Last summer, when Jagjit Bal wanted to trade his Fiat Palio for another small car, the Mumbai-based pharmacist sought advice from his mates. They told him to hang in there until all the global carmakers from Ford and Volkswagen to Chevrolet, Suzuki and Honda started really burning rubber as they rolled out more small offerings in the Indian market.
It was, as it turns out, good advice. A year later, Bal says he "test-drove all the beauties" and "was seduced by a couple of them." Their $7,500 to $11,500 price tags didn't bother him. But he finally settled for the one liter hatchback A-Star costing $8,700 made by Maruti Suzuki, the Indian outpost of Japan's Suzuki Motors. "Maruti has an extensive sales network and easily available indigenous spares, something that the rest of the guys would take years to build," says Bal. "That clinched the deal for me."
Bal isn't the only one who has fallen for Maruti. To retain its head start catering to middle class consumers like Bal, Maruti Suzuki, the 27-year-old joint venture between Suzuki and the Indian government (which holds a minority stake), is on an expansion spree. In January, the carmaker announced plans to invest an additional $370 million in its new Manesar plant in northern India, beefing up the one million cars capacity by an additional 250,000 units for the domestic and export markets. The company is looking at new models and upgrades with latest technology and multi-fuel options like compressed natural gas (CNG), while a new R&D center is working overtime to sew up a new made-in-India car to debut in 2012. It is planning to set up stockyards across the country to reduce delivery times of cars, and extend its sales and distribution network from 850 to 1,000 outlets to put more vehicles on the road. "We are resolved to keep our market share intact in the Indian passenger car market," says Shinzo Nakanishi, managing director and CEO of Maruti Suzuki. "We will produce 20% more vehicles."
Nakanishi has plenty of reasons to want to hold on to his small-car turf. Small cars, defined as vehicles with engines displacing less than 1.2 liters, already account for two-thirds of the booming 2 million Indian car market, and are expected to skim a total of 5 million by 2014. Maruti, with 13 models and over 100 variants, is in the driver's seat with a 51.5% market share. South Korea's Hyundai is a distant second with an 18.4% share, followed by Tata Motors at 12.6%, according to J.D.Power, the global marketing information services firm.
Maruti's dominant position in India has made it Suzuki's biggest and most profitable operation outside of Japan: It chips in a quarter of the carmaker's global revenues and one-third of profits. In fact, in 2007, Maruti even bettered its eastern parent, selling more vehicles in India than its home market for the first time in 25 years. India is also the global small car hub, churning out a quarter of Suzuki's global production. It exports entry-level vehicles to over 100 countries and is scouting new locations. The key markets for Maruti Suzuki include Africa, South East Asia and Latin America. Next up is a push in the U.S. with the concept car Kizashi. The highly-anticipated Kizashi, says Nakanishi, will be launched in India later this year, and will be the "top-end product in our range." Auto analysts believe that Suzuki's first luxury car may carry a sticker price upwards of $22,000.
But Maruti's hold on the market is not a foregone conclusion. The Indian unit cranks out 100,000 cars a month from the entry level superhero Alto to the top end Swift Dzire, but it now faces an onslaught from global competitors racing on the same track. "2010 is going to be our toughest year yet," says Nakanishi. As auto sales in the West continue to slump, carmakers around the world are relying on emerging markets like India and China. Most of the big players have introduced a new generation of cheap, tiny cars over the last few months in India. Ford launched the four-door hatchback Figo, based on the Fiesta platform, last September. Chevrolet drives the Spark, Beat and Aveo Uva. Volkswagen has Polo, and then there's India's own famous $2,500 Nano, touted as the world's cheapest car, for which Tata Motors has commissioned a second plant to build on the western Indian coast of Gujarat. Nissan's Micra will debut in July, while Honda, Toyota and Nissan are working on indigenously made small cars.
"Maruti will face its first ever serious competition," says Hormazd Sorabjee, the editor of AutoCar India. "Its market share is under threat." Just a couple of years ago, the Maruti 800 was the only entry level car on the market. Today, several players are wooing India's first time car buyers too. Tata Motors has sold around 33,000 Nanos since last June, and over 60,000 bookings are stacked up. General Motors has sold over 18,000 Beats which hit the road in January. And Nissan says its Micra bookings are rising.
The new cars are already denting Maruti's share, according to J.D. Power. Ford is up from 1.9% in 2009 to 5.3% in May this year. Chevrolet's 3.9% share has moved to 4.5%, while Volkswagen has surged from 0.2% to 1.2%. Maruti, on the other hand, has skid a percentage point to 51.5%.
Though it won't be easy to dislodge Maruti, auto experts say the new wave of competition will put pressure on Maruti's profit margins as cars are getting cheaper, and the industry's expansion could hinder supply. "There will be supplier constraints, and there's nothing forthcoming on innovation and the product pipeline," says Abdul Majeed, auto practice leader at consulting firm PricewaterhouseCoopers.
Ajay Seth, Maruti chief financial officer, says the company is working closely with vendors to keep costs low. It has embarked on a program to reduce the material weight of every component by one gram. At the same time, Nakanishi claims the venture is trying to constantly update and refresh its familiar products. "We want to strike a balance between market share and profits," he says. "Our biggest challenge is to better ourselves."