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Jagdish Khattar, MD, Maruti Udyog.
Photograph: Prakash Singh/AFP/Getty Images
The sharp rise in interest rates would soon end the party for the country's car makers, the prophets of doom said. It seemed their predictions would turn out to be true when the industry reported single-digit growth in May, after a dream run of three years. But in June, the numbers once again were robust.
Maruti Udyog Ltd [Get Quote], the country's largest car maker, reported a growth of over 25 per cent in sales, up from 9.9 per cent in May. Jagdish Khattar, the company's managing director, spoke to Business Standard on survival strategies in a tough market. Excerpts:
What do the June numbers suggest?
For the rest of the industry, the growth has come largely from new products in the first three months of this financial year. If you take them out, there has been flat growth. I have never drawn any conclusions from the performance of a new product in the first month. You need to watch it after the first few months when it stabilises.
If you look at the Maruti numbers, the new models have not contributed much. But we have grown far more than our competitors.
The reason why this happened is that we have strengthened our network and increased manpower. We have made the operations of our dealers more robust and their confidence is high. Insurance and used cars have given them new revenue streams. They are not dependent on the sale of cars alone.
If your new models did not contribute much, where did the growth come from?
Through the dealers, we have sent 1,500 sales executives in rural areas. We have sold over 3,400 cars to members of village panchayats in the last six-eight months.
There are 2.1 million panchayat members and 200,000 block pramukhs in the country. It is a huge market. We are networking with regional rural banks for this initiative. Ninety six of them have branches in 14,000 villages.
So how is it working?
So far, we have had 21,000 enquiries. Though not all of these will get converted into sales, the initiative is gathering momentum. Once you make the initial penetration in these small towns, future sales become easier.
In the rural areas, the quality of roads has improved quite a lot which, in turn, has improved the possibility of owning a car. We still sell 50-60 per cent in the top 20 cities. But the growth is much higher in other centres.
I tell my people not to look at just the market share for the number of cars sold -- they should also look at the opportunity share. There are 60 million two-wheelers on the road. How many of these can we convert to cars? What can we do to see that they can afford to buy our products? For this, we need to keep our costs and services reasonable. Our strategy is to expand the market. We don't wait for the customer to come to our showrooms.
Some time towards the end of May, I told all company employees that the market seemed headed for a soft landing. The option before us was to either reduce the production at the shop floor or get aggressive at the market place. We chose the latter option. I told the employees, how about each one of them selling at least one car for the company?
So far, they have got 7,656 referrals, resulting in the sale of 1,937 cars. This helps in another way: these employees also get an idea of what the consumer thinks.
The period from May 15 to June 15 was an inauspicious period for new purchases, according to the Hindu calendar. But we did not slow down our production and built up our stock. This really helped us when we shut the plant for a week for routine maintenance.
What difference did it make to your June sale numbers?
Between the sales brought in by the employees and our retail initiative, we will get incremental 10 per cent volumes. That will make the difference between 15 per cent growth and 25 per cent growth. The markets are tough. The interest rates are high. Our marketing spend is much higher.
Such initiatives have really helped us in the past. Two years back, we had a special scheme for teachers where we visited 30,000 schools across the country and sold 13,000 cars. We have a scheme for government employees called 'Wheels of India', where we have sold 58,000 cars in the last two years. There is a scheme for insurance companies called 'Premium Wheels', which has helped us sell 9,000 cars. We have sold 2,500 cars in our offer for employees of the railways, the 'First Class' offer.
What has been the impact of rising interest rates?
We have seen a 10 per cent drop in the financing of cars in the last two months.
How does one cope with this situation?
Some manufacturers are subsidising the additional burden resulting from the higher interest rates. We are giving cash discounts because we feel the customer likes it this way. The bulk of the burden falls on us, though the dealers share a part of it. Our job is to ensure that the profitability of our dealers is maintained at all times.
What IRR do they generate?
Our dealers are doing better than those of others.
Till recently, Maruti was known as an efficient producer of only small cars? What does the success of the SX4 mean?
The success of the Swift and now the SX4 means that we have made the transition from a small car company to a complete car maker. We will soon have three global products in our portfolio: the Swift, SX4 and Grand Vitara. It will be smaller than what we had launched earlier. So the pricing also will be different. We are producing at 100 per cent capacity, even at our new plant at Manesar where we make the Swift and the SX4.
But how will the success in the mid-sized segment impact your future strategy?
Nothing is going to change in the market within the next one year. Some distortions will take place when a new model is launched, but India will by and large remain a compact car market. India is fast emerging as a manufacturing hub for small cars. Everybody is talking of making small cars here for their global needs.
Are the price points being talked about by some companies for their small cars possible?
Let us see. Good people are thinking along these lines. Anyway, it will be a tremendous boost for the vendors.
The small car from Tata Motors [Get Quote] will come first. How will that impact you?
The small car will be purchased by those who cannot afford our car. At the moment, the gap between a two-wheeler and our cheapest car is around Rs 150,000. With the Rs 100,000 car, the gap between us and the next alternative will go down.
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