A term paper on :

Maruti Udyog Limited

Term Paper submitted by:

Jaspreet Singh Mithra

MBA / 13 / 2005

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 Contents
1. Phase I
1.1 Evolution of the Indian Passenger Car Industry
1.1.1 Maruti’s Entry into the Indian Passenger Car Markets
1.1.2 Dynamics of Market
1.2 Car Market Classification
1.2.1 Price Based Classification
1.2.2 Length Based Classification
1.3 Maruti’s Offering & Competitors in Different Segment
1.4 Factors Determining Competition in Indian Passenger Car Industry
1.5 Factors Affecting Demand for Indian Passenger Car
2. Phase II
2.1 Industry Overview
2.1.1 Global Passenger Car Industry
2.1.2 The Indian Passenger Car Industry
2.2 Sector Outlook
2.3 Future Scope
3. Phase III
3.1 MUL’s Vision
3.2 MUL’s Business Strategy
3.3 MUL’s supply chain
3.4 Information Technology
3.5 Marketing
3.6 Research & Development
3.7 Manufacturing

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PHASE I

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Evolution of the Indian Passenger Car industry:
During 1960s and the 1970s there were only two manufacturers in the market, Hindustan Motors and Premier
Automobiles with limited production capacities. The import of passenger cars was restricted to the State Trading
Corporation (STC) and foreign diplomats.
During that period the passenger car industry in India grew at a nominal CAGR of approximately 3.6%. The rate
of customs duty levied on cars was 225%.

Maruti’s entry into the Indian Passenger Car Market:

MUL was the result of the joint venture created in February 1981 between Japan's Suzuki Motor Company and
the Indian Government when the latter decided to produce small, economical cars for the masses.
The intention of the venture was to produce a 'people's car'. To get the project off the ground MUL took over the
assets of the erstwhile Maruti Ltd., which was set up in 1971 and closed in 1978.
It was on December 14, 1983 that MUL launched the first Maruti vehicle - the Maruti 800. The first model was
the SS80, a 796cc hatchback car priced at Rs. 47,500.
Subsequently, in spite of price hikes, the car has remained within the reach of the Indian middle class and has
been a runaway success. Available in vibrant colures when India's passenger car population comprised mainly
Ambassadors and Fiats in black and white, M800 gave Indians the first taste of global quality and reliability.
In late1980s, Suzuki increased its equity stake in MUL from 26% to 40% and further to 50% in 1992, converting
Maruti into a non-government company.
In the years that followed, MUL consolidated its position with a line of Indian classics, such as the eight-seat
Omni, the rough-terrain Gypsy, and, in October 1990, a 3-box Maruti 1000. MUL took the lead in the green
drive by launching its CNG-run Omni and Maruti 800 in 1999.
MUL redefined the premium compact segment with the launch of the Zen in October 1993. It was the company's
first 'world car, selling across multiple markets. A year later, the Zen had won several awards, including 'No. 1
car in Europe' (Auto Week, 1994), 'No.1 import in Europe' (1997) and 'most fuel-efficient car' (ADAC).
In 1999, MUL launched Baleno and WagonR. Baleno targeted the premium mid-segment while WagonR was
positioned as a multi-activity vehicle.
In1999, to improve customer satisfaction, it even established a chain of model workshops and soon after, set up
customer call centers in the metros.
In 2000, Maruti Suzuki introduced Alto - a premium small car targeting the export market - and in October 2001,
Versa, a multipurpose vehicle.
In May 2002, Suzuki took management control of Maruti.
In April 2003, MUL rolled out its latest offering, the Grand Vitara XL-7, a luxury SUV imported from Suzuki
Motor Corporation. The Grand Vitara was a concept that was radically different from the models that
comprised the bulk of MUL's sales.
Since 1980 with its product excellence, operational efficiency and customer intimacy Maruti Suzuki has been
the leader in Indian passenger car market.

Main objectives of MUL as set forth in their Memorandum of Association are:

1.To acquire and take over from GoI the right, title, and interest in relation to the undertakings of Maruti Ltd. as
provided for in the appropriate enactment of GoI together with the liabilities of GoI so far as they are
related to the Undertakings of the Company.

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2. To carry on the business of manufacturers of, and dealers in, automobiles, motorcars, lorries, buses, vans,
motorcycles, cycle-cars, motor, scooters, carriages, amphibious vehicles, and vehicles suitable for propulsion on
land, sea, or in the air or in any combination thereof and vehicles of all descriptions (all hereinafter comprised in
the term “motor and other things”), whether propelled or assisted by means of petrol, diesel, spirit, steam, gas,
electrical, animal, or other power, and of internal combustion and other engines, chassis-bodies and other
components, parts and accessories and all machinery,
implements, utensils, appliances, apparatus, lubricants, cements, solutions enamels and all things capable of being
used for, in, or in connection with manufacture, maintenance, and working of motors and other things or in the
construction of any track or surface adapted for the use thereof.

3.To carry on the business of garage keepers and suppliers of and dealers in petrol, electricity and other motive
power for motors and other things.

4.To carry on in the business of iron founders, mechanical engineers, and manufacturers of machinery, tool
makers, brass founders, metal workers, boiler makers, mill rights, machinists, iron and steel converters, smiths,
wood workers, builders, electroplaters, chromium platers, lacquerers, enamellers, painters, metallurgists, electrical
engineers, and printers and to carry on any branch of manufacturing and engineering business.

Share Holding Pattern After MUL IPO:

Dynamics of Market:
Initially Maruti was operating in the market which was the part of a closed economy but with the opening of economy
market scenario has changed dramatically and is at an interesting juncture where both challenges and opportunities are
immense.
According to the statistics available, Indian car market is one of Asia's largest and most competitive markets. Over
1,030,068 passenger cars, multi and sports utility vehicles were sold during 2003/04 resulting in the market growth of
about 32%.
With such immense growth opportunity the Indian automobile market has finally caught the fancy of big players
which are eager to capture the India automobile market at any cost.
And as such Maruti is having a tough competition from the new players, including Hyundai, GM and Honda of Japan.
In the last quarter of 1998 these new entrants in the market had launched an unprecedented assault on the B segment of
the market.
• Daewoo launched the Matiz

• Hyundai launched the Santro. Santro Xing specially created a fresh excitement in the B segment.

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 • Telco launched the Indica

• Around the same time, Fiat slashed the prices of its Uno and launched a Diesel variant. Hyundai has also launched
Getz.

• General Motors is also planning to launch new variants.

• Fiat has reworked the engine of the Palio and is planning to launch another B segment product.
• And then, there are Honda and Toyota.
• It is also predicted that Honda Motors India will be also launching its small car, Life, in India.

Along with the intense competition there are other factors which have made the conditions worse for Maruti

• After almost 18 years, the 800 is on its last legs. This is particularly important as Tata Motors is serious about an
entry-level car at Rs 1 lakh.

• Over the years, MUL's brand value had begun to erode. It is seen as a small-car maker only.
• Maruti was having nothing to offer to the booming market for people carriers in India - Sumo, Qualis, et
al. For this segment Maruti launched Versa. Launched as a higher end alternative to the Omni, it was
expected to click. But the Versa bombed. Launched with sales expectations of a 1,000 units every month,
it did about 100.
• The other launch, the Baleno, went up against the Hondas and the Mitsubishis, and lost money from Day
One.
• In an industry where cars get minor facelifts every year, a major reworking every two to three years, and
are replaced every four or so years, the Zen has remained almost unchanged since 1993.
• It seems that even consumer are having problem equating Maruti with premium.
• Since MUL had exhausted all of Suzuki's high-end products, it is finding itself unable to cope with the
frequent upgrades and relaunches.
• Even when the government's stake in Maruti has come down, the interference will not decrease as seen
with other institutions like VSNL and MTNL.
• Considering Hyundai's emerging status in the Indian market and the lack of government involvement, it
could turn out to be a better pick than Maruti.
• Maruti is also facing problems linked to its higher end mid-sized (segment C) models. Maruti's share in
this segment has fallen from 30 per cent in 1999-00 to 16 per cent in 2002-03.Maruti currently has three
cars in segment C -- Esteem, Versa and the Baleno, of which the latter two have still to make a mark.
• Maruti Suzuki is also having great difficulty in keeping its profit growing as A segment, in which Maruti
Suzuki is the only player has margins as low as 1-2% (Rs 2,000 to Rs 4,000 per car).

As a result in recent years Maruti Suzuki has been consistently been losing out to other players like Hyundai and
Telco in the compact car segment and has been reduced to the marginal player in all segments above B.
Talking in terms of absolute figures Maruti Suzuki's share declined from 61.2% in 1999 to 54.6% in 2003 and
finally to 51% in 2005. Its volumes have dropped from 3.53 lakh to 3.30 lakh even as total industry volumes (cars
and utility vehicles) have shown a compounded annual growth rate of 5 %.

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 Industry & MUL passenger car volumes in India

The above graphs clearly show the blood bathed condition of MUL. They are clearly showing that if MUL has to
continue with its position of being market leader it has to take some of the big steps.

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Car Market Classification:
Before going further it is necessary to understand the Indian car market classification and the segments in which
MUL operates.

There are two principal systems of classification in the Indian passenger car industry:

Price Based Classification

Price based classification is the widely accepted classification basis in the Indian passenger car industry.
The different price segments used by Maruti were as follows:

1. Segment A – cars priced lower than Rs. 300,000

2. Segment B – cars priced between Rs. 300,000 and Rs. 500,000
3. Segment C – cars priced between Rs. 500,000 and Rs. 1,000,000
4. Segment D – cars priced between Rs. 1,000,000 and Rs. 2,500,000
5. Segment E – cars priced above Rs. 2,500,000

Length Based Classification:

In April 2002, SIAM introduced a new segmentation of cars on the basis of the length of the cars, in order to
establish a uniform industry standard. The new segmentation of passenger vehicles is as follows:

1. Passenger cars

• Segment A1 (Mini) – cars having a length up to 3,400mm

• Segment A2 (Compact) – cars having a length of 3,401- 4,000mm
• Segment A3 (Mid-size) – cars having a length of 4,001- 4,500mm
• Segment A4 (Executive)– cars having a length of 4,501- 4,700mm
• Segment A5 (Premium) – cars having a length of 4,701- 5,000mm
• Segment A6 (Luxury) – cars having a length of more than 5,000mm

2. Utility vehicles

• Weight upto 3.5 tonnes

a) Seating capacity not exceeding 7 (including driver)

b) Seating capacity between 7 and 9 (including driver)

• Weight up to 5 tonnes

a) Seating capacity not exceeding 13 (including driver)

• Multi-purpose vehicles (Weight upto 3.5 tonnes).

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Maruti’s Offering and Competitors in Different Segments:
Manufacturer Name of the Segment as per Segment as per
Model length-based price-based
classification classification

1. Daimler Chrysler India Pvt. Ltd. C Class A4: Executive E

A6: Luxury

E 250 A5: Premium E

S Class S Class E
2. Fiat India Automobiles Pvt. Ltd. Fiat Palio A2: Compact B
Fiat Siena A3: Mid-size C
Fiat Uno A2: Compact B
Palio Adventure A3: Mid-size C

3. Ford India Ltd. Escort A3: Mid-size C

Ikon A3: Mid-size C
Mondeo A5: Premium D

4. General Motors India Ltd. Opel Astra A3: Mid-size C

Opel Corsa A3: Mid-size C
Opel Swing A3: Mid-size C

5. Hindustan Motors Ambassador A3: Mid-size B

Contessa A4: Executive C
Lancer A3: Mid-size C

6. Honda SIEL Cars India Ltd. Accord A5: Premium D

City A3: Mid-size C

7. Hyundai Motor Company Ltd. Accent A3: Mid-size C

Santro A2: Compact B
Sonata A5: Premium D

8. Maruti Udyog Ltd. Maruti 1000 A3: Mid-size C

Maruti 800 A1: Mini A

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 Maruti Swift A2 : Mid size
Alto A2: Compact B
Baleno A3: Mid-size C
Esteem A3: Mid-size C
WagonR A2: Compact B
Zen A2: Compact B
Versa Utility vehicles C
Omni Utility vehicles A

9. PAL-Peugeot Ltd. 118NE A3: Mid-size B

Peugeot 309 A3: Mid-size C

10. Premier Automobiles Ltd. Premier – A2: Compact A

Padmini

11. Skoda Auto India Pvt. Ltd. Octavia D

12. Tata Engineering & Locomotive Indica A2: Compact B

Company Ltd

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Certain Figures about MUL:

Factors Determining Competition in

the Indian Passenger Car Industry
• Price
• Brand image
• Product performance
• New model launches
• Distribution network
• After sales support.
• The availability of value-added after sales services.

Factors Affecting Demand for Indian Passenger Cars

Demand for cars depends on a number of factors. The key factors affecting demand for passenger cars in India
are:

• Fuel costs
• Prices of cars
• Per capita income
• Introduction of new models
• Incidence of duties and taxes
• The quality of road infrastructure.
• Availability and cost of consumer financing

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PHASE II

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Industry Overview:
The Global Passenger Car Industry:

Emerging Markets

Income level is one of the key factors affecting new car purchases. The relationship between gross national
income per capita measured in terms of Purchasing Power Parity, or PPP, which is an indicator of the per capita
income, and the number of new car registrations per 1000 persons in various economies, has been shown below:

As shown in the chart, in 2000, developed economies, such as US, Japan and countries in Western Europe, with
higher income levels, had higher levels of new car registrations, while emerging economies, such as India and
China, with lower income levels, had lower levels of new car registrations. With rising income levels in the
emerging markets it is likely that the number of new car registrations will also increase.

Implications of Global Trends on the Indian Passenger Car Market

As a result of rising household income and decline in interest rates, along with current low passenger car
ownership density, many global manufacturers have entered the Indian market. India is generally believed to have
a high GDP growth potential aided by low cost of production and availability of skilled manpower. The high rate
of growth in the sales of passenger cars in India is driven primarily by growth in the sales of passenger cars priced
below Rs. 500,000.

The Indian Passenger Car Industry:

Regulations and Policies Related to Indian Automobile Market:

Over the years GoI has formulated various policies and regulations for the development of the automobile
industry in India.

New Automobile Policy

In March 2002, GoI announced the new automobile policy or NAP. The highlights of the policy and its effects on
the manufacturers are:

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 • Requirement of minimum levels of indigenization was removed.
• Requirement of minimum export commitments was removed.
• Up to 100% equity ownership in Indian companies by overseas manufacturers was permitted.
• Fiscal incentives were provided for cars less than 3.8 meters in length in order to establish India as the
centre in Asia for the export of small cars.
• Tax incentives, automatic approvals for investment by overseas entities in Indian entities
• Concessional duty on import of equipment was provided to entities setting up of automotive design firms
in India.

Trade Regulations

The World Trade Organisation (WTO), of which India is a member, does not allow quantitative restrictions or
QRs (such as import licenses and import quotas) on foreign trade. Since April 1, 2001, all QRs on automobiles are
removed and imports of all categories of new and used cars are allowed. In addition, GoI has imposed several
conditions on the import of new and sed vehicles such as restrictions on the age and the residual life of the used
car being imported, restriction on the port through which the imports are allowed, requirements of certification
from notified agencies regarding various matters, requirements pertaining to the availability of spares and
servicing facilities and a requirement that the used cars can only be exported from the country in which they have
been manufactured.

Environmental Regulations

The Environment Protection Act, Water (Prevention and Control of Pollution) Act and the Air (Prevention and
Control of Pollution) Act require companies to obtain consents for emissions and discharge of effluents into the
environment. In addition, GoI notified norms relating to emission by vehicles, age of vehicles and specifications
about quality and sales of fuels. These environmental regulations are increasingly driving technology innovation
in the passenger car market.

Environmental Policy

Under the NAP, GoI has announced the environmental policy for automobiles. The policy’s key provisions
include:

• Approval of Mashelkar committee report

• Encouragement for cars using alternative fuel technologies like CNG and electric batteries
• Adoption of international standards for levy of road tax such as charging higher tax for older cars, in
order to discourage the use of old vehicles. At present, road taxes are levied at the time of purchase and
are based on the size of the vehicle.

GoI has been developing a regulatory framework to reduce pollution from cars, through a phased introduction of
emission norms. The framework as introduced by GoI, based on the recommendations of the Mashelkar
Committee Report, is as follows:

• Sale of only Bharat Stage II compliant cars in the cities of Mumbai, New Delhi, Kolkatta and Chennai, as
applicable from 2000;
• pplication of Bharat Stage II norms are from April 1, 2003 to the cities of Bangalore, Hyderabad
Ahmedabad, Pune, Surat, Kanpur and Agra and from April 1, 2005 to the whole of India;
• Euro Stage III equivalent emission norms are to be made applicable to the cities of New Delhi, Mumbai,
Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad, Pune, Surat, Kanpur and Agra by April 2005 and
Euro IV equivalent norms by April 2010; and
• Bharat Stage II and Euro III equivalent emission norms specifying quality of petrol and diesel that can be
sold in various cities that become applicable at the same time as the norms applicable to the sales of cars.

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Mashelkar Committee Recommendations

The key recommendations of the Mashelkar Committee Report are as followed:

• GoI should only decide the vehicular emission standards and the corresponding fuel specifications
without specifying the vehicle technology and the type of fuel to be used;
• A roadmap for the implementation of vehicular emission norms and automobile fuel quality;
• Vehicles running on alternative fuels, like di-methyl ether, bio-diesel, hydrogen, LNG, CNG, electric and
fuel cells, need to be encouraged, giving the choice of fuel and vehicle technology to the customers; and
• Putting in place other cost effective measures, such as a comprehensive inspection and certification
systems for in-use vehicles with private sector participation, fitting emission reduction devices in-use
vehicles, traffic management and construction of bypasses.

In order to meet the new emission norms, substantial investments are required to produce appropriate quality of
fuel and vehicles. The Mashelkar Committee Report has estimated that the investment required for upgrading
refineries to produce Bharat Stage II automobile fuels (petrol and diesel) is estimated to be around Rs. 170 billion.
An additional amount of around Rs. 180 billion would be required to produce Euro-III equivalent petrol and
diesel. Also, the test facilities currently available in the country are inadequate to meet the new regulations.
According to SIAM estimates, the cost of setting up additional facilities to test vehicles as per the new regulations
would be around Rs. 10.4 billion (excluding the cost of setting up inspection and certification centers). Hence, the
Mashelkar Committee Report has recommended that preferential treatment be given to the oil and automobile
industry in matters relating to:

• Customs duty on imported capital goods, equipment and machinery needed for the upgradation of
technology/facilities
• Excise duty on indigenously manufactured capital goods, equipment and machinery needed for
upgradation
• 100% depreciation on plant and machinery set up for upgradation
• Soft loans for technology modernization/upgradation projects.
• Adequate incentives, such as tariff differentials and other measures to enable the domestic industry to
compete with imports; and
• Financial incentives to the manufacturers and users of electric vehicles in order to make these vehicles
competitive.

Safety norms
GoI has notified the requirement for use of safety belts in all cars. In addition, new noise control norms for
passenger cars were notified by GoI and became effective from January 1, 2003. GoI has also indicated that in the
future additional safety norms will be made applicable to passenger cars to align them with international
standards.

Sector Outlook
Between fiscal 2002 and fiscal 2007, the entire Indian passenger car market is expected to grow by approximately 9.5%,
largely as a result of increasing demand for segment B cars.

Segment A
This is the entry-level and the most price sensitive segment. Maruti is the sole manufacturer in this segment since fiscal
2000. Between fiscal 2002 and fiscal 2007, this segment is expected to post a CAGR of 2.7%.

Segment B

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This segment is expected to grow to 57.6% of the Indian passenger car market by fiscal 2007 at a CAGR of about
12.3%. Due to the present low per capita income in India, the price and cost of ownership of cars are significant factors
that affect demand for cars in this segment.

Segment C, D, and E
There are 11 manufacturers with approximately 20 models in these segments. These segments typically have low sales
volumes; therefore, high growth rates of 11%, 19% and 35%, respectively, are expected between fiscal 2002 and fiscal
2007.
New model launches, growth in per capita income levels, high aspirations and status associated with larger cars, are the
key factors affecting demand for cars in these segments.

The Pre-Owned Car Market

The size of the pre-owned car market in India has been estimated to be more then the size of the new car market. The A
and B segments account for between 70 and 80% of the total sales volumes in the pre-owned passenger car market in
India. The proportion of pre-owned cars from segment B is increasing and is expected to form the largest portion of the
preowned passenger car market. Mid-size and large cars are less popular in the pre-owned passenger car market
primarily due to faster depreciation in value, lower fuel economy and higher maintenance costs.

The key factors affecting demand for pre-owned passenger car market in India are as follows:

• The entry of organized participants into the pre-owned passenger car market resulting in
(1) A more transparent process in valuation and assessment of quality,
(2) A more convenient means of selling or exchanging pre-owned cars and
(3) The availability of adequate warranties.

• The introduction of a large number of models in the new car market and a reduction in the holding period
resulting in wider availability of recently introduced models in the pre-owned passenger car market
• An increase in per capita income levels in urban and rural areas and wider availability of consumer finance for
the purchase of pre-owned cars.

Future Scope:
1. At present, car penetration in India is about 7 cars per 1000 people, which is even less than some of our
neighboring countries. There is also a large population of two wheeler owners, who would naturally upgrade to an
entry-level car. Therefore there is large latent demand for passenger cars waiting to be tapped. The compact cars
will continue to dominate the passenger car industry in India.
2. The highway and road construction projects, such as the Golden Quadrilateral Project, a highway connecting the four
metropolitan areas of Kolkata, New Delhi, Mumbai and Chennai. Availability of better road infrastructure will also
affect demand for cars.
3. Passenger car sales account for over 77% of total passenger vehicle market and UV’s account for the balance.
In fact, UV’s have a higher share than what they did in the earlier years. It is still lower compared to some of the
developed countries. In USA for instance, UV’s account for 50% of the total Passenger vehicles market and in
Indonesia they account for 80% of the market. Hence in the future there will be more and more demand for UV’s
hence an opportunity for MUL.

4. The enabling factors for Indian passenger car industry are all in place namely, robust economic growth,
favourable regulatory framework, availability of affordable finance and improvements in road infrastructure.
However, there are some uncertainties like the growing higher oil prices, which could impact the auto industry.
Hence the Indian auto market is at an interesting juncture where both challenges and opportunities are immense.

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PHASE III

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MUL’s Vision
The Leader in the Indian Automobile Industry, Creating Customer Delight and Shareholder's Wealth; A
pride of India.

MUL’s Core values

• Customer Obsession
• Fast, Flexible and First Mover
• Innovation and Creativity
• Networking and Partnership
• Openness and Learning

MUL’s Principal Objectives

As the leading player in the small car segment of the Indian market, they have the following principal objectives:

• To expand the size of the Indian market for small cars by strengthening and expanding the dealer
network and making automobile financing available at competitive rates
• To strengthen their leadership position in the small car segment of the Indian market; and

• To continue to benchmark themselves against improving global manufacturing, marketing and other
practices and standards, strive to increase customer satisfaction through quality products and new
initiatives, and promote the financial strength of their sale network.

MUL’s Competitive Strengths

• Expertise in small car technology. As a subsidiary of Suzuki, they have access to globally respected
technology in the small car segment. They have the advantage of Suzuki’s expertise in all aspects of
small car technology and design, with respect to their products, manufacturing processes and business
practices, the development of their supply chain and the training of personnel.
• Extensive product portfolio. Their diverse product range includes cars in segments A, B and C, and
utility vehicles.. They are the major manufacturer of cars in segment A (priced below Rs.300,000). The
Maruti 800 has been the largest selling car in India for several years, and still continues to have the very
high sales volumes. They also manufacturer three distinct models, the Zen, the Alto and the WagonR, in
segment B (priced between Rs. 300,000 and Rs.500,000). Their dominance in segment A and extensive
product range in segment B enables them to offer the customer a wider choice in the small car segment
than any of their competitors. In addition, the absence of any major manufacturers in segment A gives
their dealers greater flexibility in promoting models in segment B.

• Quality products. In November 2001, MUL was one of the first automobile manufacturers in the world
to receive the ISO 9001:2000 certification. They benchmark their products against international quality
standards. They export heir products to approximately 70 countries, which are manufactured using the
same assembly line as that for the domestic market.

• Extensive sales and service network MUL has the largest network of dealers and service centers
amongst car manufacturers in India In addition to the distribution of cars, their dealership network is a
critical resource in their efforts to provide customers with a “one-stop shop” for automobiles and
automobile related products and services such as automobile finance, automobile insurance, Maruti-
certified pre-owned cars available for purchase, and leasing and fleet management, in order to promote
customer loyalty.
• Brand strength: MUL is present in the Indian market for almost 24 years and have built the brand on
the basis of the values of trust and reliability In 2000, 2001 and 2002, J.D.Power Asia Pacific, Inc.

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 ranked MUL the No. 1 in the India Customer Satisfaction Index, which assesses customer satisfaction
with product quality and dealer service. NFO Automotive’s 2002 Total Customer Satisfaction Survey
ranked Maruti products as No. 1 in the “Economy”, “Premium Compact” and “Entry Midsize” segments
respectively, for 2002.

• Integrated manufacturing facility. Their manufacturing facility consists of fully integrated plants with
flexible assembly lines located at Gurgaon. The facilities have advanced engineering capability and each
plant is upgraded on an ongoing basis to improve productivity and quality. They are one of the most
efficient among the vehicle manufacturing facilities of Suzuki’s subsidiaries outside Japan in terms of
productivity measured as the ratio of number of vehicles produced to number of employees.

• Strong vendor base and higher rates of localization: In order to improve quality and generate
economies of scale, MUL has reduced the number of vendors of components in India from 370 as of
March 31, 2000 to about 100 as in 2005. As of the same date, they had strategic equity interests through
joint venture agreements in their vendors, who together supply a substantial portion of the purchases of
components. A number of their vendors are their dedicated suppliers in that they account for a majority
of their turnover. Vendors located within a radius of 100 kilometers from the facilities supply the
majority of the components. The production systems of their vendors are generally aligned to their needs
for a reliable and timely supply of components that meet the required quality standards. This has enabled
MUL to increase the proportion of locally xsourced, lower cost components in their models, a concept
refer to as localization.

• Skilled labour and experienced management. The labour force at MUL has become increasingly
productive in terms of vehicles produced per employee and receives training on an ongoing basis,
including training by Suzuki. Due to their presence in the Indian passenger car market for a significantly
longer period they have been able to build a highly experienced management team that is familiar with
conditions in the Indian passenger car market.

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MUL’s Business Strategy
MUL intend to continue to focus on the small car segment, while offering products in most segments of the Indian
passenger car market. The business strategies of MUL are:

Maintain and enhance the product range. MUL utilize Suzuki’s expertise in small car technology to produce
new variants of the existing models and to upgrade the existing one with contemporary technology and features.
They intend to increase the number of variants of existing models in the A and B segments

Increase reach and penetration. MUL has one of the extensive sales and service network in terms of
geographical spread, and penetration, in terms of sales volumes across India. They continuously assist their
dealers in enhancing their performance and profitability by suggesting improvements, such as increasing the
number of sales executives employed at dealerships. Currently, wide network of MASSs primarily provides after-
sales service. They can even use the MASSs that are located in some of the more remote areas of India as sales
outlets to increase the reach and penetration in those areas.

Increase availability of automobile finance. MUL being the market leader should seek opportunities to expand
the size of the Indian passenger car market, especially in the small car segment. They have made available,
through the dealers, finance products of eight select finance companies under the brand “Maruti Finance”. This
increases the availability and transparency of the financing transactions, which can contribute greatly to the
customer satisfaction and confidence. Their agreement with the State Bank of India, or SBI, to provide the finance
to their customers has enabled it to leverage the strength of the extensive network of SBI, more than 9,000
branches across India. This all will enable it to promote the demand of its offering among SBI’s vast customer
base and expand the size of the passenger car market in India.

Secure repeat purchases by offering a “360 degree customer experience”. MUL is extensibly trying to provide
customers with a “one-stop shop” for automobiles and automobile-related products and services. They are trying
to make available to the customers a wide range of Maruti-branded services at different stages of ownership. This
helps them to secure repeat purchases by the existing customers and increase the revenue. The following products
and services offered by MUL:
- Automobile insurance;
- Automobile finance;
- Maruti-certified pre-owned cars available for purchase;
- Leasing and fleet management;
- Accessories; and
- Extended warranties.

Continuous benchmarking of manufacturing capabilities: MUL continuously benchmark, with that of

Suzuki’s premier one, its facility to improve its operating efficiencies. As part of Suzuki’s plans to make Maruti
its research and development center for cars in Asia (outside Japan), it is expected that MUL will ultimately be
having the capability to have full model change capability.

Continue to reduce costs to offer more competitive products. Cost competitiveness has been, and continues to
be, central to MUL’s strategy, as the leading manufacturer in the small car segment, to expand the size of the
market by offering competitively priced, high quality products.

The components of this strategy are:

Higher levels of localization
MUL has increased the level of localization over time by working closely with the vendors in India to upgrade
their capabilities, which has enabled them to reduce costs and has increased the flexibility in pricing. A look at the
new models tells that MUL, with any new model, tries to have a minimum of 75% localization level and then tries
to increase the same to at least 90%.

Vendor participation in cost reduction

In some of the major vendors MUL has implemented the “Maruti Production System” which focuses on the
eliminating the wasteful activities in their manufacturing processes such as improving their productivity, reducing

20
the number of their components that are rejected, reducing materials handling, improving their yield from
materials, and reducing their inventories. This helps in reducing the costs of production, which also reduces the
costs of the components being required by MUL.

Cost reduction on warranties

The warranty costs of the vendors are the cost of components incurred by them to service warranty claims arising
from defects in components supplied by them. MUL works in association with the vendors to reduce their
warranty cost.

Reduction in initial investment cost

Through in-house development and localized sourcing of dies, welding jigs and other equipment, introduction of
flexible welding lines that can be used for multiple models, and in-house development of machine shop equipment
,MUL tries to reduce the initial cost associated with the initial investment.

Reduction in number of vehicle platforms

MUL currently uses six basic vehicle platforms for production. They even intend to reduce the number of basic
vehicle platforms and increasingly share basic vehicle platforms among multiple models
in order to spread development costs and achieve economies of scale.

.
Lowering the cost of ownership: MUL seeks to reduce the Consumer’s cost of ownership of their cars, which
comprises the cost of purchase, fuel consumption, maintenance, including spare parts and repairs, insurance, and
resale value. MUL is trying to achieve this by:

• manufacture high quality, fuel-efficient, cars;

• price cars, spare parts and accessories, and extended warranties, competitively;
• make automobile finance more easily available to the consumer on competitive terms;
• make maintenance services, including spare parts, accessories and repairs, widely available through the
extensive sales and service network;

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 • offer automobile insurance and other automobile-related services through the sales and service network;
and
• Create a market for Maruti-certified pre-owned cars through “Maruti True Value” business.

New Business Initiatives

As the largest manufacturer and leader in the small car segment, Maruti had continually seek new ways to utilize
vast car parc, range of products and extensive sales and service network to expand the size of the passenger car
market in India. Maruti recently launched new initiatives to develop the market for automobile insurance,
automobile finance, leasing and fleet management, and pre-owned cars. They are aiming to provide customers
with a “one-stop shop” for automobiles and automobile-related products and services, and build on wide customer
base and extensive sales and service network to make available to their customers a wide range of Maruti-
branded services at different stages of ownership, which they refer as the “360 degree customer experience”. In
the nine months ended December 31, 2002, their new business initiatives generated net revenue of Rs. 44 million.

Automobile Finance
One of the key factors in the buying decision of a customer in the passenger car market in India is the availability
of finance. Automobile finance has in the past been made available through direct selling agents of independent
finance companies. Since January 2002, Maruti had made available, through their dealers, finance products of
eight select finance companies, including those of two of their group companies, Maruti Countrywide Auto
Financial Services Ltd., a joint venture among Maruti, Housing Development Finance Company Ltd. and GE
Capital Services India Ltd., and Citicorp Maruti Finance Ltd, a joint venture between Maruti and Citicorp
Overseas Investment Corporation Ltd, under the brand “Maruti Finance”. Maruti aggregates the finance products
provided by these companies to offer uniform financing conditions to the customer at Maruti dealerships. This
increases the transparency of the financing transactions, which they believe contributes to customer satisfaction
and confidence in their brand. Maruti earns a sourcing fee from the finance company while the credit evaluation of
the customer and the loan disbursement to the customer is done by the finance companies.

Alliance with the State Bank of India (SBI)

In February 2003, Maurti entered into an agreement with SBI, the largest bank in India with over 9,000 branches
and a vast customer base across India. The arrangement is to be branded “SBI MUL Finance”. Under the
agreement with SBI, they had to nominate SBI as their preferred financier for customers who purchase Maruti.
SBI has agreed to provide automobile finance to Maruti’s customers. In addition, SBI has agreed to work in close
coordination with their dealers and with them in order to develop finance packages, conduct promotional activities
and generate car loan business. The credit evaluation of the customer and the loan disbursement to the customer is
at the discretion of SBI. They believed the competitive rates offered for the finance products under this alliance
and access to SBI’s extensive branch network will make their passenger cars affordable to a greater number of
customers and expand the size of the market.

Insurance Intermediary
Automobile insurance is mandatory in India. It is purchased upon the purchase of a vehicle and is subject to
annual renewal. Two of their subsidiaries, Maruti Insurance Brokers Ltd and Maruti Insurance Distribution
Services Ltd, have entered into alliances with insurance companies. Since May 2002, these companies have been
acting as intermediaries offering products of these alliance partners under the brand name “Maruti Insurance”. As
dealers claim payments on insurance claims directly from the alliance partners, the customer is provided with the
benefit of a cashless transaction in respect of the repairs or spares that are covered by the insurance policy.
Additionally, due to the availability of this benefit, the customer is encouraged to use their dealers and purchase
MGP, thus adding to their revenue from sale of spare parts and to revenues of dealers. Maruti earns sourcing
revenues from insurance companies for each customer using “Maruti Insurance”.

Leasing and Fleet Management

Maruti leasing and fleet management services offered to corporate clients are marketed under the “Maruti N2N”
brand. While the functions of brand management, business development, maintenance, risk-underwriting and fleet
management operations are managed by them, Maruti uses the services of four key alliance partners in order to

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run this business: the financier, the dealer, the insurer and the car rental agency. The financier conducts initial
credit assessment of the clients, provides funding, takes residual value risk, is responsible for collections and
engages in lease product development. Under standard agreements entered into by them, the primary
responsibility for maintenance and value-added services, valet services and car replacement lies with them. Maruti
delegates this responsibility to their alliance partners. The dealer maintains the cars and provides other value-
added services such as valets and emergency assistance. The insurer provides vehicle risk underwriting. The car
rental agency provides replacement cars if and when necessary. Maruti earns fleet management rental fees from
the client and a business development fee from the financier.

Pre-owned cars business

Pre-owned cars, being less expensive, address demand among two-wheeler vehicle owners aspiring to own a car
and among existing car owners to upgrade their cars. The pre-owned car market in India was estimated to be
between 1.1 and 1.3 times the size of the market for new cars and utility vehicles in fiscal 2002. Until recently, the
business of selling pre-owned cars was handled predominantly by the unorganized sector. This led to a lack of
reliability and transparency in transactions involving pre-owned cars. With their wide range of products, they are
well positioned to offer customers the opportunity to upgrade their cars. Maruti’s pre-owned cars business,
launched in October 2001 is conducted under the brand name “Maruti True Value”. Maruti believes that their pre-
owned car business is a significant marketing tool to retain customers and reduce their cost of ownership, and
acquire new customers. This can be achieved by creating an organized market for the resale of the pre-owned cars,
where the value of the pre-owned car is assessed in a more transparent manner and the car is certified by Maruti.
While the central intermediary to the transaction is a dealer, they play an advisory role in conducting technical
evaluation, estimating the refurbishment cost and providing certification and warranty to the buyer of the pre-
owned car. The warranty given to the buyer of the pre-owned car is covered by an arrangement with insurance
companies. Prior to certification, every car passes through a 120-point check, which includes verification of the
seller’s credentials. The refurbishments of pre-owned cars which are under “Maruti True Value” improves the
utilization rates of dealer workshops and other “Maruti True Value” outlets and also increase the sales of spares.
Maruti receives from dealers a proportion of their revenue, net of cost of refurbishment of the pre-owned car. As
on March 31, 2003, “Maruti True Value” operated from 50 dealer-owned outlets spread over 34 cities. An
additional 30 dealer-owned outlets are at various stages of launch.

Mul’s Supply Chain

MUL’s inputs primarily comprise raw materials and purchased components. Only a small amount of raw material
and components consumed are imported and a much larger portion is purchased from the sources within India.

Raw Material Suppliers

The raw materials used in the manufacturing process primarily comprise steel coils and paints. In recent years,
MUL is increasingly trying to localize the purchases of steel coils with a view to reduce cost. Earlier MUL used to
follow the tender system for the purchase of steel. Under this system, specifications were advertised and accept
the lowest price offered by a supplier who could meet the specifications. In 2001 MUL moved to the quotation
system which gives them the flexibility to renegotiate the prices once an offer is submitted. Standard purchase
orders are issued covering a period of six months for purchase of steel from foreign suppliers for Indian supplier
the period extends up to one year. .
At MUL the role of the vendors has gradually evolved from tactical to strategically where the vendors work in
close coordination with MUL to meet our long-term goals in terms of:
• component development;
• quality;
• delivery; and
• Cost control.

In order to improve quality and generate economies of scale, MUL has reduced the number of vendors of
components in India from 370 as of March 31, 2000 to about 100 as in 2005.
In case of repair and replacements, costs of defective components supplied are borne by the vendor.

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Delivery by Vendors
MUL has a delivery instruction system that provides details of the component requirements for every 15 days,
across the different variants of the various models, to the vendors. Vendors are linked to the MUL through the
Internet-based information network, which maintains online information regarding order status and delivery
instructions. These has helped in reducing both inventory levels and lead times required for the supply of various
components and sub-assemblies, and enable the vendors to more efficiently plan and dispatch their products.
Vendors located within a radius of 100 kilometers from the manufacturing facility supply the majority of the
components. This has enabled the vendors to eliminate packaging and supply components directly to the assembly
line.

Reduction of Vendor Costs

In some of the major vendors MUL has implemented the MPS, which focuses on the elimination of wasteful
activities in their manufacturing processes. Vendors are helped in areas such as improving their productivity,
reducing the number of their components that are rejected, reducing materials handling, improving their yield
from materials, and reducing their inventories. This helps reduce their costs of production, and also reduces the
costs of the components required.
In addition the work is going on to integrate the vendors into the worldwide purchase system, or WWP, whereby a
vendor may become the sole supplier for a Suzuki product in several countries including India. This would
generate economies of scale for the vendor that will also result in the reduction of the costs.

Vendor Quality Control

Quality management system such as ISO 9000/ QS 9000 forms the basis for producing a quality product. To assist
small and medium vendors in achieving ISO 9000 certification, in 1995 MUL adopted a cluster approach wherein
vendors are grouped together, are trained in quality management and are assisted in obtaining ISO 9000
certification. This cluster approach was extended to helping vendors attain QS 9000 certification. Periodic vendor
quality system audits are conduct in order to ensure that quality standards are sustained.

Imported components

Imported components are mainly purchase from Suzuki

Sales network

Dealers: MUL has the largest network of dealers amongst car manufacturers in India. As of March 31, 2003,
dealers had employed more than 3,500 sales executives. Sales network is linked with the MUL through the secure
extranet-based information network. The sales of spares, accessories and Automobile-related services such as
insurance and finance serve as additional sources of revenue for the dealers. The availability of these related
products and services at sales outlets also helps to attract customers to the outlets and promotes sales of the cars.

Agreements with our dealers MUL dealers provide services to customers such as pre-delivery inspection of
vehicles, sales of cars, after sales service, supply of spare parts and other services that promote sales of cars within
the territory for which they are appointed. Dealers are required to maintain their outlets in accordance with the
specifications and employ well-trained sales staff. Agreements with the dealers are usually of five years. These
agreements are generally renewable for successive terms of three years, by mutual agreement.

Enhancing dealer performance: The performance of the dealers is followed and improvements are suggested
frequently. In order to assist the dealers in enhancing their performance and capabilities, MUL has introduced a
concept of “Balanced Scorecard”. Using this tool, the performance of a dealership in several areas of operations,
including sales, service, spares and accessories, financial management and management systems is measured.
Dealers who perform well on the “Balanced Scorecard” are reward with a cash payment at the end of the fiscal
year. The “Balanced Scorecard” serves as an effective incentive for dealers to enhance their performance.

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After-sales Service Network

There are more than 400 Maruti dealer workshops and more than 1,500 Maruti Authorized Service Stations, or
MASSs, covering more than 900 cities in India. In addition, 24-hour mobile service is also offered under the
brand “Maruti On-road Service”. As a benchmark for dealers with respect to service quality and infrastructure
facilities, MUL has launched service stations under the brand “Maruti Service Masters, or MSMs. MUL also has
service stations on highways in India under the brand “Express Service Stations”. To promote sales of spare parts
and the availability of high quality, reliable spare parts for its products, spares are sold under the brand name
“Maruti Genuine Parts”, or MGP. These are distributed through the dealer network and through the authorized
sellers of the spare parts. Many of the MASSs are at remote locations where MUL do not have dealers. In order to
increase the penetration, in terms of sales volumes, of its products in these remote areas, some of the MASSs are
integrate into the sales process in order to increase sales of the cars and related products and services such as
spares and accessories, insurance and financing

Information Technology

The largest automobile manufacturer in India, Maruti Udtog Ltd. (a division of Maruti Suzuki) produces half a
million cars annually. But in the late 1990s, the company was facing rapid technological obsolescence; spiraling
IT and support costs; increased pressure on recruiting skilled manpower and reducing high turnover; non-standard
operational IT service levels and an unstructured approach to problem management.

Maruti Udyog, at that time, was performing all IT support services in-house; Because of the turnover, service
levels were poor and not cost-effective. Maintaining people resources for so many different things -- hardware,
software, networking, and systems software – was the greatest problem for the MUL.

Outsourcing IT support and management to Compaq Computer Corporation (now known as HP) turned the
troubled situation into a highly successful operation. Compaq, at that time, had a strong presence in India with a
wealth of IT skilled employees

Today, Maruti Udyog possesses 51 percent of market share in its domestic market, uses world-class best practices
and program management, has greatly improved customer satisfaction and achieves a higher return on investment
(ROI) on its IT investments.

Lesson: Manufacturing companies often need a wide range of software and hardware skilled IT personnel to
manage and support their infrastructure. Outsourcing IT processes is the most cost-effective means of handling the
costly turnover.

Until 1993, MUL's IS environment was predominantly mainframe centric. In that year, the company decided to
move to an open environment. It drew up a plan that detailed the new infrastructure and the applications to be run
on the network. At the very outset, it decided to go for fiber optic cabling, even though fiber was just introduced
in India at that time. This gives them the fiber's reliability and scalability. They now have an infrastructure that
can scale to support applications which can be added in future.
Before a car is produced, the systems at the shop floor connect to a central database and query it about the car
model that needs to be manufactured. The response from the database takes less than a few seconds, so that the
assembly line can start running. For this, two critical issues taken care of are : Reliability and throughput.
To ensure reliability, MUL chose a meshed network, so that if one link goes down, the shop floor and the data
center can still communicate through an alternative route. The entire infrastructure is geared towards ensuring that
the shop floor can run in real time.

MUL has also implemented an enterprise management system, called Unicenter TNG." The software monitors all
links. If something goes down, an automatic complaint is logged into MUL's internal call center.

25
The IT applications MUL runs are mostly enterprise wide. Some of the critical or major applications include
materials for making and dispatching cars and spares to distributors. MUL distributors, who interact with the
company daily, also use a Web-based application to log in their requirements for new cars, spares and accessories.
They can also track the status of their order. In fact, the system is being expanded to offer finance, insurance and
other intangibles to customers. All these applications run on the Internet and connect to the databases in Gurgaon.

Dealer Management System (DMS)

Very recently Maruti Udyog Limited has joined hands with Wipro Infotech, the Asia Pacific and Middle East
information technology arm of Wipro Limited, for a nationwide Dealer Management System (DMS), which is the
first of its kind information network system implementation in India.
The system will enable the 450 dealerships of Maruti across India to access updated information from the car
manufacturer and a real time view of their operational processes for better efficiencies.

The system will assist dealerships in customer retention and help build lasting relationships. As far as the
customers are concerned, they will benefit from the ‘single face of Maruti’ irrespective of the dealership. It will
help raise customer service levels and enhance the quality of management at dealerships, a company release said.

The system, apart from dealer integration with a central database, will also serve as a knowledge repository from
where dealerships can access information on customer schemes, product features and price lists. Wipro, as the
core IT partner with Maruti, would be responsible for implementation, networking, training and sustenance of the
dealer management system. The system aims at issuing alerts to dealerships whenever they are falling short of
performance norms in various areas like level of customer complaints, handling and sales.

Maruti Computes
MUL's desktop applications run on the Citrix MetaFrame platform

A need to replace old PCs regularly was the key reason behind choosing MetaFrame. Most PCs in Maruti were
bought during the grand systems overhaul in 1993. Gradually, need arises for more memory and faster processors.
As a result demands for replacements and upgrades were there. That's when MUL started evaluating the need for
thin client technology for desktop applications. Another factor that influenced the deployment of Citrix's
technology was the need to control users' access to desktops. In a normal PC environment, users tend to install
many unauthorized applications via CD-ROMs, floppies and even Internet downloads. Maruti faced a similar
problem.

All these factors led to the MetaFrame deployment. The MetaFrame environment also enables: An executive to sit
on any PC and access her/his personal desktop with all her/his necessary applications.

However, not all applications in MUL are supported on the MetaFrame platform like HR applications for salary,
reimbursements and the like, which are hosted in a client-server environment. All these applications are ported
onto the NFuse server . Even the developers' team accesses its applications through NFuse.

The data story

MUL sure takes its business data seriously. The total data today hovers around the 2-Terabyte mark. The storage
infrastructure is based partly on SAN (Storage Area Network) and partly on DAS (Direct Attached Storage).

The company has a very good DR (Disaster Recovery) strategy. There are two DR sites. The first one is 1.5 km
from the central site and is connected through a direct fiber link. MUL has a regular tape library backup at this
site, managed by software from Veritas. Plus, backups taken are randomly checked to ensure the data is readable
off the tapes.

26
For mission-critical applications, like shop floor and dispatch applications, MUL has another DR site in a separate
location where there are full-fledged hot servers in place and the data is kept synchronized using logs. So in case
of a disaster, the data can be recovered up to the last log applied. This way users don't suffer a long downtime.

Internet Approach:

For MUL the Internet link is highly critical. The entire business depends on transactions made with distributors
and suppliers. If MUL losse connectivity, the entire business would grind to a halt because of the absence of a
manual ordering system. This is why MUL has invested in a fully redundant connectivity solution, which consists
of a copper link (leased line) from BSNL, and an RF (Radio Frequency) link from VSNL.

The key to security

MUL has a comprehensive corporate IT security policy in place. For example, if a new server were to be installed,
it would go through specified security checks and audits. The company has already put major security
components, including firewalls, virus scanners, etc in place.

One key aspect of the security policy is the provision for a security audit done by a third party.

This involves two key steps. First, the outside agency runs surprise checks on users' desktops, checking for
adherence to the security policy or instances of illegal software installed in violation of the policy. The second
step constitutes attack and penetration tests.

Engineers from the external agency sit outsides the MUL network. Armed with a few IP addresses of the servers
lying inside, they try to penetrate the network. This exercise helps them in detecting the loopholes.

Customer Relationship Management

MUL has a comprehensive database of customers, the Customer Relationship Management, which provides
centralized access to dealers and MASSs and enables more efficient and integrated management of sales and
service network.

The future
Since the time Suzuki took a majority stake in the company, the IT divisions in MUL and the Japanese auto major
have been brought in greater alignment with each other.

MUL has always benchmarked itself against Suzuki across various corporate parameters, like basic frameworks
and goals and the IT system is no exception. Hence continuous improvements are going on taking the best of the
facilities as the benchmark.

Marketing
Maruti’s marketing objective is to continually offer the customer new products and services that:
• reduce the customer’s cost of ownership of our cars; and
• Anticipate and address the customer’s needs and preferences in all aspects and stages of car ownership,
to provide what MUL refer to as the “360 degree customer experience.”

MUL has been aggressively cutting prices of its models since the beginning of the year. It began the year by
slashing the price of Esteem's diesel version followed by a by the reduction on the premium segment Baleno.
Then the mid sized Versa's price was slashed, Alto's price tag was then pruned putting its base variant at par with
the AC version of M800.

The rationale behind the price cuts is the focus on offering new upgraded vehicles at a low price.

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Warranty and Extended Warranty Program

MUL offer a two-year warranty on all the vehicles at the time of sale. The dealers are required to address any
claim made by a customer, in accordance with practices and procedures prescribed by MUL, under the provisions
of the warranty in force at that time. The dealers subsequently claim the warranty cost from MUL.MUL analyze
warranty claims from dealers and either claim the cost from the vendors, in the case of defective components, or
bear the cost ourselves, in the case of manufacturing defects.
MUL also offers an extended paid-warranty program marketed under the brand, “Forever Yours” for the third and
fourth year after purchase. The extended warranty program is intended to maintain the dealer’s contact with the
customer and increase the revenue generated from sale of spares, accessories and automobile-related services. An
effort is made during the period of the extended warranty to encourage the customer to exchange his existing
Maruti car for a new Maruti car, or upgrade to a new Maruti car.

True Value Solutions Limited (TVSL)

TVSL was incorporated on January 14, 2002 as a wholly owned subsidiary of Maruti with an authorized capital of
Rs. 5 million. It obtained the certificate to commence business on May 1, 2002 in NCT of Delhi and Haryana.
TVSL provides value-added services to owners and users of motor vehicles on matters relating to manpower
services with regard to recruitment, training and development. The company also intends to promote the business
in the areas of pre-owned cars, lease and fleet management, finance and insurance. These services include
compliance with predefined business processes at the dealership, continuous training of dealer staff in order to
ensure quality of operation to ultimately achieve the business objectives of TVSL.

Research and Development

R&D activities of Maruti have the twin objectives of reducing product costs by developing capabilities of local
vendors and becoming a regional R&D hub for all Suzuki operations.
The company has adopted a ‘focused model cost reduction’ technique. Maruti has been continuously engaging in
Value Analysis/Value Engineering (VA/VE) activities across its operations. Some areas in which MUL carry out
research and development are localization and development of components, cost reduction measures such as
VA/VE, development of alternate fuel (CNG and LPG) vehicles, performance-benchmarking to certain
parameters such as noise, ride handling and braking and development of power-steering for certain models. MUL
regularly upgrade its models and also launch variants by adding features developed through research and
development.

All this has resulted in significant reduction in the investment required for the modifications.
As part of Suzuki’s plans to make Maruti its research and development center for cars in Asia (outside Japan), it is
expected to have full model change capability by fiscal 2007.

Manufacturing

The core focus areas of Maruti’s manufacturing division are:

• Benchmarking against global standards so as to efficiently manufacture quality products.
• Building a strong and motivated work force by emphasizing safety, education and continuous improvement of
the manufacturing capabilities and those of the vendors.

Our Manufacturing Facility and Process

Facility

Maruti’s manufacturing facility comprises three integrated plants with flexible assembly lines located at
Gurgaon in the northern state of Haryana. The first plant was set up in fiscal 1984 with an initial
installed capacity to produce 20,000 vehicles per annum, which was augmented to 130,000 by fiscal
1991. Installed capacity was further increased with the second plant becoming operational in fiscal

28
1995 to 200,000 vehicles per year. In fiscal 1996, with capacity increases in each plant, installed
capacity increased to 250,000. With the third plant becoming operational in March 1999, installed
capacity increased to 350,000 vehicles per year, which is the highest among passenger car
manufacturers in India and among the passenger car manufacturing facilities of Suzuki’s subsidiaries
outside Japan. 24 September 2004, Suzuki Motors and Maruti decided to invest 32.7 billion rupees over
the next five years to set up a new car assembly unit, a diesel engine manufacturing unit and for
increasing automation and efficiencies in Maruti's current facilities. Maruti Udyog would hold a 70 per
cent stake in the new joint venture, under which a car assembly unit is being set up; Suzuki would hold
the balance. The new unit, which would make high-end cars, is being set up in Manesar, Gurgaon, and
would have a capacity to produce 250,000 units a year. This plant will receive an investment of 15.2
billion rupees, which is expected to begin its production by the end of 2006. The proposed diesel engine
unit would be set up under Suzuki Metals India, an existing 49:51 joint venture between Maruti and
Suzuki, respectively. The engine plant will have a capacity of 300,000 diesel engines and 20,000 petrol
engines. It will also make up to 140,000 transmission assemblies. The plant will supply diesel engines
to Maruti as well as export engines to Suzuki subsidiaries in Europe and Asia. This plant, which will be
set up at a cost of 17.5 billion rupees, will begin production by the end of 2006. Suzuki would
undertake a feasibility study to set up a gearbox production unit in India. This unit would be set up
under Suzuki Metals India, which is would be renamed as Suzuki Engineering India. Maruti’s facility has
advanced engineering capability and is upgraded on an ongoing basis to improve productivity and
quality. Maruti have 17 manufacturing shops and are capable of producing more than 50 variants of the
nine basic models manufactured, with different specifications, within the same day. This is possible due
to our information technology-enabled vehicle build sequence system and vehicle tracking system.
Under the vehicle build sequence system, at the production planning stage, requirements are
communicated via our intranet (internally) and our extranet (to vendors) in advance as to the time and
place for delivery of components and other production inputs in order to fulfill production targets. Our
vehicle tracking system monitors and records the implementation of the planning during production.

Utilities
Maruti do not have to rely on outside sources of power as they have a 60-megawatt gas turbine captive power
plant, which has multi-fuel capability. They also have our own reverse osmosis water treatment plant and effluent
and sewage treatment plant.

Maruti’s Manufacturing Paradigm

Maruti has adopted a target control and PDCA approach as the underlying theme of all its processes.
PDCA Constitutes:
• Planning by setting a target and time-line, dividing into action plan with value to each factor/element.
• Doing the standardized operation as decided.
• Hecking through gap analysis to check whether the operation is really giving the desired results
• Acting to freeze if effective or correct.

Productivity
Improving productivity is an ongoing effort at Maruti, through the Maruti production system, or MPS, which is
derived from the Suzuki production system, and focuses on elimination of wasteful activities taking place during
manufacturing processes. In addition to MPS activities, in-house automation, increasing utilization of production
lines, outsourcing of low value-addition jobs and reduction in materials handling have contributed to
improvements in the productivity of there employees and the efficiency of there operations.

As shown in the table below, Maruti’s employee productivity, measured as the ratio of production volume in a
fiscal year to the number of its permanent employees at the end of the fiscal year, increased by approximately
79% from fiscal 1995 to fiscal 2002.

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Conservation of energy
Maurti had followed the three principles of “Reduce, Reuse and Recycle” for conserving energy. Between fiscal
1997 and fiscal 2004, they had reduced the consumption of electricity measured as the ratio of kilowatt hours of
power consumed to the number of vehicles produced, by approximately 35%. This was achieved by using energy-
saving lights and natural light, and also the efficient usage of other electrical appliances, thus reducing wastage. In
the same period, reducing the consumption of water, measured as the ratio of the volume of water consumed to
the number of vehicles manufactured, by approximately 70%. This is achieved through the recycling of waste
water in their water treatment plant and effluent and sewage treatment plant.

Quality
They had produce high quality products, some of which Maruti had been exporting to various countries including
the Netherlands, Italy, Germany, the United Kingdom and Switzerland.

Maruti was certified with ISO: 9001:2000 in 2001 and aim to achieve the TS-16949 certification. In addition, they
had made the following improvements in terms of producing defect-free products:
• DFC OK: Their Direct Final Check OK, or DFC OK percentage, which signifies the percentage of vehicles
that pass through the inspection stages as defect-free, improved from approximately 77% in March 2002 to
approximately 90% in March2004.
• Reduction in rejection: Their in-process rejection cost per vehicle, computed as the ratio of (1) the cost of
components rejected due to defects arising during our production process, to (2) the number of vehicles sold,
declined by approximately 65% from fiscal 2002 to fiscal 2004.
• In house warranty: Their in-house warranty costs per vehicle, computed as the ratio of (1) the aggregate cost
of components incurred by us to service warranty claims arising from operational defects in our
manufacturing lines, to (2) the numbers of vehicles sold in the fiscal year, declined by approximately 85%
between fiscal 2002 and fiscal 2004.
A new feather was added recently in Maruti’s cap in the field of quality when the Quality Management System of
its Press Shop & associated functions got certification for conformance to the requirements of TS16949:2002
standard.

Suzuki Quality Management System

Based on a method adopted by Suzuki at its manufacturing facilities, the quality of a vehicle dispatched from their
facility is measured through a quality index audit on a daily basis. The quality index is a relative measure of
quality based on evaluation of vehicles selected at random on a daily basis. In addition, Maruti had recently
adopted Suzuki’s global customer audit index, in order to provide a more customer-oriented focus to the entire
organization, and channel resources towards customer complaints for rapid response.

Quality Improvement Initiatives

For quality control Maruti had recently introduced:
• Tracking surveys and direct customer contact in order to better understand customer satisfaction levels and
customers’ problems.
• Full-time task forces for improvement in initial quality study problems and departmental cross-functional
teams to work on defined problems with challenging targets.
• Quality gates at various stages in order to raise alarms for correction and immediate action on defects;
• Fool-proofing, or Pokayoke in Japanese, which comprises checks conducted in order to prevent defects
arising from human error during the manufacturing process; A real-time feedback system, cross-linked with
overall targets.

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• The “Pica Pica” system, which aligns the sequence of components and vehicles in order to prevent incorrect
fitting of components.

Kaizen
Maruti had adopted the Japanese management concept of Kaizen, or continuous improvement. The Kaizen
activities had resulted in the improvement of the in-house capabilities. For example, they had manufactured 25
multi-axis robots and 16 multi-spot welders. Group discussions among employees in different departments are
conducted on a monthly basis in order to discuss and resolve problems relating to their areas of operation, an
activity referred as quality circle activity. Based on the belief that individuals contribute to improvement in
growth, there has been a suggestion scheme in which they promote participation of all employees at all levels. The
average number of suggestions made per employee has improved by approximately 35% in fiscal 2004, when
suggestion received were more than 80,000, as compared to fiscal 2002. Some of the other improvements as a
result of the Kaizen process have been increased automation through automated material transport system.

Manufacturing Process
The manufacturing process at Maruti facility is depicted below:

The production of a car at Maruti facility occurs in the following stages:

Press Shop: Press shop has five transfer presses and two blanking lines. In the press shop, steel coils are cut to the
required size and panels are prepared by pressing them between various die sets such as doors, roofs and bonnet.
An anti-rust coat is applied at this stage.
Weld Shop: There are three welding shops with 122 six-axis robots and 25 in-house manufactured two-to-four
axis robots. In this shop, various press metal components manufactured in the previous stage are spot-welded
together to form the body shell. Various parts such as the floor panel, side panel, doors and bonnet are sub-
assembled in this shop. Subsequently, the assembled parts undergo final welding. The welded body is sent to the
paint shop through a conveyor.
Paint Shop: There are three paint shops, within one of which the final outer body is fully painted by robots. In the
paint shop, the body undergoes various pre-treatment and electro deposition painting processes to provide a high
corrosion resistance to the body. The car body is given an intermediate or primer coat before applying the storing

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topcoat paint. The intermediate and the final coat are applied by using automatic electrostatic spray-painting
machines (micro bells) and robots, followed by a baking process.
Assembly Shop: Maruti has highly flexible assembly lines, which can simultaneously handle a large number of
variants as well as adapt to sequence changes. The painted bodies proceed for final assembly in three stages. The
first stage is the trim line wherein various components such as roof head lining, windshield glass and interior trim
components are fitted. Thereafter, the car is transferred to an overhead conveyor, the chassis line, wherein
components such as the engine, gearbox and front and rear axles are assembled on the underbody. The vehicle is
then lowered to the final line on its own wheels and here components and parts such as seats, the steering wheel
and the battery are fitted. The completely assembled vehicle finally rolls out of the assembly lines to the final
inspection stages.
Machine and engine shops: Assembling and testing of engines takes place at engine shops and carry out precision
machining of engine components in our machine shops.

License agreements with Suzuki

Suzuki has several license agreements with Maruti under which it has, since Maruti’s inception:

• Provides with technical know-how, assistance and information for the manufacture, sale and after-sales
service of various products and parts.
• Supplied components to Maruti’s passenger cars.
• Deputed technical personnel to their facility;
• Help them to develop manufacturing processes and integrate certain Japanese management practices such as
kaizen, which is Japanese for continuous improvement, in various plants.
• Training of personnel.
• Help them to develop and manage the supply chain for their products.

Maruti in return had agreed with Suzuki that amongst other things:

• Maruti will not manufacture in, or export products covered by agreements with Suzuki to, any territory except
those permitted by Suzuki.
• Maruti will not enter into agreements with any other manufacturer to sell any product or part that competes
with any product or part covered by the license agreements with Suzuki.
• Maruti will not otherwise sell, distribute or promote the sale of any product that competes with products
covered by the license agreements with Suzuki. Suzuki will not be liable to Maruti for damages arising from
the use of the licensed information and disclaims responsibility for all representations and warranties made by
them with respect to the licensed products

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