Maruti Udyog

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Maruti Udyog Ltd
Type Public (BSE MARUTI, NSE MARUTI)
Founded 1981[1]
Headquarters Gurgaon, Haryana, India
Key people Flag of Japan Shinzo Nakanishi, Chairman
Flag of India Jagdish Khattar, MD
Industry Automotive
Products Maruti
Suzuki
Revenue ~$2.5 billion (2005)
Employees 3,334 [2]
Slogan Count on us.
Website http://www.marutiudyog.com/

Maruti Udyog Limited is a publicly listed company in India. It is a leading four-wheeler automobile manufacturer in South Asia. Suzuki Motor Corporation of Japan has the controlling stake in the company. It was the first company in India to mass-produce and sell more than a million cars. It is largely credited for having brought in an automobile revolution to India. To this day it is the market leader in India in its segment.

Contents

[edit] Profile

The old logo of Maruti Udyog Limited later the logo of Suzuki Motor Corp. was also added to it
The old logo of Maruti Udyog Limited later the logo of Suzuki Motor Corp. was also added to it

Maruti Udyog Ltd is one of India's leading automobile manufacturers and the market leader in the car segment, both in terms of volume of vehicles sold and revenue earned. 18.28% of the company is owned by the government, and 54.2% by Suzuki of Japan. The Indian government held an Initial Public Offering of 25% of the company in June of 2003.

Maruti Udyog Limited (MUL) was established in February 1981, though the actual production commenced in 1983. Through 2004, Maruti has produced over 5 Million vehicles. Marutis are sold in India and various several other countries, depending upon export orders. Cars similar to Marutis (but not manufactured by Maruti Udyog) are sold by Suzuki in Pakistan and other South Asian countries.

The company annually exports more than 30,000 cars and has an extremely large domestic market in India selling over five hundred thousand cars annually. Maruti 800, till 2004, was the India's largest selling compact car ever since it was launched in 1983. More than a million units of this car have been sold worldwide so far. Currently, Maruti Alto tops the sales charts.

Due to the large number of Maruti 800s sold in the Indian market, the term "Maruti" is commonly used to refer to this compact car model. Till recently the term "Maruti", in popular Indian culture, was associated to the Maruti 800 model.

[edit] History

Maruti's assembly line is situated on old Gurgaon - Delhi Road, at distance of about 7 km from Gurgaon Bus Stand
Maruti's assembly line is situated on old Gurgaon - Delhi Road, at distance of about 7 km from Gurgaon Bus Stand

Around 1970, Sanjay Gandhi, political advisor and younger son to the then Prime Minister of India, Indira Gandhi, envisioned the manufacture of an indigenous, cost-effective, low maintenance compact car for the Indian middle-class. Indira Gandhi's cabinet passed a unanimous resolution for the development and production of a "People's Car". Sanjay Gandhi's company was christened Maruti Limited. [3] The name of the car was chosen as "Maruti", after a Hindu deity named Marut.

At that time Hindustan Motors' Ambassador was the chief car, and a new entrant from Premier Automobiles, the Premier Padmini which was slowly gaining a part of the market share dominated by the Ambassador. For the next ten years, the Indian car market had stagnated at a volume of 30,000 to 40,000 cars for the decade ending 1983.

Sanjay Gandhi was awarded the exclusive contract and licence to design, develop and manufacture the "People's Car". This exclusive rights of production generated some criticism in certain quarters, which was directly targeted at Indira Gandhi. Over the next few years, the company was sidelined due to the Bangladesh Liberation War and emergency.

In the early days under the powerful patronage of Sanjay Gandhi, the company was provided with free land, tax breaks and funds. Till the end of 1970s, the company had not started the production and a prototype test model was met with criticism and skepticism. The company went into liquidation in 1977. The media perceived it to be another area of growing corruption. [4] Unfortunately, Maruti started to fly only after the death of Sanjay Gandhi, when Suzuki Motors joined the Government of India as a joint venture partner with 50% share.[5]

After his death, Indira Gandhi decided that the project should not be allowed to die. Maruti entered into this collaboration with Suzuki Motors, The collaboration heralded a revolution in the Indian car industry by producing the Maruti 800. The car went on sale on December 14, 1983. It created a record by taking 13 months time to go from design to rolling out cars from a production line. By the year 1993 the company had sold up to 1,96,820 cars, mostly by selling its chief product the Maruti 800s. By March 1994, it produced one million vehicles, becoming the first Indian company to cross this milestone. It reached the two million mark in October, 1997 and rolled out its 4 millionth vehicle, an Alto-LX, on April 19, 2003.

See also: TimeLine of Maruti Udyog Ltd

[edit] Impact of Maruti Udyog

The introduction of the Maruti 800 in 1983, marked the beginning of a revolution in the Indian automobile industry. Maruti Udyog brought in the latest technology then available, more fuel-efficient cars, and brought down the prices of cars in India. This led to the creation of a huge market for all car segments as the Indian middle class grew in size. This in-turn brought in more players to this segment. A number of auxiliary car parts making units were setup as most car manufacturers realised it was more cost effective to make their car parts in India rather than import them. Maruti's most major influence was in helping the component industry in the country because of its emphasis on localization and indigenisation. As in the beginning that sector hadn't grown much, Maruti had to start a dozen joint ventures with Indian entrepreneurs. It got them foreign collaborations, that led to collaborations for other manufacturers so that over a period of time the whole component industry was able to upgrade itself and improve its quality. Leading to a major existing export potential in vehicle components. It also brought in better methods of financing that allowed more people, who given their income levels could not afford to buy a car on their own.[6] It still remains the leader not only in terms of market share but also in customer satisfaction surveys - it has consistently topped J. D. Power quality surveys, including 2005. [7]

[edit] Partner for the Joint Venture

Pressure started mounting on Indira and Sanjay Gandhi to share the details of the progress on the Maruti Project. Since country's resources were made available by mother to her son's pet project. A delegation of Indian technocrats was assigned to hunt a collaborator for the project. Initial rounds of discussion were held with the giants of the automobile industry in Japan including Toyota, Nissan and Honda. Suzuki Motor Corporation was at that time a small player in the four wheeler automobile sector and had major share in the two wheeler segment. Suzuki's bid was considered negligible.

In the initial rounds of discussion the giants had their bosses present and in the later rounds related to the technical discussions executives of these automobile giants were present. Osamu Suzuki, Chairman and CEO of the company ensured that he was present in all the rounds of discussion. Osamu in an article writes that it subtly massaged their (Indian delegation) egos and also convinced them about the sincerity of Suzuki's bid. In the initial days Suzuki took all steps to ensure the government about its sincerity on the project. Suzuki in return received a lot of help from the government in such matters as import clearances for manufacturing equipment (against the wishes of the Indian machine tool industry then and its own socialistic ideology), land purchase at government prices for setting up the factory Gurgaon and reduced or removal of excise tariffs. This helped Suzuki conscientiously nurse Maruti through its infancy to become one of its flagship ventures.[8]

[edit] Joint venture related issues

An aerial view of the Gurgaon Facility
An aerial view of the Gurgaon Facility

Relationship between the Government of India, under the United Front (India) coalition and Suzuki Motor Corporation over the joint venture was a point of heated debate in the Indian media till Suzuki Motor Corporation gained the controlling stake. This highly profitable joint venture that had a near monopolistic trade in the Indian automobile market and the nature of the partnership built up till then was the underlying reason for most issues. The success of the joint venture led Suzuki to increase its equity from 26% to 40% in 1987, and further to 50% in 1992. In 1982 both the venture partners had entered into an agreement to nominate their candidate for the post of Managing Director and every Managing Director will have a tenure of five years [9]

Initially R.C.Bhargava, was the managing director of the company since the inception of the joint venture. Till today he is regarded as instrumental for the success of Maruti Udoyog. Joining in 1982 he held several key positions in the company before heading the company as Managing Director. Currently he is on the Board of Directors. [10] After completing his five year tenure, Mr. Bhargava later assumed the office of Part-Time Chairman. The Government nominated Mr. S.S.L.N. Bhaskarudu as the Manging Director on August 27, 1997. Mr. Bhaskarudu had joined Maruti in 1983 after spending 21 years in the Public sector undertaking Bharat Heavy Electricals Limited as General Manager. Later in 1987 he was promoted as Chief General Manager, 1998 as Director, Productions and Projects, 1989 Director, Materials and in 1993 as Joint Managing Director.

The Suzuki Motor corporation didn't attend the Annual General Meeting of the Board with the reason of it being called on a short notice. [11] Later Suzuki Motor Corporation went on record to state that Mr. Bhaskarudu was "incompetent" and wanted some one else. However the Minsitry of Industries, Government of India refuted the charges. Media stated from the Maruti sources that Bhaskarudu was interested to indigenise most of components for the models including gear boxes especially for Maruti 800. Suzuki also felt that Bhaskarudu was a proxy for the Government and would not let it increase its stake in the venture. [12] If Maruti would have been able to indigenise gear boxes then Maruti would have been able to manufacture all the models without the technical assistance from Suzuki. Till today the issue of localization of gear boxes is highlighted in the press . [13]

The relation strained when Suzuki Motor Corporation moved to Delhi High Court to bring a stay order against the appointment of Mr. Bhaskarudu. The then Industries Minister, Murasoli Maran had even offered Suzuki to exit from the venture if they are not interested [14]

Bhaskarudu's appointment without consulting us violates the spirit of the 1982 pact, which commits the partners to consultations on all major decisions including key appointments

— Osamu Suzuki, Chairman, Suzuki Motor Corporation in a press statement over the appointment of Mr. S.S.L.N. Bhaskarudu as the Manging Director

The issue was resolved in an out-of-court settlement and both the parties agreed that R S S L N Bhaskarudu would serve up to December 31, 1999, and from January 1, 2000, Jagdish Khattar, Executive Director of Maruti Udyog Limited would assume charges as the Managing Director. [15] Many politicians believed, and had stated in parliament that the Suzuki Motor Corporation is unwilling to localize manufacturing and reduce imports. This remains true, even today the gear boxes are still imported from Japan and are assembled at the Gurgaon facility

[edit] Disinvestment and public listing

The National Democratic Alliance Government headed by Atal Behari Vajpayee passed the resolution on December 22, 2003 to dilute its stake in the venture. Maruti was not a special case, but it was the policy of the government to reduce the public debt by offloading its stake in many public sector companies and joint ventures. The preparations had began much earlier. The Suzuki Motor Corporation suggested the government to offload its stake in the Capital Market. Some believed this was a ploy to gain control of the company at cheap price due to the unhealthy conditions of the capital market. [16]

The red herring prospectus was filed with the Securities and Exchange Board of India on May 2, 2003. The Union Government made an offer of 7.22 crore shares representing 25 percent of the fully diluted equity state of the Maruti Post offer. After the dilution, the government's stake was reduced to 20.8 and the Suzuki Motor Corporation's stake increased to 54.2 percent. The remaining equity belonged to institutional and individual investors [17]. As the offer was oversubscribed by the general public, the Government raised the size of the Initial Public Offering by 10 percent. Investors had submitted bids ranging from Indian Rupees 115 to 360 per share. As per Bombay Stock Exchange data, about 69% or 5.83 crore (58.3 million) bids received were for Rs 120 per share. [18]

The company has 28,89,10,060 shares As on February 15, 2006 the government stake has reduced to 18.28% and the Suzuki Motor Corporation has a stake of 54.21%. Currently 71.06% of the equity is held by foreign investors including Suzuki Motor Corporation [19]

Following are the codes assigned to Maruti Udyog Limited on Stock exchanges and news services

  • Bombay Stock Exchange: 532500
  • The National Stock Exchange: MARUTI
  • Bloomberg: MUL@IN
  • Reuters: MRTI.BO

[edit] Industrial relations

For most of its history, Maruti Udyog had relatively few problems with its labour force. Its emphasis of a Japanese work culture and the modern manufacturing process, first instituted in Japan in the 1970s, was accepted by the workforce of the company without any difficulty. But with the change in management in 1997, when it became predominantly government controlled for a while, and the conflict between the United Front Government and Suzuki may have been the cause of unrest among employees. A major row broke out in September 2000 when employees of Maruti Udyog Ltd (MUL) went on an indefinite strike, demanding among other things, revision of the incentive scheme offered and implementation of a pension scheme. Employees struck work for six hours in October 2000, irked over the suspension of nine employees, going on a six-hour tools-down strike at its Gurgaon plant, demanding revision of the incentive-linked pay and threatened to fast to death if the suspended employees were not reinstated. About this time, the NDA government, following a disinvestments policy, proposed to sell part of its stake in Maruti in a public offering. The Staff union opposed this sell-off plan on the grounds that the company will lose a major business advantage of being subsidised by the Government.

The standoff with the management continued to December with a proposal by the management to end the two-month long agitation rejected with a demand for reinstatement of 92 dismissed workers, with four MUL employees going on a fast-unto-death. In December the company's shareholders met in New Delhi in an AGM that lasted 30 minutes. At the same time around 1500 plant workers from the MUL's Gurgaon facility were agitating outside the company's corporate office demanding commencement of production linked incentives, a better pension scheme and other benefits. The management has refused to pass on the benefits citing increased competition and lower margins.[20]

[edit] Services offered

[edit] Sales of Automobiles

The largest selling car from Maruti's stable, Maruti 800
The largest selling car from Maruti's stable, Maruti 800

In the order they were launched:

[edit] Authorized Service Stations

An Amul advertisement (released 1993) after Maruti Udoyg launched its luxury compact car 'Zen'
An Amul advertisement (released 1993) after Maruti Udoyg launched its luxury compact car 'Zen'

Maruti is one of the companies in India which has unparalleled service network. To ensure the vehicles sold by them are serviced properly Maruti had 1545 listed Authorized service stations and 30 Express Service Stations on 30 highways across India.

Service is a major revenue generator of the company. Most of the service stations are managed on franchise basis, where Maruti trains the local staff. Other automobile companies have not been able to match this benchmark set by Maruti. The Express Service stations help many stranded vehicles on the highways by sending across their repair man to the vehicle. [21]

[edit] Maruti Insurance

Launched in 2002 Maruti provides vehicle insurance to its customers with the help of the National Insurance Company, Bajaj Allianz, New India Assurance and Royal Sundaram. The service was set up the company with the inception of two subsidiaries Maruti Insurance Distributors Services Pvt. Ltd and Maruti Insurance Brokers Pvt. Limited [22]

This service started as a benefit or value addition to customers and was able to ramp up easily. By December 2005 they were able to sell more than two million insurance policies since its inception. [23]

[edit] Maruti Finance

To promote its bottom line growth, Maruti launched Maruti Finance in January 2002. Prior to the start of this service Maruti had started two joint ventures Citicorp Maruti and Maruti Countrywide with Citi Group and GE Countrywide respectively to assist its client in securing loan.[24] Maruti tied up with ABN Amro Bank, HDFC Bank, ICICI Limited, Kotak Mahindra, Standard Chartered Bank, and Sundaram to start this venture including its strategic parnters in car finance. Again the company entered into a strategic partnership with SBI in March 2003 [25] Since March 2003, Maruti has sold over 12,000 vehicles through SBI-Maruti Finance. SBI-Maruti Finance is currently available in 166 cities across India. [26]

"Maruti Finance marks the coming together of the biggest players in the car finance business. They are the benchmarks in quality and efficiency. Combined with Maruti volumes and networked dealerships, this will enable Maruti Finance to offer superior service and competitive rates in the marketplace".

— Jagdish Khattar, Managing director of Maruti Udyog Limited in a press conference announcing the launch of Maruti Finance on January 7, 2002[28]

Citicorp Maruti Finance Limited is a joint venture between Citicorp Finance India and Maruti Udyog Limited its primary business stated by the company is "hire-purchase financing of Maruti vehicles". Citi Finance India Limited is a wholly owned subsidiary of Citibank Overseas Investment Corporation, Delaware, which in turn is a 100% wholly owned subsidiary of Citibank N.A. Citi Finance India Limited holds 74% of the stake and Maruti Udyog holds the remaining 26%. [29] GE Capital, HDFC and Maruti Udyog Limited came together in 1995 to form Maruti Countrywide. [30] Maruti cliams that its finance program offers most competitive interest rates to its customers, which are lower by 0.25% to 0.5% from the market rates.

[edit] Maruti TrueValue

Maruti True Value is a service offered by Maruti Udyog to its customers. It is a market place for used Maruti Vehicles. One can buy, sell or exchange used Maruti vehicles with the help of this service in India.[31]

[edit] N2N Fleet Management

N2N is the short form of End to End Fleet Management and provides lease and fleet management solution to corporates. Its impressive list of clients who have signed up of this service include Gas Authority of India Ltd, DuPont, Reckitt Benckiser, Sona Steering, Doordarshan, Singer India, National Stock Exchange and Transworld. This fleet management service include end-to-end solutions across the vehicle's life, which includes Leasing, Maintenance, Convenience services and Remarketing. [32]

[edit] Accessories

Many of the auto component companies other than Maruti Udyog started to offer components and accessories that were compatible. This caused a serious threat and loss of revenue to Maruti. Maruti started a new initiative under the brand name Maruti Genuine Accessories to offer accessories like alloy wheels, body cover, carpets, door visors, fog lamps, stereo systems, seat covers and other car care products. These products are sold through dealer outlets and authorized service stations throughout India. [33]

[edit] Maruti Driving School

As part of its corporate social responsibility Maruti Udyog launched the Maruti Driving School in Delhi. Later the services were extended to other citites of India as well. These schools are modelled on international standards, where learners go through classroom and practical sessions. Many international practices like road behaviour and attitudes are also taught in these schools. Before driving actual vehicles participants are trained on simulators. [34]

"We are very concerned about mounting deaths on Indian roads. These can be brought down if government, industry and the voluntary sector work together in an integrated manner. But we felt that Maruti should first do something in this regard and hence this initiative of Maruti Driving Schools."

— Jagdish Khattar, at the launch ceremony of Maruti Driving School, Bangalore

[edit] Exports

Maruti Exports Limited is the subsidary of Maruti Udyog Limited with its major focus on exports and it does not operate in the domestic Indian market. The first commercial consignment of 480 cars were sent to Hungary. By sending a consignment of 571 cars to the same country Maruti crossed the benchmark of 3,00,000 cars. Since its inception export was one of the aspects government was keen to encourage. Every political party expected Maruti to earn foreign currency.

Angola, Benin, Djibouti, Ethiopia, Europe, Kenya, Morocco, Sri Lanka, Uganda, Chile, Guatemala, Costa Rica and El Salvador are some of the markets served by Maruti Exports [35]

[edit] Key Competitors

[edit] See also

[edit] Reference and Notes

  1. ^ Maruti Udyog Ltd. Milesones,[1]
  2. ^ Yahoo! Finance, Maruti Udyog Ltd. Company Profile [2]
  3. ^ India Today, December 26, 2005.
  4. ^ Asia Week Online Edition, Who needs an Asian Car?[3]
  5. ^ Rediff on the net [4]
  6. ^ Interview With Jagdish Khattar [5]
  7. ^ reports in Business Line. Dec 14 and 21, 2005
  8. ^ The Hindu, Business Published on Monday, Nov 24, 2003. Osamu Suzuki's article was published in Kenshu, a Japanese quarterly publication of the Association for Overseas Technical Scholarship. [6]
  9. ^ Rediff on the Net: A successful marriage goes to court September 19, 1997 [7]
  10. ^ Rediff, On the Net - Date: September 3, 1997 [8]
  11. ^ Rediff, On the Net Date: August 27, 1997. [9]
  12. ^ Rediff on the Net Bhaskarudu: The man Suzuki loves to hate [10]
  13. ^ Business Linte: Maruti disinvestment — Releasing the clutch Sunday, May 19, 2002 [11]
  14. ^ Rediff on the net - 'Suzuki can leave Maruti : Maran' September 20, 1997 [12]
  15. ^ Rediff: Government, Suzuki resolve Maruti row June 8, 1998 [13]
  16. ^ The Tribune, Online edition Clearance to Maruti disinvestment today Saturday, December 23, 2000, [14]
  17. ^ Business Line - Internet Editon May 04, 2003 Maruti's public offer process begins [15]
  18. ^ Business Line Internet Edition Jun 18, 2003 "Govt to retain part of Maruti oversubscription" [16]
  19. ^ The Bombay Stock Exchange [17]
  20. ^ Article Timeline of Maruti Labour Unrest, World History Archive [18]
  21. ^ 5 Paise Stock Broking's report on Maruti Udyog Limited before the IPO (.pdf file) [19]
  22. ^ The Hindu Business:Saturday, May 11, 2002 - Maruti launches car insurance[20]
  23. ^ The Hindu Business Line Sunday, Dec 18, 2005 -Maruti Insurance ramps up sales [21]
  24. ^ Press Release by Maruti, Cached page from Google [22]
  25. ^ Business Line, Saturday, Mar 15, 2003 , SBI ties up with Maruti for car loans [23]
  26. ^ Retail Yatra. Com, August 8 2003 -Maruti, State Bank of Bikaner & Jaipur join hands for car financing Jaipur [24]
  27. ^ Press Release by Maruti, Cached page from Google [25]
  28. ^ Press Release by Maruti, Cached page from Google [26]
  29. ^ The Hindu , Online edition of India's National Newspaper, Published: Thursday, July 26, 2001, Citicorp Maruti Finance gets P1 plus [27]
  30. ^ Maruti Finance, Joint Ventures [28]
  31. ^ — The Maruti TrueValue website —
  32. ^ Writeup about the Maruti N2N Fleet Management Solution
  33. ^ Maruti Genuine Accessories [29]
  34. ^ Deccan Herald, Online edition of Sunday, March 20, 2005 "Maruti's first driving school in Bangalore"[30]
  35. ^ Official website of Maruti Exports Limited. [31]

[edit] External links

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