The recent announcement that Maruti Udyog will manufacture cars for Japanese automotive giant Nissan is being seen as a milestone in India's drive to become a global hub of small cars.
Coming on the back of Maruti's own plans of frantic expansion, entailing investments worth $1.5 billion, and its imminent entry into the diesel segment means Jagdish Khattar, the company's managing director, is a very busy man.
Suveen K Sinha & S Kalyana Ramanathan caught up with him between meetings over a cup of green tea. Excerpts:
After only 8 per cent growth in 2005-06, passenger cars grew rapidly in April-May this year. Is this going to be the best year ever for you?
The outlook for the year looks bright. But there are two dampeners: the fuel price hike and the increase in interest rates. The reduction in the excise duty on small cars has been more than neutralised by these two factors. The cost of buying and running a car may be higher now.
The other problem I see is the different sales taxes on fuel in different states. There should be uniform taxation. The current system encourages cross shopping, which is not a very smooth way of doing business.
How worrisome are the dampeners?
Manufacturers will still make an effort to increase volumes. This would mean more incentives to dealers and customers. It will be a pull-the-customers-push-the-dealer strategy.
Can we see a return to the rampant discounts we saw last year?
The discounts are already at the level of February this year, before the excise cut.
About the excise cut, there seems to be a schism in the industry, as the big cars have been left out.
We are not the first to do it. Japan, Brazil, South Korea all have done it. China recently reduced taxes sharply on cars with engines smaller than 2,000 cc. Thailand charges a very small rate of tax on 1 tonne trucks, while charging 30 per cent and more on cars and other vehicles. The result is that 70 per cent of all production is 1 tonne trucks, of which 40 per cent is exported. They were clear that they wanted to become a hub of 1 tonne trucks and they have.
In fact, I believe that Maruti will be under much more pressure in three-four years since the other manufacturers will perforce come into the small car segment. But this is good for the industry and the country.
What is the single biggest challenge for car makers in India?
I would say the challenge is to bring in more first time buyers. In 1999, both India and China were at the same level of 500,000 a year in sales. Today China has crossed the 3 million mark and India is still well under a million. A recent study by J D Power shows that 81 per cent of China's car buyers are first time buyers. The number is only 37 per cent for India. We will reach a different level if we can raise this to 60 per cent.
...and for Maruti?
The challenge is to maintain the market share. We have been maintaining our 50 per cent market share for the last five years, give or take a few. That is something, considering that we are not even in the 20 per cent of the market that is for diesel cars.
So you must be looking forward to the first roll-out from your upcoming diesel plant.
We will launch five models in five years, other than variants and the diesel models. The lack of a diesel range has been a handicap. The diesel segment has increased from 15 per cent of the market to 20 per cent in the last three-four years. The diesel vehicles will plug a big gap. However, our focus will be on petrol cars.
Will Tata's much-anticipated Rs 1 lakh car create another gap for you to plug?
I don't think we need to worry about Tata's Rs 100,000 car. It will attract those customers who cannot yet afford existing cars like Maruti 800 and Alto. As such, I do not see the proposed Rs 100,000 car impacting Maruti, though two wheelers could perhaps be affected.
How is the deal with Nissan shaping up?
The details are being finalised. It is a recognition of our manufacturing sector, especially the passenger car segment. It recognises India's quality, productivity and cost advantages in producing small cars. The challenge we see is in the volume that we can handle. Assuming it will be a large order, the challenge will be the logistics, considering the state of our roads and ports.
Maruti has been topping JD Power's surveys in a monotonous way. How about that?
We are not fighting for J D Power's recognition. Yet, it is an independent agency that rates our performance vis-à-vis customer feedback. And 70-80 per cent of the customers buy on the recommendation of others.
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