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Maruti in sight of 10 mn peak

Around mid-noon next Tuesday, India's largest carmaker Maruti Suzuki's twin factories in Gurgaon and Manesar that produce a car every 12 seconds would make an unusual - but planned - halt. Just for a short while. Sumant Banerji reports. Maruti's 27-year journey

autos Updated: Mar 12, 2011 00:37 IST
Sumant Banerji

Around mid-noon next Tuesday, India's largest carmaker Maruti Suzuki's twin factories in Gurgaon and Manesar that produce a car every 12 seconds would make an unusual - but planned - halt. Just for a short while. It would be precisely at that moment when another of its newly-born compact cars would make Maruti the first carmaker in the country to have produced 10 million vehicles.

Over the 27 years of its life, Maruti has become the bedrock of India's emergence as world's second-fastest growing automobile market. Despite the deluge of new entrants in the late 90's, it is no mean feat that even today, the industry's growth mirrors that of Maruti. From just two brands in its first five years - Maruti 800 and Omni - the company today produces 13 cars, not all of them small, and has a product pipeline that is as long.

The company has only grown in the face of competition. While it took 22 years to produce 5 million cars, the next 5 million have taken a mere six years. Further, the last 3 million were produced in the last 3 years, that included a year of slowdown.

Today, Maruti sells over 1.2 million cars every year accounting for roughly half the industry's total sales - a feat that even global biggies like Toyota and GM cannot match in their home markets. The gap between Maruti and the second-placed Hyundai is so huge, that its best selling car Alto registers more sales in a month than all of Hyundai's products put together.

Perhaps what is most significant is how Maruti has changed colours from a public sector fAlto, irm to one that is now outdoing its Japanese parent Suzuki. Already, it accounts for 40% of Suzuki's global turnover, and has made India the largest market for Suzuki. Maruti's contribution to Suzuki's global sales is nearly 50%.

"Maruti is now the jewel in Suzuki's crown," said RC Bhargava, chairman, Maruti Suzuki India Ltd. "It has been a long journey that has humble origins. Our first factory in Gurgaon was surrounded by weeds and infested by monkeys, and few gave us a chance. Now it is a fledgling industrial area and the biggest automotive cluster in the country."

The first-mover advantage aided Maruti's growth initially, with the waiting period for the M800 stretching into years in the late 80's. In the last five years, MSIL has invested Rs 9,000 crore towards building capacities while increasing the number of dealerships from 600 to almost 1,000 during the period. In the next three years, over Rs 6,000 crore more would be invested to take the capacity to 1.75 million a year.

There are challenges though and a fair share of failures too. Increasing competition has seen Maruti's vice like grip on the market loosen somewhat and its marketshare dipped below 50% for the first time in 2010. Further, Suzuki's lack of diesel technology has often hurt the company and it has to rely on technology sourced from Fiat.

"Maruti will continue to do well, but it will possibly lose some marketshare in the near future," said Rakesh Batra, partner, Ernst & Young. "It is not feasible to defend a marketshare that high. Also they have an issue with lack of diesel engines as Suzuki has not invested in them. Diesel cars are in great demand today and Maruti may not be able to participate fully in that category."

Rivals also point at Maruti's wide reach as the reason for its dominance, which would fade once others catch up.

"Our internal study says that at various occasions on a dealer to dealer basis, we sell more cars than Maruti," said an official with a rival car maker. "It is just that we do not have the width in distribution that we lose out."

Its ambitions of replicating the small car success to bigger cars has also been undermined in the past with Indian consumers preferring a Honda or a Toyota over a big Maruti.

"There is no reason to believe they cannot be successful but they have to position the cars appropriately," Batra added. "It will take them sometime as they are in the learning phase but they will get there."

With 10 million next week, it may be time for the next jump from small to big.