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Hindustan, Oldest Indian Carmaker, Says Losses Wiped Out Half of Net Worth

India’s oldest automaker, whose cars were traditionally used by prime ministers and bureaucrats, has accumulated losses wiping out more than half its net worth as competition from smaller hatchbacks damped demand.

Hindustan Motors Ltd., maker of the Ambassador car, will report the erosion in net worth to the Board of Industrial and Financial Reconstruction, a government agency that helps restructure bankrupt companies, the Kolkata-based company said in a statement to the National Stock Exchange today. The automaker also appointed a new managing director.

Losses at Hindustan Motors, which started operations in 1942, widened in the year ended March as competition from Maruti Suzuki India Ltd., the nation’s biggest carmaker, and Hyundai Motor Co. intensified. Maruti, which started sales 41 years after its older rival, last year sold more cars in a week than the annual sales of Hindustan Motors.

“Ambassador should have reached the end of its lifecycle many years back,” said Puneet Gupta, a New Delhi-based analyst at CSM Worldwide Inc. “It is a not a choice for today’s Indian consumer. It can’t stand a chance given the competition in the market.”

Shares of Hindustan Motors fell 7.7 percent, the most in 11 months, in Mumbai trading to 23.4 rupees. In the year ended March 31, the company posted a loss of 428.5 million rupees ($9.6 million), compared with 377.8 million rupees a year earlier.

Morris Oxford

Hindustan Motors started production of the Ambassador in 1948 from a factory in the state of West Bengal, according to the company’s website. The first version of the car, built in 1942, was based on Morris Motor Co.’s Morris Oxford model.

In March, the automaker sold more than 1,000 Ambassadors, according to a report by J.D. Power & Associates. Demand for the Ambassador mostly came from Indian government departments, according J.D. Power, which expects the model to be phased out by the first quarter of 2016.

Hindustan Motors’ Managing Director R. Santhanam wasn’t available to comment at his office in the southern Indian city of Chennai. Manoj Jha will replace Santhanam as the managing director from May 19, the company’s statement said.

The company tied up with Mitsubishi Motors Corp. in 1998 to make Lancer cars and Pajero sport-utility vehicles from a factory in Chennai. C.K Birla Group, the owner of Hindustan Motors, had a joint venture with General Motors Co. before the U.S. automaker bought out its partner in 1999 to take control of the unit.

Besides the Ambassador, which retails for about 431,000 rupees, the company also sells multi-utility vehicles such as the Trekker. Total sales gained 19 percent in the last fiscal year to 11,007 units, while Maruti sold more than a million vehicles, according to the Society of Indian Automobile Manufacturers.

The Ambassador has fallen out of favor as the Indian prime minister’s ride as well. He is now driven in an armored BMW 7- Series.

To contact the reporter on this story: Vipin V. Nair in Mumbai at Vnair12@bloomberg.net

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