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Chasing Maruti

Of all the MNCs that entered the Indian car market in the last 20 years, only Hyundai has cracked it. But it is still a long way away from catching up with Maruti.
Suveen Sinha | Print Edition: March 29, 2015
Hyundai India head Bo Shin Seo
Solving the India puzzle: Hyundai India head Bo Shin Seo at the company's Chennai factory. (Photo: Jaison G)

Some conundrums Vishwa Bharti faces are easy to crack. There was this thin man who wanted to put on weight because he was about to marry a woman who could not be described as thin. A special diet took care of his problem.

Some are not that easy. It took Bharti four years to put a warring couple back under the same roof. The two had separated and the husband had turned alcoholic. He agreed to go into rehab on the condition that the wife would stay with him.

Bharti is Family Welfare Counselor at Hyundai Motor India's factory in Sriperumbudur, on the outskirts of Chennai, where Rajiv Gandhi was killed. Many of the big conflicts factory workers face start after marriage. In some cases, the wife happens to be more educated than the husband, who, fattened on the Hyundai salary, might have masqueraded as an engineer while the marriage parleys were on.

The company, apart from engaging Bharti, also employs a bunch of people to polish the apples served in the workers' dining hall. At times, mostly when the labour was restive, fruit flew through the air for they were found to be spotted.

Hyundai, as a company, understands the importance and consequence of conflict - not just because it has braved a long spell of labour trouble. It is a company whose bastion in India was built on the foundation of a conflict.

What a bastion it is! Hyundai ended 2014 with an all-time high market share of 22 per cent. It is still way behind Maruti Suzuki, which had a 15-year head-start, but is way ahead of the number three, Honda, which has just eight per cent. In 2014, Hyundai became the first company after Maruti to sell more than 400,000 cars in India. Breaking even early on, the Indian unit's profit has more than doubled in the last five years. Its capacity utilisation is 98.5 per cent on the installed capacity of 680,000. It has been the largest exporter of cars from India since 2008.

On strong ground
Hyundai Motor India's total income has risen at a steady pace and so has its net profit

And what a conflict it was! Suzuki Motor Company of Japan and the Indian government battled fiercely for control of Maruti in the 1990s. The equal shareholders had fallen out over the choice of the managing director. Hyundai had nothing to do with it, yet it cannot deny that the fight may have something to do with how far the South Korean company has travelled in India.

NOT SAYING ANYTHING

It was a short job interview.

In 1997, Maruti was making its first lateral hires. One of the candidates was Rakesh Srivastava from cigarette maker GTC Industries. "How will you make the transition to cars?" asked Jagdish Khattar, Maruti's Managing Director at the time.

"There is only one difference," recalls Srivastava as replying. "Now I have to worry about smoke coming out front; if I join Maruti I will have to worry about the smoke coming out from the back."

He got the job.

Srivastava is like that. Words come out of his mouth in torrents. Now as Hyundai's head of sales and marketing in India - he moved over from Maruti in 2012 - he speaks with such passion about making his new employer the "most loved and most trusted" car company in the country, about customer satisfaction, and about keeping his channel partners (dealers, mainly) and suppliers happy that at times you may find your mind wandering. But every now and then he throws in something to pull you out of your reverie. Here are three things that stand out from two interviews with him:

>> "Every year, for a few years, we will enter a segment where we are not present, while refreshing existing models."

>> "We will increase our market share by one percentage point every year."

>> "When Hyundai came, Maruti had 70 per cent share of the passenger car market. Today they have 50 per cent. Our share has gone from zero to 20 per cent in the same period. I don't know who has gained at whose cost. I'm not saying anything... Let's see how the future turns out."

Chasing ahead
Hyundai is the second-largest carmaker in India and sells more passenger cars than the next five automakers combined
The market share numbers are slightly off the mark, and yet we have to take Srivastava seriously. Hyundai launched its first car in India, the Santro, on October 9, 1998. Maruti had 88 per cent share of the passenger car market in 1998/99. Next year, 1999/2000, it fell to 62 per cent. After touching a low of 42 per cent in 2011/12, Maruti's share has risen to 52 per cent this financial year, up to January 2015.

Within six months of Santro's October 1998 launch, Hyundai became the No. 2 carmaker in India

We are talking only passenger cars here, not utility vehicles, since it is only recently that Maruti has added a significant utility vehicle to its portfolio, the Ertiga, and Hyundai only has a high-end SUV, the Santa Fe.

There can be no direct correlation between the changing market shares of the two companies. The fall in Maruti's share was an outcome of the government's decision to open the Indian market to unbridled competition in the 1990s. It did not help that Maruti did not launch a single new car between the Esteem in 1994 and the Baleno at the end of 1999 as its two major shareholders were too busy in court.

Maruti old-timers are known to sigh in private: "Had we launched the Wagon R earlier, there would have been no Santro." Albeit exaggerated, that's an apples-to-apples comparison. Both the cars are compact hatchbacks that like to call themselves Tall Boy. The fight between the government and Suzuki delayed the Wagon R's entry into India till 2000.

So, did Hyundai get lucky?

RICH DAD, DEMANDING DAD

"Luck comes to those who are brave," quips Srivastava. "There were others at that time but they were not lucky; maybe they were not brave enough... There are companies that have not made profits even after 20 years [of operating in India]. I don't know how they survive. Maybe they have a rich dad. My dad is rich, but also demanding."

INSIGHT:Hyundai's scale is a potential threat to Maruti Suzuki's dominance in India

He is referring to the raft of multinationals that entered India in the wake of the delicensing of the car industry under the automobile policy of 1993. From 1995 onwards, Indian roads had Daewoo Motor's Cielo, General Motors' Opel Astra, Ford's Escort, Honda City, and Mitsubishi Lancer running on them. Some of them had already existed outside India, but to the Indian consumer, who was until then fed on a steady diet of Marutis, Premier Padminis, and Ambassadors, they looked like celestial nymphs. And, to a large section of Indian buyers, just as out of reach. These were big, expensive sedans at a time when purchasing power in the country was low.

The real revolution started once the small cars came in during late 1998 and early 1999: Hyundai's Santro, Daewoo's Matiz, and Tata Motors' Indica.

As the years went by, Toyota, Volkswagen, Skoda, Renault, Nissan, Audi, and BMW joined the race. Mercedes was already here. But of the entire lot that came to India in the last 20 years, only Hyundai has truly cracked the formula for success in the Indian mass market, and has emerged as the one true challenger to Maruti.

Maruti remains well ahead, but as Vikas Sehgal, the global head of automotive for Rothschild, points out, the race is closer once you move out of the smallest cars, which is Maruti Alto's fiefdom. For instance, the Grand i10 has created space for itself quickly; it sold more than 100,000 in 2014. The i20 was beginning to lose sheen, selling 69,000 in the year, down from 85,000 in 2012, but the Elite version has given it a boost. The Xcent, the compact sedan that replaced the Accent, notched up a handsome 51,600 in 2014. The Verna had begun to languish, its sales falling to 34,000 in 2014 from 56,500 in 2012, but the recent refresh will shore it up.

Hyundai acquired a new design philosophy in March 2011, with the new Verna, calling it Fluidic Sculpture

However, the Swift and its sedan variant, DZire, give Maruti a tremendous boost. The two together sold more than 400,000 in 2014. The new little Celerio is doing well and the Wagon R is holding its own.

This rivalry is taking on new dimensions. Maruti's Ciaz has already presented a challenge to Honda City and Hyundai's Verna. Hyundai has responded by launching a refreshed Verna. In keeping with Srivastava's assertion, it is also ready to enter new segments. It is preparing to launch what is called a compact, urban sports utility vehicle, a segment whose potential has been best utilised so far by Renault Duster. Once there, Hyundai might find itself once again staring at Maruti, which is working towards launching not one but two such vehicles. And then there is the small multi-utility vehicle segment. Maruti's Ertiga, which is having a good run there, will soon face a rival with a Hyundai badge on it.

With its focus on high-volume segments, Hyundai presents a nice contrast to Toyota. The Japanese giant came to India a year after Hyundai but chose to start with the utility vehicle, Qualis. The Qualis was a success, and its successor Innova even more so, but in a relatively small segment. Toyota has not been able to crack the mass car market despite entering it more than four years ago with the Etios line of entry-level sedans and its hatchback sibling, Liva.

In September, when we interviewed Toyota's India head Naomi Ishii, Toyota's capacity utilisation in India, including production for exports, was hovering around just 50 per cent.

Back when the two companies came in, Toyota was the brightest star of the global automotive sky. It was teaching manufacturing processes to the world. Books were being written on it.

Hyundai was the joker. In markets like the US, it was trying to make space for itself by pricing itself cheap. Some Japanese factory guards in India made you park outside the gate if you happened to come in a Korean car. Sehgal's column describes how things have changed. Hyundai is today the star of the global scene, with high profitability on a large volume. The Hyundai Group, which includes Kia Motors, is now the world's fourth-largest automotive company. Only Volkswagen Group, Toyota Group, and General Motors Group are ahead. Suzuki is not in the top 10. In India, it is not only other MNCs that fell behind Hyundai. Even home-grown Tata Motors, which was once going neck and neck with Hyundai, has faded away.

And that is not down to luck alone. Hyundai often sets the agenda.

THEY DID START THE FIRE

Time was when Maruti felt no need to 'market' its cars. They enjoyed a long waiting list and were dispensed as favours. Older readers will remember a preponderance of white Maruti 800s in the 1980s and 1990s. Making more than half of its cars in white saved a lot of money for the company. The buyers, who were just delighted that their turn had come, would seldom bother to ask for a particular colour. They grabbed what came their way. The quality of the cars was below par and they were sold by arrogant dealers.

Hyundai ended 2014 with an all-time high market share of 22%, way ahead of No.3 Honda's 8%

Hyundai set the ball rolling on customer care, service, and quality. It went to town about its technology. For the first time, we heard of MPFI (multi-point fuel injection, as opposed to Maruti's carburetors), which emitted lower emission and met Euro norms.

Maruti dug its heels in, but was forced by the Supreme Court to embrace the Euro norms, at considerable cost and loss of reputation. Suddenly, despite being the dominant player, Maruti was no longer setting the agenda.

In the early years, Hyundai India's public face was B.V.R. Subbu, an 18-year veteran of Tata Motors who moved to Hyundai at the time of its inception in India, first as head of sales and marketing and then president. A large man with an unruly moustache, he did not hesitate from taking on competitors - often, Maruti - directly. The norm in those days was to praise yourself in advertising, but never call the other guy bad. Subbu did not have much patience with norms.

One of his early victims was the Matiz, another small car that came to India around the same time as the Santro but was prettier. It was from Daewoo, Hyundai's fellow chaebol from South Korea. Daewoo's mistake was to have an 800-cc engine in the Matiz.

Hyundai told everyone who cared to listen, and some who did not, that Santro's 1,000-cc engine made it far superior. Daewoo's people went blue in their faces trying to tell people that the peak power outputs of the two cars were close. But not many were listening.

The Matiz soon fell upon bad times because Daewoo faced deep financial distress. Its heavy vehicles division was sold to Tata Motors and the car unit to General Motors. General Motors took years to bring the Matiz back to India, as the Spark. By that time, the market had shifted.

With the Matiz out of the way, Subbu focused his considerable energy on Maruti. He started many fires. There was one about the power steering. Subbu said - when he said something, he said it loud enough - that the Santro's Zip Drive version was the first of the small cars to have a power steering, and that power steering was just what the doctor ordered for you.

There was another fire about the true five-seater car. Hyundai's advertising said Maruti's Alto and Wagon R - both high-volume small cars - were four-seaters since they had only two rear seat belts. The Santro - you guessed it - had three in the back and that made it a five-seater.

THE COY CHROMOSOME

Naturally, Hyundai figured prominently in Maruti's internal discussions. In the early noughties, Maruti insiders felt that competition had finally come to their doorstep.

Within six months of Santro's October 1998 launch, at a price that pitted it directly against Maruti's Zen, Hyundai became the second-largest carmaker in India. In 15 months, the Santro outsold the Zen.

Once Santro flew, Hyundai started planning for its next move, the entry-level sedan that came to be called Accent. Before its launch, Hyundai imported 35 of those cars and gave them to a chosen few - businessmen, bureaucrats, high-net-worth individuals - to drive. Their feedback was incorporated in developing the car for India.

Accent became an instant success. It was launched around the same time as Ford's Ikon. The Ikon met with some success by Ford's standards. General Motors' Opel Corsa, in the same segment as these two, flickered for a while before the entire Opel line was stopped in India in favour of Chevrolet. Fiat Siena sank after a while.

Maruti continued to enjoy large volumes - as it does today. But it was always self-conscious and shy. Many of its people believe they were the first to put power steering in a small car, a Wagon R variant. But they thought it was not quite right to talk too much about it if they were not offering it in all Wagon R variants.

The Santro had it only in the Zip Drive version, but Hyundai put Shah Rukh Khan - who had become its brand ambassador early on and continues to be to this day - in it and made him zip around town.

Leading the change
Hyundai has made the biggest dent in Maruti's leadership position and now controls more than a fifth of India's car market
You may have noticed that Maruti has had a new design philosophy starting with the Swift in 2005. Since then, most of its cars have been muscular, curvy, and sporty. But then, you may not have noticed it because you would not have heard much about it. Hyundai acquired a new design philosophy in March 2011, with the new Verna, called it Fluidic Sculpture, and made sure everyone heard about it.

It is only now that Maruti is waking up to this. For instance, it has started to label its new engines. But it still lacks the natural instinct of a bird of prey. A Maruti man is more likely to say: "It's just a little switch and a bit of curves. What is the big deal?" A Hyundai man would say: "Let's give it a name, put it in a television commercial, and call a press conference."

This attitude shows up in internal workings, too. A few months ago, a young man in Hyundai's marketing team had to go to Australia on work. He was handed his tickets even before the bosses had signed the approval papers. This young man's boss shudders to think what would have happened if he had done such a thing at his previous employer, a Japanese company. "I would have first had to go through several layers of approvals armed with presentations on the cost and benefits of the Australia trip."

MORE THAN A COPYCAT

With not a shy bone in its body, Hyundai chased Maruti everywhere. There was a time when lenders were shying away from giving car loans. Maruti tied up with the State Bank of India to offer special packages to its buyers. Hyundai soon had its own tieup.

Maruti began a thrust on the rural markets in 2009 that increased the share of rural in its total sales from 10 per cent to more than 30 per cent. Hyundai started it in 2011 and is targeting 20 per cent of its sales from rural areas. Maruti decided to set up an R&D facility in India, so did Hyundai.

Srivastava is not Hyundai's first sales and marketing head to come from Maruti. His predecessor, Arvind Saxena, too, had come from Maruti. Several others have moved at more junior levels.

Still, Srivastava's fantasy of catching up with Maruti will have to wait. Maruti has been growing in a stagnant industry, just like Hyundai, and thus increasing its market share. It is on course to sell more cars this financial year than ever before, beating its 2010/11 high of 1.13 million, and has increased its market share from 50 to 52 per cent in passenger cars. What's more, it has just laid the foundation for a factory in Hansalpur, near Ahmedabad. It will invest Rs 8,500 crore in phases for a capacity of 750,000 units a year.

The onus is now on Hyundai to follow suit. As the Indian car market is forecast to double to five million a year by 2020, Hyundai has to increase capacity to safeguard its market share, since its existing capacity is already fully utilised. The alternative could be to shift export output to feed the local market, but that comes with limitations.

It may not be a bad strategy to follow the leader, but Hyundai does not merely stop at that. It often sets the agenda. Not the least of them in manufacturing.

HEART OF THE MATTER

Bo Shin Seo, the head of Hyundai India, is a tall and fit man, though he may need to work on his standing posture. He comes to work, at the Sriperumbudur factory, at 6.30 in the morning. The first thing he does is to turn on his computer and check email. A few minutes later, he goes to the shopfloor. Since the factory works round the clock, he finds enough people there to chat up. He also talks to managers and the housekeeping staff.

Hyundai can switch from one model to another and from one fuel to another very quickly as the market demand changes

Seo has picked up a bit of Tamil - very little, but enough to revive the spirits of the workers, some of whom might be just finishing the night shift. "I ask them if there was a problem last night. I ask them how things are at home, how their family is." Seo is an out and out production man and distinguished himself at Hyundai's Alabama plant in the United States before being sent to India. But he has made it a point to engage with people. "More than 80 per cent of the leaders at the factory are Indian. On shopfloor, all departments are run by Indians. Koreans are only coordinators. I have a strong philosophy, 'the Indian factory should be run by Indian leaders'".

The Indians have responded. They make suggestions nearly every day to improve the work area: the ergonomics, quality of parts, systems, productivity, safety, and so on. "We saved more than Rs 40 crore last year alone through 4,000 small projects," says Seo.

He does all this because he has another strong belief that the factory - the first plant, started in 1998, and the second, started in 2007, together have 9,500 employees - is Hyundai's heart. It is uniquely flexible. Four models can be made on one line. The company can switch from one model to another and from one fuel to another very quickly as the market demand changes.

There is a high level of automation, higher in the second plant, which is even more modern. All welding points are done by robots. So are most screws. In assembly, torque is critical. That's the force that determines how tight a screw is. "Humans may sometimes make mistakes while welding, robots don't," says Seo. The testing facility was recently enhanced to make sure that "the repair stays in the system".

The emphasis on quality has helped Hyundai prolong the life of its models. If you leave out pre-modern models like the Ambassador and Premier, Hyundai's Santro and Accent bow only to Maruti's models in longevity. Both continued to be in the market, and found buyers, much after their supposed substitutes - the i10 and Verna - had been launched. Even in 2014, nearly 30,000 Santros were sold. But the company would rather focus its resources on the newer models.

"The Santro has been a good product for a long time. But, in my opinion, it had been around too long. It had a non-luxury image. The newer models are much better in quality," says Seo.

So, does he see Hyundai ever becoming number one in India?

"Number one is not important, what is important is the Hyundai brand. We have to be the most loved and most trusted company," he says, sounding very much like Srivastava with a different accent. "Quantity is not important... Suzuki is a very small company."

Looks like there is no getting away from Maruti Suzuki when talking about Hyundai.

(Research inputs by Jyotindra Dubey)

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