Maruti - 2: Exports and Exit of the Government

In a country where cars for the masses was still a novelty, Maruti faced many problems. Like transporting cars. The Railways were not interested in customizing for transporting cars from factory to dealers. So it got done by trucks. Causes for damages during transportation were identified and fixed. General insurance taken for such damages was stopped and instead paid by the company: this acted as an incentive to find, fix and prevent damages.

Maruti soon launched the Gypsy. It was a big hit, replacing the jeep among Delhi Police. It became the preferred vehicle of the Indian Air Force and later the Army.

In 1987, Maruti started exporting cars. To Hungary. Why Hungary? Because Maruti wasn’t sure if they’d meet stricter Western standards yet. And also, India had a trade deficit with Hungary; this would help adjust that to some extent… In 1989, when they passed the tests in France, “that was a day of rejoicing”. It was sold as the Alto. It soon became the largest selling car in the small car category. Soon, Maruti vehicles were being sold all over the world, except North America.

Suzuki wanted to manufacture the Zen from India, not Japan, even though it was meant for European markets. Because of the differing import duties the EU applied to products manufactured in India v/s Japan! Suzuki also wanted to discontinue the 800 and shift India to the Zen. Maruti though wasn’t keen because the Zen was costlier, and would require investment to change the assembly line. While Suzuki was willing to invest, the government couldn’t since they had little forex to spare. Nor was it willing to become the minority partner by letting Suzuki invest and get greater ownership of the company. The friction between the govt and Suzuki was getting started.

The government wanted to decide the Chairman and senior posts. Why? Because that allowed the Industries Minister to influence policy of the company to pick vendors, and decide locations of new factories. But Suzuki wanted to run it like a for-profit company. As the friction intensified, the government even considered throwing Suzuki out and replacing it with Daewoo.

Just when a showdown looked imminent, the nuclear tests of 1998 were conducted. Global sanctions followed; and suddenly there were no viable options to replace Suzuki. And so the government finally gave in.

By 2001, the government wanted to exit Maruti altogether. And so an IPO was announced. It was a big success. The government would sell its shares in batches over the years and eventually exit altogether.