Interview with Mayank Pareek

Company Description Maruti Suzuki India Limited (MSIL), formerly Maruti Udyog Limited, is a subsidiary of Suzuki Motor Corporation of Japan. Maruti Suzuki is a leading manufacturer of passenger vehicles in India. Over the past three decades Maruti Suzuki has changed the way people in India commute and travel. The company offers 15 brands and over 150 variants ranging from people’s car Maruti 800 to the latest Life Utility Vehicle, Ertiga. Its portfolio includes Maruti 800, Alto, A-star, Estilo, WagonR, Ritz, Swift, Swift DZire, SX4, Omni, Eeco, Kizashi, Grand Vitara, Gypsy and Ertiga.

The 2011-12 fiscal had not been very attractive in terms of numbers for your company. Was this anticipated because of the tough economic conditions that prevailed?

The answer will be yes and no. If you ask me, were we anticipating the decline? Then, yes, but so much? No. In fiscal 2009-10 the industry grew by 26pc and in 2010-11 it grew by 30pc. If you track the Indian auto industry, it has never happened that in any year or in any three years sales continuously increase. If it happens, then the correction happens so we knew that there will be a less than 26 or 30 pc growth. Both the industry and SIAM were expecting a 10pc-15pc growth in the industry. Generally this forecast is done around January and February. We follow the fiscal year pattern. So let’s say in January-February of 2011 we were forecasting around 10pc to 15pc growth should happen in the year 2011-12 but it did not happen.  The industry finally grew by less than 5 pc. After we did our forecasting, fundamentally two basic things changed. One was that fuel prices changed very sharply. The other thing that happened and equally dramatically was that while petrol prices went up diesel prices did not go up. So the difference between diesel and petrol prices widened a lot. As a result the market demand moved from petrol to diesel. No one anticipated that. There was a big change in favour of diesel.  While our diesel models had a waiting for 6-8 months, the petrol models had no takers.

Thus, while diesel is growing, in fact last year diesel grew by 35 pc, petrol declined by 18 pc. So all the manufacturers, including us were caught clearly unaware. And it was a very ironic situation that while some of your products are on waiting like 8 to 10 months, some of the petrol cars are difficult to sell. A third thing that happened was that interest rates went up. Almost 70 odd pc cars are purchased on loan.  If interest rates rise then loans become expensive and thereby the cars become expensive and people don’t buy them. The interesting thing here is that almost 60 odd pc customers who buy a car also have a home loan. Now it’s a double jeopardy. Home loan costs went up so the home loan EMI went up so many of them postponed their car purchase to settle their home EMI as the home is the priority. All these 3 things were unanticipated. Nobody anticipated that the interest rates will go up by 3pc.  We can go up by 50 basis points but not 3 pc. Nobody anticipated that fuel prices would go up so drastically. Nobody anticipated that diesel will be the favoured fuel. As a result the projection from the industry of 10 – 15 pc finally realised only 5 pc.

The recently launched Ertiga seems to be a big hit, unlike the Versa that you launched several years back. Did you really work hard on this new product?

You can repeat that. We worked very, very hard on the product. It is a very interesting concept. One of the things about a market leader is that we have to expand the market. A small player cannot expand the market. One, the responsibility of a dealer and a big market leader is to expand the market. Thus, it is very important to create new segments. We meet a lot of customers, interact with them and observe the trend. We realise that in today’s scenario there are a lot of customers who would like to have a product in which they can travel together. Another interesting thing is that now family sizes are becoming small but today friends are becoming families. For example if you stay in Vasant Kunj in New Delhi and want to go to the Saket mall and join a few friends and watch a movie have a drink and come back you will have to take 2-3 cars. That is not as much as fun as going together. We Indians are a very warm people and would like to be together. So we realised that the existing products in this segment were very different. They were either very big that they can’t be personal cars they can be good as taxis which they are but they can’t be personal cars so we realised that there is a demand for a car and the brief we gave to our designers was that we want  car which is “small outside but big inside”. And they were laughing at what we said. How is it possible to make something that is big inside and small outside? But there was a need for something like this. And if you see the Ertiga you will find it. The interior space is really substantial.

We realised that Indians want a car that’s got a big boot as well as big space. But we also realised that 80 pc of the time we don’t use the boot. So we came out with a very flexible seating system. If you fold the rear seat you will see a 460 litre boot there. The same way if all are travelling the space for everybody is enough. We realised that people who sit in the middle seat should have enough space to move so. The middle seat moves by 240 mm so what it gives the customer is the flexibility to move back and forth.  I drove this car for one week and the people I showed the car found it amazing. And we realised also that the customer needs this car in diesel. Petrol will not be successful. Versa which we had launched that time was only in petrol and it was ahead of its time. India was not ready for something like that.

The Ertiga segment will soon be crowded with cheap SUV offering from many auto majors. Are you ready for this competition?

No, actually in a leadership situation you don’t respond to competition. You set the agenda for the industry. If you go back to 2005 we launched Swift and at that time there was nothing called the A2 plus segment. People said why would you buy this car which is 2 lakh more expensive than the existing cars and of the same segment but we realised that there is a class of people for who a car is not just going from Vasant Kunj to Ambience mall. A car is their statement of life. They want more from the car and today you realise that the A2 plus segment is the largest segment in this country. All the manufacturers are coming. Yes, as a leader we create.

Since the purchase of cars is skewed towards diesel now what are your company’s plans in terms of investing further in diesel plants?

I think that diesel is a favoured fuel now. So we have taken some steps. Some are short term steps and some long-term steps. I will tell you both. At the Suzuki Power Ltd plant  we make diesel engines with a capacity of 2,40,000 vehicles annually. This has been been increased to 300,000 units per annum. In addition we have signed an agreement with Fiat India to get 1 lakh engines per year for 3 years beginning this year. So that takes our capacity to 4 lakhs which is a 63pc increase. This is substantial. But going forward what we are doing is investing in our new capacity for diesel.  We are putting up a plant for 3 lakh engines in Gurgaon so the capacity will further increase. It will be done in two phases. The first phase will be over in 2013.

You are also keeping your fingers crossed with regards to government policies on fuel?

Fingers crossed on both my hands!

Do you see a change in the buying patterns of the Indian consumers in the last several years?  You brought in the Swift at a time when nobody could dream of a Swift. You brought in Eritga when nobody could dream of Ertiga. As a leader do you visualise or do you thrust upon them? How does it work?

No. we visualise. Actually one thing is true--- anticipate the change. After the change it looks very obvious and very simple. It looks like a no-brainer actually. Go back to 2005.  When we launched the Swift we were criticised. Many people thought it will not sell.  We said that we will launch a car and sell 5,000 vehicles. We said it from day one. People laughed and said who will buy such an expensive car. We take a lot of time in customer understanding, I personally meet 100 customers every week. We travel a lot. Last year I visited 82 cities in India. Literally every second day I was in a new city.

Do you pick your customers randomly?

Random is the best sample. We do a lot of organised research also. It is done in two phases. One is organised research where I hire a research company and do a focused group. I also believe in direct contact with the customer to understand the trend etc. In our country trends are changing very fast.  We have a young population. Around 65pc of people in the country are below 35 years of age. Around 50 pc of our population was born after 1991. They are exposed to the best in the world. These trends are changing.  But what is not changing, and this is very important, is the quintessential Indian definition of value. We still want value. We want more for less…More for nothing, if possible. You go to the Promenade Mall in New Delhi’s Vasant Kunj area and you can see cars like the S class, the Jaguar, Bugatti and Maserati parked outside despite a large parking lot available inside just to save that 100 parking fees. That’s why our ‘kitna deti hai’  is a very famous commercial. You will notice that even when housewives go to buy vegetable they will insist on the free dhania and green chilies as a matter of right. This is our Indian-ness. And many people ask me why you are so successful in India I tell them perhaps because we know India better. So coming to your question yes, India is changing and yes, you need to identify the trend before it happens. Demographic changes happen very slowly. But when they happen they happen so fast that if you do not anticipate it you are finished.

And Maruti is good at that?

Let’s be humble. We try. And one thing is we spend a lot of time with customers, meet customers and understand them.

Coming back to the popular Swift car, it has overtaken the Alto. Is this an aberration?

It is only this month. Alto will remain by far the largest car.

There are also a lot of reports that your company is developing a 1 litre diesel engine for a small car. Is it happening?

As a leader or an automobile player you continue to develop new products. So we have a natural product plan till 2020.  Because product planning takes 4 years, it’s a continuous process. We will share with you when we launch it.

Is the Maruti 800 being eased out?

You are telling me this. The Maruti 800 is like Sachin Tendulkar. In the year 2000 people said Sachin is retiring and this is 2012, he is still playing. In 2000 people said the Maruti 800 is going, but we are still selling it.  A time will come of course. Everything has a time and we will call all of you and make an announcement.

You have been so good at positioning and anticipating. So what happened with the Kizashi?

The Kizashi was not a volume driver and we had said that at the launch itself. We know that today India is a purely compact car market but let us say by 2020 or so there will be a demand for bigger cars also. And as you know we are a big player in a small car market so we wanted to understand a bigger car . What can we do in the bigger car segment? That’s why we made a very small entry in this segment with the Kizashi to understand this customer. However, what happened was that when we came in March 2011, the market sank. Nobody could predict the timing. Second big thing that happened is that we import this car. The yen has appreciated and the rupee has depreciated it. So the overall proposition becomes very expensive. The cars which are there in this segment also sell around 20-30 units per month. We sell around the same.

Keeping your falling market share in mind, the competition and the emergence of villages and rural areas as potential market, where do you see yourself?

If you see our market share from the year 2000 to 2010 it has not declined more or less. Last year there was a decline certainly but two things you must remember that in petrol our marketshare was 55.5pc which by any stretch you will concede is a good marketshare. In diesel our marketshare was 19pc only because we did not have the capacity to supply. At any no point in time I had less than 100,000 bookings of Swift and Dzire. So if those cars are available then the market share will be up. The marketshare should get the right perspective. Now as far as the rural market is concerned, it’s an extremely exciting opportunity. Four years back when we started our rural market campaign only 3.5pc of our sale was coming from the rural market. Now it has gone to 26pc and growing. And Gandhiji said India lives in the villages. I agree with that. Rural India is a prosperous India. All this government actions which have been taken like National Rural Employment Guarantee Act (NREGA) etc. a lot of money has gone into the rural economy which has given the results.  How does a NREGA guy buy a car? A NREGA guy does not buy a car. But a NREGA guy buys soaps, detergent, grocery etc,  so the grocery shop owner buys the car. It’s a linked economy. Only 40 pc in the rural areas are farmers. Around 60 pc are the people who are supporting the rural economy like shop owners, school teachers, our rural primary health centre people. Thus, 60pc rural customers are non farmers actually. We are 26pc. Numbers will keep on increasing I am sure.

How is the used car business going? Is it continuing to thrive?

Last year Maruti declined by  11. 2pc overall for the new cars but used cars increased by 12pc. We sold 2,36,000 used cars last year. So I tell my team if used cars was a company it would be the 4th largest car company in India.  Maruti, Hyundai ,Tata Motors and used car business. Our target is to make it half a million by 2015, i.e. in the next three years.

Everybody is talking about the exciting XA Alpha concept. Do we see it in some form or other?

We showed a concept car at the last  Auto Expo with the idea to collect feedback from the customers whether they like it or not and the reasons behind it. So that research is going on now.  But the actual fact is that 14pc of the car market in India is SUV and MUV. We came out with Ertiga in the MUV segment and it’s doing well. So let’s hope an SUV product too should do well some day. As the marketing head I want it but there are a lot of practical considerations.