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September 23, 1997


Suzuki-govt tussle could affect Maruti's performance, feel analysts

Syed Firdaus Ashraf in Bombay

The ongoing tussle between the Government of India and the Suzuki Motor Corporation will affect sales of the company unless the two sides settle their dispute, feel auto analysts and automobile industry watchers.

According to them, the advantage will be gained by the Tata Engineering and Locomotive Company and Daewoo India Motors Limited since the companies are scheduled to come out with small cars in September 1998 and June 1998 respectively, priced around Rs 250,000, about the same as the Maruti 800.

Speaking to Rediff On The NeT, an auto analyst at the leading investment firm, Jardine Fleming, said, "The competitors will definitely have an advantage over Maruti in the long run if the trouble between the government and Suzuki is not resolved. Suspicion between the two partners can lead to a downfall in production, creating an advantageous situation for TELCO and Daewoo."

Maruti began operations in 1983, facing a sole rival in its segment, the Premier Padmini. However, Maruti today has outgrown all other automobile companies, and its models, including the Esteem, Zen and 800 cc, are leaders in their segments. Maruti has 80 per cent share of the Indian market. Its reported turnover in 1996-97 stood at Rs 80 billion.

Its rival of yesteryears, Premier Automobiles Ltd, has been forced to curtail its operations due to union and other difficulties. A long strike at PAL turned into Maruti's advantage. Today, PAL has virtually stopped the production of its Padmini model and and very few cars come out of the company. Reason: lack of demand.

Speaking about the Maruti tangle, the auto analyst at Jardine Fleming added, "The mutual suspicion will not affect its sales immediately, but it will certainly affect it in the long run, especially if suspicions between the two partners continue. Moreover, if the new cars coming out are superior to the Maruti, certainly it will supersede the sales of the latter in the 21st century."

An auto analyst at Morgan Stanley is also worried about the likely fallout. "If the problem between Suzuki and the government continues, then they won’t be able to meet the target which they have projected for 2000."

Maruti's plant at Gurgaon, near Delhi, is already at high-capacity utilisation. The company rolled out 330,000 vehicles in the year 1996-97, and is aiming to produce 500,000 cars by 2000.

The other automobile companies are not too concerned with the Suzuki-government imbroglio and are confident of their products doing well in the market. Speaking to Rediff On The NeT, Daewoo Assistant Marketing Manager Munaf Meghani said, "Our car will be technological far ahead of the Maruti. And with the right pricing, the customer will certainly be more satisfied it rather than a Maruti, which has not changed much in terms of technology over the years."

The other rival, TELCO, is also planning to bring out a diesel version of its small car, which is likely to be more cost effective. This could cut into Maruti's market share, warns the Morgan Stanley analyst.

"Though the car will be cost about Rs 100,000 more, Indian consumers will go for it as diesel is cheaper than petrol. And considering all these factors, Maruti will have to plan out its strategy if it wishes to remain market leaders in the 21st century," he said.

Incidentally, high prices turned out to be the key difficulty for car sales in India. All the the new manufactures who set up plants in India burnt their fingers with sales far below expectations.

"Daewoo had estimated that its Cielo model sales will be about 90,000 units in three years. However, they could manage only 30,000. And that is why everyone today wants to sell cars at Rs 250,000," added the Morgan Stanley analyst.

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