Next year we should be back to 40% market-share

Written by Roudra Bhattacharya | Rishi Raj | Updated: Jan 25 2013, 06:17am hrs
With two incidents of labour trouble and a lack of enough diesel models, the last two years have been tough for Maruti Suzuki. Though the car-market leader has been returning to normalcy in terms of production and sales, certain imponderables for the future remain. The company is trying to make more of diesel cars as customer preference has shifted towards it due to the low pricing of the fuel compared to petrol. However, with no clarity on fuel pricing policy, whether it will be fully deregulated in the future, the dilemma before the company is how to plan the product-mix of its future plants, especially the one planned to come up in

Gujarat. In an interview with FEs Roudra Bhattacharya and Rishi Raj, chairman RC Bhargava discusses the market, the prospects and the challenges. Excerpts:

Auto sales have not been good this fiscal. Hows the outlook for the next fiscal and what are the triggers required for sales to pick up, apart from duty cuts, which the industry keeps asking for

So far, nothing has made sales better than what it has been in the last few months. Duty cuts will not happen. The only thing to push demand for cars is faster economic growth and nothing else. Looks like the next fiscal will also have single-digit growth and we should be more or less at the same level. Diesel cars are already slumping, though theres a small jump in petrol car demand because of cars like the Alto. The percentage of diesel car sales has come down by around 1%.

How do you view the recent move of the government to slightly deregulate diesel pricing The oil minister has even said that full deregulation of diesel will happen in the next two years. Does it provide clarity with regard to fuel pricing, which the industry has been asking for

What is being done is not strictly deregulation. Its more like regulated deregulation. Lets see what happens to the actual implementation of policy. The diesel price hike has to happen for more than three months and well have to wait till the 2014 elections and see what the new governments policies are going to be. There is uncertainty on fuel pricing, because of which there is uncertainty on my investment mix. Our petrol engine capacity is lying idle. Where do I export the half-a-million capacity of petrol engines To sell that much in exports is a lot.

Will the new plant in Gujarat focus more on diesel

We havent yet decided the product-mix for the plant. Its one of the things were doing now before we actually approve the project and, with no clarity on the fuel pricing policy of the government, thats a big risk factor for us.

Marutis market-share has been under stress for the last two years. Where do you see heading it in the next year

A few years ago, when we were looking at only passenger cars and sedans, our market-share was 50%. This year, in December, we were 41%, but overall for the year we will touch 38%. This is because of two thingswe should have been around 41%, but the biggest factor was the diesel demand growth from 30% to 60% when we didnt have the capacity. So, in 2011 and 2012, while petrol car sales actually declined y-o-y by a substantial amount, diesel car sales went up by 60-70%. We couldnt match that. So while others gain on diesel cars, our petrol cars declined, so we lost market share.

The strike had some impact, but it was not the major reason. Well make up some of this by increasing diesel production this year and, probably to some extent the gap between petrol and diesel fuel will reduce, helping petrol car sales go up slightly. So, I think, this year, market-share should get back to at least 40%. I will be quite satisfied with that. Its not realistic to expect more with the number of players in the market and we still dont have enough diesel capacity.

Suzuki had upped the royalty it charges from Maruti for technology a couple of years back when the government removed the cap foreign companies can charge from their Indian subsidiary. Do you think charging such high royalties without seeing the specific market conditions is right

When the government freed royalty, then Suzuki brought our royalty rates to the same as the global rates. The development of a new model involves a lot of costs. If a car manufacturer develops a new model, how should he recover it Partly from the sales, but the rest of the recovery comes from royalty. Now, how much royalty you can charge to cover your costs and make some returns on your investments also depends on what volumes you expect to sell. Every model that you make today doesnt sell as well any other model and you cant predict thatit may be 2 million or 5 lakh. So somewhere you gain and somewhere you loseits a business decision, there is no right or wrong in this. In our case, the Alto has done very well and volumes are high, but the Versa was a flop, it didnt sell.

Maruti went through bloody violence at its Manesar plant last year and had to resort to a shutdown. Even before that, for a year the plant was witnessing labour trouble and strikes. Now things are slowly coming back to normal. Have you analysed what lay behind the problem After all, theres no trouble at the Gurgaon plant. Is it because the average age of workers at Gurgaon is higher than that at Manesar

The lower average age is not necessarily the reason because when Gurgaon started, the average age was the same as Manesar. I think the culture that developed in Gurgaon didnt develop at Manesar. In spite of putting in efforts to bring in the culture, it isnt as strong as in Gurgaon.

Suzuki Motor chairman Osamu Suzukis visit for the board meeting on January 25 when the company takes up its Q3 earnings is being seen as unusual. Any specific agenda for his visit

Weve had board meetings in Japan when he couldnt come. There were two or three instances in the last few years when we all went to Japan. So its not that unusual for him to attend, being a board member himself. Except for the wear-and-tear of him coming down, I see it as normal.

At the recent Vibrant Gujarat summit this year, industrialists had surprisingly no issues or grievances to talk about the state. What is it that makes companies flock to Gujarat

If somebody has a problem, it gets resolved very fast at the officer level. The main difference in Gujarat is that the bureaucracy is very receptive to the needs of industry. Most states dont have that; mostly people are hesitant to take decisions when they feel that it is something that will help the private industry. There is a fear complex that if I do this, what will be the consequencesdoes he have an interest somehow. He (Modi) seems to have given the officers the confidencethat do it and Ill back you. It could be some element of Gujarati culture also, but to give civil servants the confidence to take decisions to do things to help industry, that has nothing to do with Gujarati culture. You cannot have growth of industry if it is not competitive with the rest of the world, so if any state wants to promote industrial activity, it has to create such conditions. This covers everything, like infrastructure and power. There is no shortage of power in Gujarat and more capacity is being createdso as industry comes it doesnt look as if they will have to worry about captive power. It is costly for me to use my own power, I would prefer grid power if its uninterrupted and of good quality.