The Maruit Face-Off

It is a pity that the partners should be doing this to the company when it is doing so well. Last year the company improved its market share, its dominance of the entry-level segment remains supreme, the Esteem remains the leader in the mid-sized car market and the Zen is becoming increasingly popular in the 1000 cc segment. But it is foolhardy to think that this will last without aggressive effort. Next year the company will face a dual challenge in the small segment from the Tatas and Daewoo. A couple of fresh challenges are also likely to emerge in both the 1000 cc and mid-size segments.

To keep meeting these challenges, Maruti Udyog will have to take decisions on both technology and investment. Other than the improvements on the Maruti 800 and the recently approved modernisation and capacity hike investment totalling Rs 2,200 crore, there is nothing else on the horizon. If Maruti were to be seriously looking at every market segment, then it should be thinking of countering the Tatas' coming Safari with possibly the Vitara. But valuable as its Indian operations are, Suzuki will not part with new technology or models without management control, and particularly not when it has no confidence in the managing director. The government seems quite complacent with Maruti Udyog's present market share and margins but this is because the Maruti 800, which accounts for a major part of the company's sales, is a ten-year-old model. The depreciated plant naturally allows the car to be the cheapest of its kind in the world. Every new model -- and they will have to come frequently -- will entailing extensive retooling and investment, thus creating fresh financial charges.

If the government does not have any money to invest, the least it should do is allow a small public issue of additional equity, to which Suzuki has already agreed, to help evaluate the company. After this the government will have to decide if it should be in the business of manufacturing cars without having the money to do so. If the two partners do their bit to look after the company then government disinvestment, when it comes, would fetch a tidy sum. But for all this to happen, the two partners have to work together. The government has to appreciate the imperatives that drive technology providers the world over and Suzuki has to be mindful of the sensitivities of what is after all an equal partner. The government has an additional responsibility. It must protect and maximise the value of not just the public investment in the company but also the privilege of early entry granted to it. Otherwise it will be guilty of debilitating or killing the goose that is laying the golden eggs.