Businessweek - India Wants to Build Your Small Car

Maruti Suzuki's managing director talks about the need for small cars, global players expanding in India, and why his company will prosper

At a time when most of his colleagues are leading a life of leisurely retirement, Jagdish Khattar, 63, is facing the managerial challenge of a lifetime. The former India bureaucrat is managing director of Maruti Suzuki, the Indian subsidiary of Suzuki Motor, the Japanese automaker's biggest operation outside of its domestic market.

The Indian unit now faces an onslaught from global competitors rushing into the country with ambitious expansion plans. Honda (HMC), Toyota (TM), Hyundai (HYMZY), General Motors (GM), and others have announced plans to make small cars in India.

Maruti has 65% of India's one-million-unit car market and 11 brands, but is hardly sitting still. It will spend more than $650 million to make diesel cars and set up two new plants in Manesar in the northern state of Haryana, one of which was to be with Nissan Motor (NSANF).

However, Nissan recently scrapped talks with Suzuki and Maruti about a new car-making facility and instead will work through a joint venture between India automaker Mahindra and Renault (RNSDY) of France, which owns a 44% stake in Nissan.

Such are the current competitive dynamics facing Maruti Suzuki in one of the fastest-growing auto markets in the world. Khattar spoke to BusinessWeek.com correspondent Nandini Lakshman in New Delhi about the Indian car market and strategy. Edited excerpts of the conversation follow:

Now that the Nissan deal has fallen through, what does it mean for Maruti Suzuki?

When (Suzuki chairman Osamu) Suzuki was in India in September, he had made it clear that there were two parts to the Nissan deal. We were going to invest $2 billion in Manesar to produce 100,000 small cars for export to Europe. Nissan said it would pick up 50,000 cars from us for export, and that deal still stands. The second aspect about setting up a plant to manufacture 200,000 cars for Nissan's export markets was still under discussion, but that won't happen.

Today 80% of your revenues come from compacts and small cars at a time when there is a lot of action in the luxury car segment.

This segment is down 1%. It has grown with big companies and big launches, but where are the numbers to talk about? It is still the small car for the rest of the country.

Will India emerge as a global hub for small-car production?

India cannot be a major player in automobiles for quite some time. As a country we produce one million cars, but there are stand-alone companies globally who produce more than one million each. The biggest compact car player in Japan builds 1.5 million cars a year. The industry in Brazil makes 800,000 and then there is India with 650,000. China has all big cars, and only now do they make small ones.

Secondly, as we have seen in the U.S., big SUVs are going out of fashion, and fuel-efficient cars are important. In Europe, green models are coming where a company has to give you certain carbon emission performance. All the seven major manufacturers in Europe produce only 500,000 compact cars. We produce more small cars than them. If these major manufacturers have to get the carbon emission averages lower, they have to produce small cars. So they will come to us.

What is the India car industry's export potential?

The domestic market is growing. But in small cars, many people from outside will also try to source from India. And those who are big-volume players in India will be able to do it.

You are building Suzuki's new Asian car. Is this a challenge?

Why? We have been producing cars for some time. Suzuki has decided that the car will be produced here, and we will export the model to their overseas markets. Suzuki exports bigger cars from Japan, medium cars from Hungary, and small cars from India. Maruti already contributes 10% of Suzuki's revenues, the largest outside of Japan.

Today, with every foreign auto major talking of making small cars in India, isn't Maruti's 55% market share reign under threat?

We've had competition for the past 15 to 20 years. If there are more small cars, it is good for the country where the market is growing. Yes, it has been tough, but we have been able to maintain our share for the past five years, and we've had a dozen manufacturers in India for the last 12 years.

How will Maruti differentiate itself from the pack?

At the end of the day, it comes down to the customer's confidence in the manufacturer. And there, I think, Maruti has been doing pretty well. We have led in customer satisfaction rankings in the J.D. Power (MHP) annual quality surveys for the last six years. Our products again score high on quality. If you look after your existing customers, new ones will come. And that's what 40% to 50% of our new customers say: that they are buying it on the recommendation of their friends and relatives who already own a Maruti Suzuki.

Has the lack of diesel models been a handicap?

Yes, it has. Diesel has become 20% of the total market, and we are not there. We are present in only 80% of the market. That's why in the next four to five months, we should have our first diesel vehicle.

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