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TRIGGERING ANAUTOMOBILE REVOLUTION

IN INDIASection 1 Group 11

Nitish 12144Prachi 12147Kiran 12181Rakesh 12150Sebastian - 12161

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Few players : Hindustan Motors, PAL andStandard

Produced cars that were large, expensive and

had poor mileage Hence not affordable to middle class

Low volume of cars sold

The government felt the need to producesmall passenger cars

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The Government of India by an Act of the Parliament

acquired Maruti Limited in October 1980 and renamed thecompany as Maruti Udyog Limited (MUL).

After acquiring the loss making Maruti Limited, theGovernment of India established Maruti Udyog Limited(MUL) as a public sector company in February 1981through the act of parliament.

The then prime minister of India, Indira Gandhi had a

personal interest to make this project a success in order tofulfill the dreams of her son, Sanjay Gandhi, who hadstruggled with such a project for a few years before hepassed away in an accident.

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RivalryAmong

Industry(LOW)

Substitute

Products(Moderate)

Buyers Bargaining

Power(Low)

Potential New

Entrants(HIGH)

Suppliers Bargaining

Power(HIGH)

Porters Five forces Model forAuto Industry (1983)

MUL was Govtowned with 26%stake to SuzukiIndira GandhiHad personal

Interest

Suzukiinvested insuppliersand gavethem

technicalknowhow

Only 3 players,who targetedaffluent class

Buyers didnot haveoptions

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*Amount in million Rupees invested by SuzukiMotors

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

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The demand for cars increased from 15,714 in

1960 to 30,989 in 1980 at a CAGR of only 3.5%.

Contrary, to the logic of most foreign automobile

manufacturers, Suzuki Motor predicted Indianmarket potential to rise to 200,000 cars per annumby the year 2000 which was greater than Suzukisproduction in Japan.

Suzuki Motors also accepted the terms of thegovernment in terms of its lower equityparticipation

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Suzuki Motors Company agreed to 26%shareholding in MUL in 1982. Only afterabout six years did it invest additionalamounts to raise its equity to 40% in 1989and then to 50% in 1992.

Suzuki Motors had committed to achieving

95 per cent indigenisation in five years....Suzuki, however, had to face an uphill taskin developing the vendor base

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Knowing that Indians were not used to theJapanese way of management freshengineers were hired from top colleges and

molded in the Japanese way ofmanufacturing.

Licenses for component companies were

given to the people with political cloutknowing that influence in society wasnecessary fot their success.

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THE FINAL PRODUCT

MUL launched its first carMaruti800 on December

14, 1983 at initial price ofRs. 47,500.Mr.HarpalSingh, the first

Maruti owner, still drives

the car after 26 years.

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Focus It was the only company to do a market survey and aprice survey to decide the final product and price Size Being one of the very first entrant in the market MUL

has been able to raise its capacity levels in a phased manner.

Low Initial investment The cost of installation andmaintenance of an assembly line was much lower than whatits competitors might have paid.

Unique concessions from the government Being thecompany promoted by the government, MUL have received alot of protection and also financial help early on which madeit possible for MUL to fund its internal operational costs

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Indigenous sourcing of components Over the

years MUL had tried to use the built in capacities toproduce the inputs indigenously and also trainedits suppliers for producing almost all itsrequirements.

High labour productivityMULs effective HRpolicies and use of quality circles and employeesuggestion schemes have made employee morededicated to the organisation.

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Rivalry

AmongIndustry(High)

Substitute

Products(Moderate)

Buyers Bargaining

Power(High)

Potential New

Entrants(Moderate)

Suppliers Bargaining

Power(Moderate)

Porters Five forces Model forAuto Industry (2010)

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The industry is typically capital intensive and thus involves

high fixed costs.

Slow market growth.

Low switching cost.

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Increasing Two wheelers/Motor Cycle Market, Because of

rising fuel prices.

Public Transportation( Local trains, Metros, Buses)

Advantage of Maruti: Maruti s Advantage Price performancecomparison favors heavily towards Maruti in most productcategories. Also the high availability and quality of servicesoffered by Maruti gives the customer a better trade-off.

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When buyer power is strong, the buyer is the one who sets

the price in the market. For Maruti , the sales volumes haveshown increasing trend over past so many years.

Buyers get incentives in the form of cost discounts and

better after sales services.

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Power Steel is a major input in this industry and so

steel prices have a sharp and immediate impact on theproduct price.

Substitute inputs are restricted to non critical oradditional components like electronic gadgets andinterior design components.

The industry being capital intensive switching costs ofsuppliers is high, other than steel as raw material whichis highly price sensitive and the firm may easily movetowards a supplier with lower cost.

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Encouragement of competition by the new policiesand to avoid monopolistic activities.

Liberal policies for foreign brands to enter intoIndia.

Patents and Proprietary knowledge ,MarutisR&Dcapability has evolved.

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46.07%

16.45%6.50%

14.15%

16.83%

Passenger Vehicles(2010)

MULTata

Mahindra

Hyundai

Others

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

share

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Brand image Consistently voted first in customer service and

satisfaction Affordable small cars which serve the needs of

average Indian customer Thus has a strong brand image as common mans

car in India

Expertise in manufacturing small cars with

high fuel efficiency :Maruti Suzuki is looking to make India an exclusive base

to manufacture small cars for Europe.

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Well developed sales network throughoutIndia Strong dealership network comprising more than

450 cities

2750 franchises of service outlets Helps in strong relationship with the customers

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Very strong knowledge of Indian market Helped it to create models suitable to Indian

conditions

Thus always providing more value to Indian

customers Wide range of models

Continuous expansion of product range

Introduced a new car (A-Star) and a new engine in the

year of recession

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