as
‘value-for-money’ and the best available in the respective price ranges3. The
small size and light weight of Maruti 800, while on the one hand makes it
convenient and comfortable to use in city conditions, but on the other, it makes
the vehicle vulnerable in the case of accidents.
3
This is likely to change with the increased competition in the small car and the
premium car segments

24
A strong, well developed vendor base assures quality inputs at best possible
prices. The high premium commanded by it’s products makes a significant
contribution to MULs working capital requirements.

Other Recent Competitive Moves by MUL


Introduction of new models
MUL is planning to introduce new models, including diesel versions of Zen,
Gypsy and Esteem. Suzuki Motor Corporation has developed a range of new
prototypes of 800 cc car specifically for the Indian market with four-valve engine
technology that could replace the existing 800 cc car. The new 800 cc car being
developed will be an eighth generation vehicle as compared to the existing
model, which is a third generation product.

Beefing up Dealer and Service Network


MUL has evolved a major action plan to focus on improving productivity levels
at the company's dealers and service centres. While emphasis would be on
quality of service rendered, equal emphasis would be on the speed of service. In
addition, the company has also decided to hike dealer commissions and bar its
dealers or their relatives from taking over dealerships of competing products.

Auto-finance Company
The 74:26 JV between Citicorp and MUL will finance purchase of new and
second-hand cars. Currently located in 23 cities, the venture's network is
expected to expand rapidly to cover the entire country and is expected to give a
fillip to it’s product sales.

Other marketing innovations


MUL has decided to set into motion, through its dealers, an exchange scheme
for swapping second-hand Maruti cars with new cars at substantially reduced
prices.

Rationalising of Vendor base and Cost Reduction - To increase it’s price


competitiveness, MUL has asked for a price reduction of 5%to 10% from most of

25
its vendors for the year 1998-99. The company has also decided to set up a
multi-tiered structure for its vendor network with the aim of reducing the
number of vendors from the existing 400 to 150 at tier-1 level. The move is
expected to cut down the company's transaction costs by reducing the
suppliers with which the company interacts with directly.

Setting up of a new gearbox plant


Technology from Suzuki is likely to used to set up a gearbox plant to meet MUL’s
requirements. The transfer of technology for making gearboxes is likely to take
place in two phases spread over a period of three years and is likely to bring
down costs further.

The Recent Controversy at MUL


The recent controversy between Suzuki Motor Corporation(SMC) and the GoI was
on the issue of the appointment of new MD with both parties wanting their own
candidates. While the government claimed that it was its turn to decide on the
appointment of the new MD as per their agreement, SMC remained firm on their
demand that the chosen candidate had to be acceptable to both the partners.
Other contentious issues between the partners included that of transferring of
the critical gear box technology to MUL, introduction of newer models,
expansion of the existing plant and dividend sharinng arrangements.

With liberalisation throwing up opportunities in the car market, the two partners
are seeking to play a more important role in the JV. While SMC would like to run
the company with the government functioning as the ‘sleeping partner’, the
government does not want to relinquish control of what it sees as one of India’s
most successful joint ventures. Though stand-off between the two partners has
been resolved, the tensions and antagonism are likely to influence the future
performance of the JV and its financing options.

Hindustan Motors
Pioneering The Indian Passenger Car Industry

26
Hindustan Motors was the first company in India to take up actual
manufacturing (as distinct from assembling) of the vital and more difficult parts
of a motor vehicle such as engine, gears and axles. The intense competition
from assemblers who had more profitable ventures through importing and
assembly the components, saw the company go through a tough time in terms
of sustaining itself in the initial years.

Subsequent to the 1953 regulatory changes and exit of the assemblers from the
industry, the company got some breathing space, which it put to ‘good use’ for
the next three decades by monopolising the car market with their Ambassador,
along with PAL’s Fiat, under the protective umbrella of the government. The
protection also saw the company stagnate in terms of failing to make
technological innovations in it’s product line. As a result of this, the company
now finds itself struggling to face up to the market with the entry of new players
equipped with contemporary technology.

1991- 1992- 1993- 1994- 1995- 1996-


92 93 94 95 96 97
In
c Sales turnover 582.39 693.63 878.83 986.09 1214.06 1253.34
Other income 35.41 13.31 10.56 12.04 5.29 6.18
Stock adjustments -11.54 11.23 -12.13 -3.36 0.32 33.09
Total Income 606.26 718.17 877.26 994.77 1219.6 1292.6
7 1
E
x Raw Materials 264.21 337.22 385.08 447.7 548.05 596.32
Power & Fuel 10.75 12.44 15.4 16.72 21.08 22.88
Employee cost 65.94 75.13 84.19 96.81 126.62 131.28
Other Mfg. 20.02 27.13 32.17 31.86 38.54 39.87
expenses
Excise 158.55 189.48 222.47 245.24 294.83 300.86
Selling & 23.93 20.11 23.42 27.7 40.44 46.92
Administrative
expenses
Miscellaneous 14.15 16.16 20.68 21.97 28.75 30
Pre-operative 0 0 0 0 0 0
expenses
Operating profit 48.71 40.5 93.85 106.77 121.36 124.48
Interest 50.84 56.17 55.74 54.06 49.16 55.69
Gross Profit -2.13 -15.67 38.11 52.71 72.2 68.79
Depreciation 16.07 14.83 20.48 21.89 21.16 24.34

27
PBT -18.2 -30.5 17.63 30.82 51.04 44.45
Taxes 0 0 0 0 0 6.2
PAT -18.2 -30.5 17.63 30.82 51.04 38.25
Source : Capital Line Ole Database
All figures in Rs Crores
Table 15 : Profit & Loss Statements (HM)

28
1991- 1992- 1993- 1994- 1995- 1996-
92 93 94 95 96 97
Share Capital 53.94 75.82 107.08 107.50 107.54 107.57
Reserves 55.88 38.75 68.45 98.84 138.76 165.72
Total shareholder funds 109.82 114.57 175.53 206.34 246.30 273.29

Secured Loans 322.25 342.61 320.11 267.45 280.34 322.19


Unsecured Loans 37.61 39.08 25.24 29.54 11.72 16.23
Total debt 359.86 381.69 345.35 296.99 292.06 338.42

Total Liabilities 469.68 496.26 520.88 503.33 538.36 611.71

Gross Block 316.67 371.53 428.31 462.15 489.22 505.53


Less : Accum. Depreciation 155.08 170.08 189.14 197.86 215.73 238.68
Net Block 161.59 201.45 239.17 264.29 273.49 266.85
Capital WIP 138.18 112.15 78.75 42.49 38.85 48.80

Investments 1.83 3.00 3.00 11.78 28.03 28.04


Current Assets, Loans &
Advances
Inventories 152.84 176.81 168.76 182.48 210.66 231.46
Sundry Debtors 115.56 108.44 117.25 109.35 136.47 137.89
Cash & Bank Balances 15.89 20.30 27.73 34.10 29.67 42.49
Loans & Advances 22.60 27.12 36.49 53.76 38.27 50.55
Less : Current Liabilities &
Provisions
Current Liabilities 143.80 160.28 157.10 198.96 212.44 181.61
Provisions 1.01 0.71 0.71 1.60 11.71 17.86

Net Current Assets 162.08 171.68 192.42 179.13 190.92 262.92

Misc. Exp not w/o 6.00 7.98 7.54 5.64 7.07 5.10

Total Assets 469.68 496.26 520.88 503.33 538.36 611.71

Book Value 15.33 11.61 13.97 16.84 20.60 23.16


Contingent Liabilities 48.03 45.17 44.90 59.97 39.01 27.26
Source : Capital Line Ole Database
All figures in Rs Crores
Table 16 : Balance Sheet (HM)

The downswing in the fortunes of HM’s passenger car product line is partially
offset by the other automobile products in its portfolios. With interests (or
prospective interests) in the areas of commercial vehicles, multi-utility vehicles,

29
earth moving equipment and power products, the company has a combined
turnover of approximately Rs 1300 crores with a net profit of Rs 39 crores.

Products and Performance


Ambassador
The ‘venerable’ Ambassador has been present on the Indian roads since the 50s.
Its sturdy body, with a roomy interior still has a lot of takers in the government
and the taxi operators segment. The car has also a ‘vintage car’ value in
countries like UK where the company has found buyers for the product. HM had
tried to arrest the decline in it’s market share by upgrading the engine in 1993
but it is still hard pressed to survive in the ‘new’ market.

Contessa
One of the few products in the premium segment in the pre-liberalisation era,
Contessa has found it hard to maintain it’s sales after 1993.

Lancer
Lancer is a family sedan being launched through a JV with Mitsubishi of Japan.
and is aimed at the premium segment. The model boasts of contemporary
technological features and the company plans are to launch both petrol and
diesel variants.

HM has been exploiting the higher carrying capacity and diesel versions of the
models with its target consumer group primarily being the government and taxi
operators segments.

Recent Competitive moves by Hindustan Motors


Launch of new models/ variants
Apart from the launch of Lancer in the premium segment, HM is also planning to
invest upto Rs100 crore to upgrade Ambassador and Contessa. The company is
planning to upgrade Ambassador's Isuzu diesel engine from 38HP to 44 HP.
Besides offering a Compressed Natural Gas option for its Ambassador model, it
is also planning to give the model a facelift by modifying the interiors by fitting

30
injection-moulded dash boards and modern upholstery, besides increasing the
boot space of the car. In addition, a multipurpose vehicle specifically designed
for rural areas, tough terrains and bumpy roads is also slated for launch.

Separation of Dealer Lines


HM is planning to position its products under three categories and market them
through three different channels. The Blue Line dealer network will sell
Ambassadors and Contessas across the country. This line currently has all its
existing 90 dealers in its fold. The Red Line, borrowed from the red colour
theme of the logo of its Japanese partner Mitsubishi Motors, will exclusively sell
the Mitsubishi Lancer and thereafter other Mitsubishi models. The company has
set up 35 dealerships for this purpose in major cities and urban centres. The
Green Line network will market the rural and multi-purpose vehicles, launched
in July 1998.

Daewoo Motors India Limited


Adding a ‘NEW GEAR’ to the Indian passenger car industry
Daewoo Motors India Limited (DMIL)was incorporated in 1994, as a joint venture
between DCM of India and Daewoo Corporation, the South Korean automobile
giant. Subsequently the equity holding of the DCM group has been reduced and
Daewoo now has effective control of the company. The current Indian operations
of the company include manufacture and sales of Cielo in the premium segment
of the industry. The launch aimed at capitalising on the sparsely populated
premium segment was slotted to compete against Maruti Esteem. The slow
growth in the segment combined with intense competition from other new
entrants however, has seen the capacity of the plant (72000 cars per annum)
remaining underutilised. Daewoo had to resort to the drastic measure of lopping
off Rs.1.3 lakh from the sticker price of its Cielo, to increase sales.
The company also has plans to enter the commercial vehicle segments (buses
and trucks) by the year 1999.
Products and Performance
Cielo

31
The first of the products to be launched after 1993 in the Indian market, it has
tried to differentiate itself from the existing players on technological superiority
and contemporary styling and designs. The recent price cut has made it more
competitive and has halped it to be positioned as an offering with ‘more value
for money’ than it’s rival Esteem. These moves are expected to boost sales in
the near future.
Matiz
The launch of it’s small car Matiz is likely to offer competition to Maruti by
creating a new segment between the Maruti 800cc and the Maruti Zen. The
796cc Matiz, whose specifications almost match those of the Zen was launched
in November and priced at Rs 3.5 lacs. Plans to produce the engine and
transmission for Matiz in India should help increase the indigenisation content
and lower the manufacturing costs. The company is planning to look at right
hand drive export markets like Africa, Australia and neighbouring Asian
countries.
Daewoo India has been trying to exploit its superior technological knowhow and
innovative marketing to attract the Indian customer.
1991- 1992- 1993- 1994- 1995- 1996-
92 93 94 95 96 97
In
c Sales turnover 92.79 87.06 106.78 132.78 598.34 944.47
Other income 7.29 8.72 10.77 17.41 55.85 18.91
Stock adjustments 0.38 -1.01 3.27 -0.06 39.3 146.84
Total Income 100.46 94.77 120.82 150.13 693.49 1110.2
2
E
x Raw Materials 68.15 65.33 84.11 113.07 391.31 634.56
Power & Fuel 0.59 0.66 0.81 0.81 4.91 6.76
Employee cost 3.7 3.88 4.79 6.21 14.69 30.48
Other Mfg. 1.54 1.44 2 2.6 21.41 27.51
expenses
Excise 7.66 5.38 6.45 7.03 138.88 278.43
Selling & Admin. 14.46 13.8 14.5 21.16 35.18 68.93
exp
Miscellaneous 3.43 2.7 3.29 5.28 15.47 41.36
Pre-operative exp. 0.41 0.48 0.41 12.71 12.5 33.45
Operating profit 1.34 2.06 5.28 6.68 84.14 55.64
Interest 10.88 13.52 14.7 13.36 27.03 39.44
Gross Profit -9.54 -11.46 -9.42 -6.68 57.11 16.2
Depreciation 2.4 2.44 2.44 2.32 7.42 12.77

32
PBT -11.94 -13.9 -11.86 -9 49.69 3.43
Taxes 0 0 0 0 0 0.21
PAT -11.94 -13.9 -11.86 -9 49.69 3.22
Source : Capital Line Ole Database All figures in Rs
Crores
Table 17 : Profit & Loss Statements (Daewoo)

33
1996- 1995- 1994- 1993- 1992- 1991-
97 96 95 94 93 92
Share Capital 511.18 91.84 91.84 45.00 30.00 15.00
Reserves 286.40 75.30 25.61 -37.18 -25.32 -11.41
Total shareholder funds 797.58 167.14 117.45 7.82 4.68 3.59
Secured Loans 1659.24 5.65 31.14 43.77 49.56 38.05
Unsecured Loans 141.91 121.62 350.19 26.50 27.89 25.67
Total debt 1801.1 127.27 381.33 70.27 77.45 63.72
5
Total Liabilities 2598.7 294.41 498.78 78.09 82.13 67.31
3
Gross Block 234.78 177.29 61.47 52.50 52.06 50.78
Less : Accum. Depreciation 42.14 28.97 21.36 18.04 16.19 13.88
Net Block 192.64 148.32 40.11 34.46 35.87 36.90
Capital WIP 2340.36 81.28 61.70 1.98 2.02 1.76
Investments 1.56 1.00 1.00 0.00 0.00 0.00
Current Assets, Loans &
Advances
Inventories 521.42 426.46 32.00 34.13 30.91 28.73
Sundry Debtors 218.13 45.31 22.72 27.93 32.85 32.69
Cash & Bank Balances 135.63 165.21 161.83 4.13 8.39 4.58
Loans & Advances 119.22 176.08 241.19 19.12 15.13 12.85
Less : Current Liabilities &
Provisions
Current Liabilities 950.89 793.95 69.71 44.73 43.90 50.79
Provisions 1.01 0.67 0.41 0.20 0.15 0.10
Net Current Assets 42.50 18.44 387.62 40.38 43.23 27.96
Misc. Exp not w/o 21.67 45.37 8.35 1.27 1.01 0.69
Total Assets 2598.7 294.41 498.78 78.09 82.13 67.31
3
Book Value 15.60 18.20 12.79 1.74 1.56 2.39
Contingent Liabilities 41.92 2.53 4.43 8.93 11.05 9.37
Source : Capital Line Ole Database All
figures in Rs Crores
Table 18 : Balance Sheet (Daewoo)

Recent Competitive moves by Daewoo India


Aggressive Pricing
As a response to the slow growth in overall sales in the premium segment,
Daewoo decided to slash off Rs 1.3 lacs from the sticker price of Cielo, in a bid to
increase sales and reduce inventory levels.

Direct Marketing

34
Daewoo has also decided to try out an innovative strategy by opting for direct
marketing of Matiz instead of taking the bookings route.

Plans for a Strategic Alliance with GM


Daewoo is exploring the possibility of cooperating with GM on a number of
business transactions including co-production and co-sales of cars.

Emerging Trends in the Environment and Likely Impact


Rising Fuel Prices
With fuel prices likely to go up, the buyer is likely to get increasingly conscious
of factors such as fuel efficiency in the short to medium term and vehicles
running on alternative fuels in the long term.

Stricter Emission Norms


Regulatory requirements on phasing out of polluting vehicles and consequent
demand for ‘cleaner‘ vehicles is likely to change the benchmarks in the Indian
industry with an impact on the choice of manufacturing technology.

Higher Safety Standards


Increasing consumer awareness and higher vehicle speed levels are likely to
become important factors. Investments in safety features like superior side
impact bars, child-proof locking, computer-designed crumple zones, fuel tank
location, air bags etc. are likely to push up the cost per unit of cars even as
safety features are used as differentiating factors.

Emerging Trends in the Market


Overcrowding in the premium segment
Investments in the premium segment by a large number of foreign players is
likely to result in sub-scale capacity utilisation at individual company level.
Intense competition and aggressive pricing combined with lower profitability
might lead to a shakeout in the Premium segment with some of the players
changing their target segment focus

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Blurring of segments and greater competition in the small car segment
New entrants into the small car segment are likely to try and offer more ‘value’
for money leading to blurring of old segments and creation of new segments/
sub-segments.

Innovative marketing and after-sales service


Concepts such as direct marketing and multi-franchise dealerships are likely to
be explored. On the repairs and service front, apart from revamped full-
functional workshops, companies are likely to look at mobile repair services as a
means of introducing personalised service to the customer.

Innovation in financing and leasing schemes


Old car swaps for new cars along with comprehensive financing options such as
an integration of a package of reasonable interest rates combined with pre-
payment facilities, differentiated leasing structures to suit customer
requirements and extension of warranties will probably help in setting new
benchmarks in the industry.

Aggressive Pricing
Apart from price-cuts (which have already been experimented with in the Small
car and Premium segment), schemes such as subsidies and discounts on
accessories are likely to be used to entice the customer.

Cross-subsidising
Multi-product car manufacturers could use higher margins in other segments/
sectors of the automobile industry to build market shares and establish
presence of their products.

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