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VOL. XXII NO. 6, July 1-15, 2012
Growing from the Suzuki to the boom
(Driving Down Memory Lane with S. Viswanathan)

When the car market was opened up to foreigners, there was a flood. Ford, Hyundai, Honda, raced into India with FDI money. Today, they are perceived as being more Indian than the good old sturdy Amabassador.

Sanjay Gandhi, once heir to the throne, may have been guilty on several scores. But he wasn’t guilty of lacking in vision. Thanks to him, the first major break came in the 1980s. He dreamt of a small car with high volumes. Enter Maruti. The dream did not make much progress. After his untimely death, Indira Gandhi entrusted the task to V. Krishnamurthy (VK).

In collaboration with Japanese Suzuki Motor Company, VK raced ahead in setting up production facilities for 100,000 800 cc small cars. Like E. Sridharan for Delhi Metro later, VK was given a carte blanche on liberal foreign exchange for imports and wide discretionary powers. VK, with his hand-picked team of brilliant managers, many from BHEL, delivered on the promise of releasing the 800 cc car by December 1983, under three years.

With it, India truly entered the era of contemporary automobile technology.

In an interview with VK in early 1994, I asked what gave him the confidence to market an additional 100,000 cars when the annual Indian car sales were just around 40,000. His reply was classic: “The Maruti 800 is priced Rs. 47,000. The car will be very low on maintenance. The owner can save at least Rs. 1000 per month on maintenance. Thus, in 48 months, he will save the price of a car and will go for a replacement!” Brave words, well said.

How true it proved to be! There was an unprecedented scramble when bookings were opened with a deposit of Rs. 10,000. 130,000 applicants deposited around Rs. 130 crore. The experience was repeated when the company opened bookings a second time for Maruti 800 and later for Maruti Omni. Each time the collection was a staggering Rs. 140 crore. The frenzy hit the roof when Maruti opened bookings for the Maruti 1000 cc cars: 250,000 applications each with a deposit of Rs. 25,000 aggregating to Rs. 625 crore!

True, many bookings were speculative, with banks offering the deposit monies at attractive rates of interest!

Finance managemnet at Maruti was of a top class. The company paid around 7 per cent on the deposits but lent it to public sector corporations at 15 per cent. S. Natarajan, then Director – Finance, Maruti, joked: “For several years in the beginning, the company made more money by financial engineering than on product sales!”

VK and the leaders from Japanese Suzuki transferred the Japanese work culture, production systems and productivity norms that helped in a Hanuman-like jump in automobile technology. The 1980s also witnessed the advent of the Japanese LCVs – Nissan, Toyota and Mazda and the European Eicher. These products also marked a big jump in technology. The Indian consumer started looking for better quality and service in automobiles.

* * *

The 1990s heralded liberalisation. After some initial hesitation, global leaders seized the opportunity to enter India with 100 per cent ownership. Except Tatas and the Mahindras today, the industry is dominated by the leading manufacturers of the world. I recall the reservations expressed by a foreign expert.

In 1995, I spent a few weeks looking at several manufacturing units in the US, including the Boeing plant at Seattle and Ford headquarters at Dearborn. At the Bank of Baroda office in New York I had an interesting discussion with Dr. Robert B. Hegeman, a senior economist advising the Bank. He expressed surprise over the plans of India to emerge as a significant producer of automobiles (that was the time Ford Motor Company announced its interest to set up a production facility in India and other global players too were thinking on similar lines).

Dr. Hegeman pointed to the low level of production in India and to the absence of a strong R&D. He was right: at that time: total prodcution of automobiles, including cars and commercial vehicles, was less than 0.25 million, while the US was consuming around 15 million cars annually.

But I pointed out to him the cost advantages which would make India extremely competitive: “Look at the factors of production: land and building costs in India are far lower than those in developed countries and capital equipment costs have become comparable after India liberalised and permitted imports even at zero duty on promise of export.” Prior to 1991, import duties were so hefty. Finance costs became comparable when foreign companies were permitted to make 100 per cent FDI with repatriation benefits. Most important was the low costs of labour. While in Europe these stood at 20-30 per cent of sales and in the USA 12 per cent of sales, it was a piddling 2 per cent in India.

Dr. Hegeman wouldn’t believe it. He said: “This looks like coffee expenses!” I reaffirmed that in the previous year Maruti spent around Rs. 800 million on employee costs on a turnover of around Rs. 42 billion.

After 2000, India witnessed a rapid growth of its automobile industry riding on the prosperity enjoyed by the middle class and on facile financing by banks and finance companies. Japanese, Korean, American and European car manufacturers set up shop in quick time and expanded volumes. Today, India produces around 3 millin vehicles annually and is slated to double this over the next five years.

A welcome feature of this is the attention paid by Indian manufacturers to research, development and innovation. The volumes gained and the stiff competition have aided this. Tata Motors and Mahindra & Mahindra have focussed on designing, engineering and producing newer models of cars and commercial vehicles that help them compete effectively with reputed global manufacturers. Ashok Leyland has assembled a team of over 1500 engineers and scientists to work on newer designs and products.

And components manufacturers, particularly in Chennai, are thriving. (Courtesy: Industrial Economist)


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In this issue

Still no solutions to woes caused by parking
How do we curb cell-phone use on the roads?
It's fascinating to catch up with local history
Looking back
When Madras went on the AIR
Driving Down Memory Lane
The actor in the shadows
There's urgent need to list heritage in 800 towns

Our Regulars

Short 'N' Snappy
Our Readers Write
Quizzin' with Ram'nan
Dates for your Diary


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