For 40 years, Maruti Suzuki ruled India's roads. Can it continue its dominance?

Maruti Suzuki cars are on display at a showroom in New Delhi. Image: Money SHARMA / AFP

In 1982, a year into his deputation with the then government-owned Maruti Udyog Ltd, a small car project launched by the Indian government, RC Bhargava had a tough choice to make. He had to either stay in the Indian civil services, which meant leaving Maruti Suzuki and going back to work for the government with a fair chance of becoming Cabinet secretary in a few years or sticking on with the public carmaker in a country where a paltry 40,000 cars were sold annually.

Back then, India’s roads were ruled by the CK Birla Group-owned Hindustan Motors and Walchand group-owned Premier Automobiles, which made the popular Fiat cars. “The existing carmakers were going nowhere,” Bhargava, now 88, told a room full of reporters in Ahmedabad in August, where he had come to celebrate Maruti Suzuki’s 40th year of operations. “The market was stagnant at 35,000 to 40,000 cars. Everything was wrong in those days. There were foreign exchange shortages and all kinds of restrictions on imports. So, the sector was not something that excited anybody.”

The decision, however, came to Bhargava quickly, he now reckons. Two decades of being a bureaucrat had made him somewhat disillusioned by how governments function. He soon hung up his civil services career and continued as director of sales and marketing at Maruti Udyog. It is in that role that he and V Krishnamurthy, then managing director of Maruti Udyog, travelled to Japan to meet Osamu Suzuki, the then CEO of Suzuki Motor Corporation, to cement a deal that would see the Japanese automaker team up with the Indian carmaker as a minor partner, and provide technical knowledge for the project.

“Suzuki told me once that when he decided to partner, he was the only person in favour of it,” Bhargava recalls. “Everybody else thought, what kind of decision is that? And that is what most people felt here in India too about the project.”

Forty years later, Suzuki, now 91, was alongside Bhargava at Gandhi Nagar’s Mahatma Mandir along with Prime Minister Narendra Modi, to announce Suzuki‘s latest round of investments in India. On August 28, Suzuki announced plans to invest over Rs 30,400 crore, of which Rs 10,400 crore will go into making cells for electric vehicles (EVs) and ramping up capacity to make EVs, while another Rs 20,000 crore will be used for manufacturing 1 million vehicles, across electric and internal combustion engine (ICE) powertrains.

Also read: After years of staying away, Maruti Suzuki is now desperate for electric mobility play

“The coming of Maruti as a low-cost reliable transport, in many ways, has changed the face of India,” Bhargava said. “We never saw the same number of women who drive cars 20 to 30 years ago, before Maruti came. It has given opportunities to women to enter the workforce more freely because they can commute. Maruti also made a lot of small entrepreneurs come up because they've had the availability of low-cost transport.”

Its low-cost manufacturing, coupled with a distinct advantage of understanding the Indian consumer, has helped Maruti offer vehicles that are affordable, low on maintenance costs, and with superior fuel efficiency. It also boasts an impeccable sales and service network, apart from good resale value, all of which have contributed to the carmaker’s success.

Since 2001, Maruti’s market share has hovered around 50 percent, barring a blip in 2012, and most recently in the ongoing year; this July, it had a market share of 39 percent, compared to 43 percent in the year-ago period.

“You can’t take away from the fact that Maruti helped build the automobile ecosystem in India,” says Puneet Gupta, director for automotive forecasting at market research firm S&P Global Mobility. “Suppliers for mass manufacturing were built, and they skilled most people who then went on to work for many foreign companies when they set foot in India. They ensure Japanese quality and discipline in the business, and many other sectors learned from Maruti’s way of manufacturing.”

Where is Maruti now?

Maruti has had a tremendous run as India’s most preferred carmaker.

From its wildly popular Maruti Suzuki 800, launched at Rs 48,000 in 1983, its portfolio has included some of India’s best-known cars such as Zen, Wagon R, Omni, Alto, Esteem, and Baleno. Today it sells six of the top 10 cars sold monthly in India.

“Maruti Suzuki’s contribution in making India a formidable market is unparalleled,” says Harshvardhan Sharma, head of auto retail practice at Nomura Research Institute. “They took a leap of faith in India when the ‘numbers’ for India weren’t so promising, and it has paid off. It’s also a testament to a strong India-Japan partnership. The best part about MSIL’s journey in India is that it has been symbiotic. Today Maruti’s performance is almost a macroeconomic indicator of the Indian economy.”

RC Bhargava, chairman, Maruti Suzuki India and Osamu Suzuki, CEO, Suzuki Motor Corp. during the foundation stone laying ceremony of Suzuki EV battery plant and Maruti Suzuki vehicle manufacturing facility, in Gandhinagar. Image: PIB

In FY22, the Gurugram-headquartered company sold 11.65 lakh vehicles, cornering 42.75 percent of the market, in comparison to 11.63 lakh vehicles in FY21, with a market share of 48.71 percent, according to the Federation of Automobile Dealers Association. Yet, the last few years have been challenging for the company, especially with rapidly dwindling market share. Much of that, of course, is a result of Maruti’s own doing. It has missed the bus where the SUV market is concerned, which is dominated by Hyundai, Kia, Mahindra, and Tata.

Last year, India sold 30.69 lakh passenger vehicles, of which over 12 lakh were SUVs. Of this, over 6.5 lakh were compact SUVs, with the remaining being mid-size SUVs comprising Hyundai Creta, Kia Seltos and Jeep Compass, among others. That segment is expected to grow at a CAGR of 10 percent and double in the next three to four years.

Maruti, however, continues to hold its ground among small and entry-level vehicles, where it has 65 percent of the market. Hatchbacks, meanwhile, have seen their market share fall by 25 percent over the past four years to around 38 percent, largely due to rising commodity prices and taxes.

“Maruti Suzuki’s market share in the non-SUV segment has been increasing, and is the highest in the last 20 years,” said Shashank Srivastava, senior executive director, marketing and sales, in a July interview. “When you combine the market share with SUVs, it has fallen around 45 percent. Clearly, the SUV segment is dragging down the overall market share.”

The company is now going all guns blazing. Within a span of three weeks in June and July, it launched two SUVs—the next generation of its entry-level SUV Brezza, and its premium, mid-size SUV Grand Vitara—that are expected to give the carmaker a foothold in the booming segment. In August, it launched the next-generation variant of its entry-level hatchback, Alto.  

Also read: How Maruti Suzuki is gearing up to win back its lost SUV market

“We are moving into segments that are more profitable, and have growth,” Bhargava says. “We have been a little late in moving to the higher segments, but it's happened in the past. We will maintain market share and it is not going to be difficult because there are so many other things that work in Maruti's favour. The biggest is the consumer of India. They trust this company and the brand. I think nobody can deny that”.

It’s perhaps this trust that has seen Maruti’s market capitalisation grow nearly eightfold from Rs 34,430 crore in 2012 to over Rs 274,764 crore, a decade later. Its share price has grown from Rs 1,139 in 2012 to Rs 9,093, as of August 30, 2022.

“For a leader, change management is critical, especially at the scale they operate in. Therefore, while a first-mover advantage is good to have, it may not necessarily guarantee success. Furthermore, in the case of MSIL, they have always had a very good sense of the market and have continued to recalibrate themselves as per consumer requirements,” adds Sharma of Nomura. “We must also consider that they did all the above while continuing to build and protect shareholder value.”
 

Missing the electric gamble?

Maruti has also had the ability to sweep in and capture a market, even when it is a late entrant. But that may just not be the case with electric vehicles.

In the past decade, when diesel vehicles saw a massive boom in India, led by the likes of Hyundai, Maruti quickly moved to partner with Fiat for its diesel engine, launch its vehicles with diesel technology, and quickly ramp up sales. Then, in 2019, it led the boycott of diesel engines as the cost to meet emission rates went up, leading to a churn in the country’s diesel engine segment.

Also read: The challenges of auto brands marketing an electric future to Indians

Since then, Maruti has turned its attention to petrol and is now advocating green fuels such as CNG, biogas, and ethanol. Today, it controls 82 percent of the domestic CNG market, with models such as Alto, S-Presso, Celerio, Wagon R, Dzire, Ertiga, and Eeco. In the first half of the current financial year, 101,412 CNG cars were sold, compared to 51,448 in the year-ago period, indicating a 97 percent growth. CNG vehicles have lower running costs, especially since fossil fuel prices have been on the rise in India. However, a shortage of CNG filling stations has been a deterrent to mass adoption of these vehicles.


“If we want to reduce carbon footprint, then we have to use all other technologies and fuels also,” Bhargava said in Ahmedabad. “Electric alone is not going to do the job in India. Whether it is hybrid, ethanol or biogas, all these fuels need to be encouraged over petrol.” This means the company won’t launch an EV before 2025. At the heart of Maruti’s thinking is a belief that electric technology continues to be expensive, making it unaffordable for the masses.

“If I could make electric cars affordable, I would have no problem,” Bhargava says. “But it's not happening because the technology development for electric cars, especially battery technology, nobody is doing in India. How quickly costs will come down, and how quickly electric cars will become more affordable depends on how technology and R&D succeed in finding answers all over the world.”

Also read: Decoding the Indian EV consumer

Maruti Suzuki’s parent company, Suzuki Motors, will set up a facility in Gujarat’s Hansalpur for about Rs 7,300 crore, where it will manufacture advanced chemistry cell batteries for EVs. Suzuki also partnered with Toyota in 2019 for collaborating in new fields, including autonomous driving, that will help Maruti Suzuki in the long run.

“The recent announcement about Hansalpur is a huge positive step towards EV development in India,” adds Sharma of Nomura. “Given the volumes at which MSIL operates, it is prudent to stay invested across all alternative powertrains. If the aim is net zero, it can be achieved with an assortment of powertrains. Automakers might continue to have a diversified development programme, consisting of a composite powertrain tech instead of over-indexing on any particular type.”

But it’s a thought that many of Maruti’s peers in the domestic market aren’t even considering. Instead, many of them are aggressively building electric portfolios. Tata Motors accounts for about 85 percent of India’s EV sales, and it has a slew of models lined up for the next few years, including a third-generation all-EV by 2025, by when Maruti plans to bring out its first EV.

Mahindra, too, announced plans to launch five EVs, and has even set up a subsidiary to focus on building EVs. It has roped in British International Investment (BII), the UK’s development finance institution, to invest in the new subsidiary, valued at $9.1 billion. Another new entrant, Ola Electric, is planning to put out an all-electric car on Indian roads by 2024.

“We are now in what’s perhaps the third phase of shift in the auto sector,” says Gupta of S&P Mobility. “There is a paradigm shift to EVs, and companies such as Tata, Hyundai, MG and others have put their vehicles on the road. As India’s largest car maker, Maruti should have been leading this revolution. But that’s not the case. Aside from the need to protect the environment, this is also the time to give back to the country and not just make money from the country.”

India’s EV market is expected to have a CAGR of 90 percent in this decade, and touch $150 billion by 2030, according to consulting firm RBSA Advisors. Yet, EVs are in their infancy in India and lag markets like China and the US. The government has tried everything—from tax cuts to manufacturing incentives—to kickstart an EV revolution in India.

As of 2021, EVs account for 1 percent of total vehicles sold in India. This number is expected to grow rapidly to 39 percent by CY27, driven largely by electric two-wheelers and electric three-wheelers, according to a report by EY. While e-buses have a lower adoption rate, state government initiatives could significantly ramp up sales in the coming years. However, large-scale adoption of electric four-wheelers is expected to take longer due to range anxiety, varying duty cycles, and inadequate charging facilities, according to EY.

Also read: Debunking 3 myths about electric cars

“MSIL has a strong moat both in the upstream and downstream value chain,” says Sharma. “It isn’t about tactical dominance, but deep-rooted cognisance of Indian consumers and matching it with a highly optimised operational capability.”

In 2021, the Indian EV industry attracted investments of $6 billion and is projected to attract $20 billion by 2030. According to Niti Aayog, India’s EV financing industry is projected to be worth Rs 3.7 lakh crore by 2030, about 80 percent of the current retail vehicle finance industry. Between 2020 and 2030, the estimated cumulative capital cost of the country’s EV transition will be Rs 19.7 lakh crore across vehicles, EV supply equipment, and batteries.

All this means Maruti really needs to up its electric game quickly, before losing further ground in a category that’s only poised to grow stronger. It also has the challenge of regaining lost turf among SUVs, while remaining relevant in India’s automobile industry.

“If you have been number one for a long time, the biggest danger is complacency,” Bhargava said. “We are conscious of that. And these kinds of things that happen periodically, like market share loss, is good in a sense because it jolts us out of the comfort zone and makes us work a little harder to get back.”