At Ganga Automobiles' showroom in New Delhi, a sign promises: "Drive Home Your Dream Today." Tell that to Sunil Kapoor. This civil servant recently went to buy a Maruti 800, a $7,000 sub-compact made by India's Maruti Udyog Ltd., only to discover that he would have to wait at least six months for delivery. Kapoor is resigned to waiting. "There's no place else to go," he sighs.
Soon, people like Kapoor may have more choices. Thanks to the advent of auto financing and other economic reforms, many Indians can afford to buy a car for the first time. Up to now, most of them have been buying Marutis. The government-backed company has long enjoyed a near-monopoly, with 70% of the market. But a wave of new joint ventures will soon flood Indian roads with cars. For Maruti, that means the days of easy money and slow production are coming to an end. So it's investing in facilities to reduce delays that might drive away buyers.
DEARTH ON THE ROAD. Competitors are coming from all over (table). General Motors, Peugeot, and Mercedes-Benz are just some of the auto makers that have announced plans in recent months to assemble cars in India. In a $900 million venture, South Korea's Daewoo Corp. and its Indian partner, DCM Ltd., will start producing a small sedan, the Cielo GL, in July. Plenty more, such as Toyota, Chrysler, and Renault, are contemplating an entree.
Their interest is piqued by the dearth of car owners in the country. Only 1 in every 280 Indians has a car, compared with 1 in 22 Thais. "The potential demand here is enormous," says Sangeeta Mehta, an auto analyst at SSKI Group in Bombay. The market is expected to double or even triple by 2000.
Despite its production problems, Maruti enjoys sizable advantages over its rivals. Founded in the 1970s by Sanjay Gandhi, son of then-Prime Minister Indira Gandhi, Maruti has an exclusive network of dealers and component manufacturers. And Maruti has a valuable partner in Suzuki Motor Corp. The Japanese carmaker designs Maruti's models and approves all vendors and design modifications. Suzuki, which acquired 26% of Maruti in 1983, upped its share to 50% in 1992.
The partnership with Suzuki brings more than Japanese knowhow. By purchasing half the company, Suzuki has distanced Maruti from the government's purview. Only 1 of the 10 board members is now a government appointee. "It has become a very professional company," says Deepak Verma, assistant vice-president of Industrial Credit & Investment Corp. of India. Maruti's earnings report reflects its new management. Revenues for the fiscal year ended Mar. 31, 1995, were $1.4 billion, up 50%. Pretax profit reached $85 million, nearly double the previous year's figure. Car sales rose 30%, to 206,000 units.
To work down its order backlog, the company is investing some of its profits in new capacity. "Maruti is gearing up for competition by gearing up for increased production," says SSKI Group's Mehta. By modifying existing plants outside Delhi, Maruti will able to produce 320,000 cars annually by the end of 1995. The company also plans to build a $400 million factory that would initially assemble an additional 150,000 cars.
BACKSEAT ROLE. The money to pay for the new plant will probably come largely from the government. New Delhi will raise the cash by selling Maruti shares to the public, further reducing its equity. That's a strategy it's following with most other state-owned companies. The sell-off will put Maruti firmly in the hands of Suzuki, which has said it wants to retain its 50%.
Despite these ambitious plans, a few companies still think they can grab share from Maruti in the sub-compact market. Bajaj Auto Ltd., India's largest motor-scooter maker, and Tata Engineering & Locomotive Co., which makes trucks and luxury cars, both have plans. But analysts don't believe such contenders can match Maruti's economies of scale, making it difficult for them to offer a car as cheap as the Maruti 800.
At the higher end of the market, Maruti faces more of a threat. That's where most newcomers are looking. Back in September, Maruti received orders for 290,000 of its $14,000 Esteem model, but more than half the buyers have canceled since then. That's largely because they defected to such new models as Daewoo's $15,000 Cielo. "Competition is coming in," says Ashwini Suri, managing director of Maruti dealership Ganga Automobiles.
Optimists say there will be room for many players, given the changing nature of the market. Just a few years back, says Jagdish Khattar, head of marketing and sales at Maruti, "cars were considered a luxury." Now, he adds, "they are considered a necessity." Rajendra Singh Payal agrees. He works for American Express Co. in New Delhi and feels it is time to leave his motor scooter behind. "Working for a multinational, I don't think [the scooter] is appropriate," he says. Maruti is counting on that kind of sentiment to help it stay on top.