Under 64-year-old Kenichi Ayukawa, Maruti Suzuki India is in such a strong position that it is difficult to recollect the dire straits it was in when he had taken over as CEO more than six years ago. Following two years of labour unrest at its Manesar factory, the company's hold on the market had loosened, with market share falling to less than 40 per cent. For the first time in decades, competitors felt the company could be beaten at its own game, on its home turf. Ayukawa was able to effect a complete reversal in the company's fortunes. By the end of 2018/19, Maruti's market share had climbed over 51 per cent, the highest in a financial year since 2000/01. It accounts for four of the top five and seven of the top 10 best-selling cars in the country and in the last three fiscals has grown revenue by an average of 14.5 per cent per annum and profit by 12 per cent. Ayukawa has been selected as the Best CEO in the large companies category, classified as those with turnover of between Rs 50,000 crore and Rs 1,00,000 crore, making him a winner for the fourth year in a row.
There are many reasons for Maruti's success in India but one area where Ayukawa's leadership has been a defining factor is changing the perception of the company from a maker of budget cars to a more premium brand. It wasn't easy.
Before Ayukawa joined, attempts at catering to consumers who expected more from a car and were willing to pay more for it had come to naught. Suzuki's premium sedan Kizashi failed spectacularly. Even the Sx4 sedan, with which the company tried to break away from its hatchback-only image and enter the mid-size sedan segment, did not yield adequate results. After this, the company decided to roll out a new distribution network, with a look and feel distinct from the standard outlets, to sell only premium products. By the time the company was ready to launch the Nexa brand of showrooms in 2015, it had a fair share of detractors, some from within the company. Ayukawa was, however, convinced. He was instrumental in convincing Suzuki about the need to invest in Nexa.
"There are customers who want to graduate to bigger and more premium cars. We want to cater to them, too. We expect a long-term relationship with customers. An entry-level car buyer today will graduate to a bigger car in 5-10 years, and we should be ready with products that appeal to him in that segment so that he doesn't have to go elsewhere," he says, sitting in a conference room in Maruti's headquarters in the posh Vasant Kunj locality of Delhi, dressed in his usual crisp- blue suit. "Once a customer buys a Maruti product, we want to satisfy him, so that he doesn't go for any other brand. So, we are gradually expanding our product portfolio. The collaboration with Toyota will help us bring in bigger products."
New products have helped too, especially Vitara Brezza, Maruti's maiden compact SUV, and Baleno, its first premium hatchback. "We have always been focussed towards the customer and fortunately, in the last few years, have been able to successfully capture the changing needs of the consumer. At the same time, the demand in the market was also very high, at least till a year back, so that helped us grow," he adds. "We also launched new products in segments where we were not present earlier. Brezza in the compact SUV segment, Baleno in the premium hatchback space, and Spresso in the mini SUV space are examples."
In spite of all the success in the last six years, Ayukawa is not taking anything for granted. The domestic passenger vehicle industry is in the midst of an unprecedented slowdown - sales have fallen over 20 per cent in the first seven months of this fiscal and major disruptions are expected over the next decade. From immediate challenges, like transition from BS IV to BS VI emission norms in April 2020, to impact of shared mobility and preparing for electric mobility in the long term, Ayukawa has his hands full. The recent decision to exit the diesel segment after BS VI norms kick in has come as a surprise. Since the announcement in May this year, sales of diesel models, especially the Brezza SUV, have been impacted. The company had to give heavy discounts and offer a five-year warranty to attract customers.
"Diesel contributed about 35 per cent to sales and I think 10 per cent of that will be converted to petrol, another 10 per cent to CNG and the remaining will be the market share lost to competitors," says Puneet Gupta, Associate Director, Automotive Forecasting, IHS Markit. "That is why, we are not expecting high growth next year as well even though they have a low base from this year. From now onwards, it will be very difficult to maintain the 50 per cent market share. Companies like Hyundai and Kia are becoming very competitive."
Ayukawa says the door has not been shut on diesel yet, and they have adopted a wait and watch approach. Prices of diesel cars are likely to go up by at least Rs 1 lakh when BS VI emission norms kick in, and Maruti believes this extra cost on small cars like Swift and Dzire will price them out of the market. "We are not 100 per cent in denial of diesel and are still studying the possibilities in the BS VI period. We are also developing the 1.5-litre diesel engine," he says. "But we need to see how the market and the customers respond."
Ayukawa also has the onerous task of making the collaboration with Toyota work. The two companies have joined hands to share cars and technologies even as similar cross-badging alliances have flopped in the past. As the much bigger company in India, Maruti runs the risk of cannibalisation of sales due to the tie-up. "From sales point of view, we are competitors. But this alliance is like marriage. There are good and bad points. We have to overcome the shortcomings. If the positives outweigh the negatives, it could be successful. Of course, many alliances have in the past failed due to various reasons. We are not thinking about that but focussed on how it should benefit both of us," he says.
The one big possible advantage to Maruti would be in the form of technology for autonomous, connected and electric cars, an area which needs substantial capital investments and where parent company Suzuki is seen as weak. The partnership also follows the larger global trend of companies pooling resources to invest in technologies of the future. "The industry is facing multiple disruptions and the concept of vehicle is changing. We have to adapt to that and it is not business as usual. So, collaboration is important," he says.
"We can get technology from Toyota. They can get some products from us in return. Our collaboration is not only for the domestic market but also for exports, to Africa for example. We have opportunities to expand our business, volumes, so the cost of our products can go down. A bit of cannibalisation of sales can happen due to competition. But that we are facing anyway."
The tie-up may weigh Maruti down, say many experts. "Due to the Toyota tie-up, even they (Maruti) may not be very clear about their way forward. They had the liberty to do whatever they wanted. They were the real owners of themselves. Now, a lot of their strategies will be subject to approval from Toyota," says Gupta of IHS. "That is going to delay their planning. They would have been quicker in diesel, but since Toyota is already working on it, they are like, let them do it first and then we will see."
Always eager to look at the silver lining, the dal makhani loving CEO says cross-badging is giving customers loyal to Toyota a taste of Suzuki, and if they are impressed, they can be converted. "Toyota has loyal customers, too. They don't buy our cars. But if their loyal customers have a good experience with our products, then probably they can come to us directly for some of our cars. That is a possibility. We may end up getting some premium customers who may have never looked at Suzuki otherwise. In future, we may get some products that Toyota has and that will be for our customers. Our responsibility is to increase the positive points and reduce the negative points of the collaboration."
That 50 per cent market share, is that an obsession? Ayukawa probably knew this would be asked and is ready with the answer. For the first time in one hour, he lets himself smile, too. "We have not given up on the 50 per cent share target and will keep challenging it. But we are not obsessed with it. As long as we have good products with affordable prices, good service, market share will follow," he says in a matter-of-fact tone. "It will always be sometimes good, sometimes bad. If we have a new product, we will gain share. If they (competition) produce a new product, their share will go up. We should be able to consistently provide new products with new technology and features. That is very important."