Pleasant Challenge of Graduating from "FEEL GOOD" to "FEEL GREAT"

Text of Keynote Address delivered by Jagdish Khattar, President SIAM and Managing Director, Maruti Udyog Limited, at Auto Summit 2004 on January 17, 2004.

Hon'ble Minister, Road Transport and Highways, Major General Khanduri; my colleagues from Industry; members of the Dealer Fraternity; ladies and gentlemen.

I am very happy to be in your midst. I deem it a privilege that I have the opportunity to address you today.

We are meeting in a very positive environment. The economy is booming and is set to scale a GDP growth of 7 percent. The automobile industry is buoyant. We have the very pleasant challenge of graduating from "FEEL GOOD" to. "FEEL GREAT".

Credit for all this must go in some measure to the policies of the government, which is represented here today by the Hon'ble Minister on the dais. General Khanduri's Ministry, through its work on road infrastructure, particularly the Golden Quadrilateral, has been instrumental in boosting income and demand in the economy.

Coming to the theme of the Conference, let me start by saying that the "Road Ahead" is full of opportunity for all of us. Down this road, I see faster growth, higher incomes, and many more jobs. I believe that we are living in an extraordinary time; this is the time, when Indian manufacturing and the Indian automobile sector are on the threshold of global recognition. Therefore, my interpretation of today's theme "Consolidation of Partnerships" is: Travelling together on the path of opportunity, on the path of growth, on the path of global recognition.

Barely 10 years age, when this country had started to liberalise, many saw it as the demise of Indian manufacturing.

The subsequent success of the Indian IT and Services Sector, unfortunately, reinforced that impression. There was even some talk of India bypassing, or "leapfrogging", the manufacturing revolution and building its economy on services. Fortunately, much of that confusion has cleared. After five painful years of restructuring and industrial engineering, Indian manufacturing has emerged stronger. It has shown that it has almost everything to make its presence felt in the global market. Well, almost everything.

What we lack, notably in the automobile industry, is volumes. We are limited by the size of the domestic market. We are unable to fully reap the benefits of scale, which is so critical to remain competitive in the manufacturing business. Unless we attain that scale, it will be difficult for us to achieve global standards of cost and quality. But we need not despair. Today, the opportunity is there for us.

Let me tell you what I mean, with an example from my sector i. e. passenger cars. Today, there are only six cars per 1000 people in India. This is one of the lowest car penetration ratios in the world. Even Pakistan and Sri Lanka have double the car penetration ratio compared to India. In the US and Europe, it is several hundred cars per 1000 people. I see our dismal car penetration ratio as a tremendous opportunity. Even if we were to take the modest goal of reaching car penetration ratios of Sri Lanka and Pakistan, can you all visualise the enormous opportunity for suppliers, for manufacturers, for dealers, for the finance sector, for insurance, for the services business?

▪	We have the very pleasant challenge of graduating from "FEEL GOOD" to. "FEEL GREAT".
▪	Indian manufacturing and the Indian automobile sector are on the threshold of global recognition.
▪	My interpretation of today's theme "Consolidation of Partnerships", is: Travelling together on the path of opportunity, on the path of growth, on the path of global recognition.
▪	Current dismal car penetration ratio in India at six per thousand a tremendous opportunity.

 
Has any country been able to tap its potential in this manner and achieve growth?

Yes, China has. Less than five years ago, China's car market was smaller than ours. And last year, China crossed 1 million units while we were still stranded at about 6.5 lakh units. What did they do? Can we do the same? The experience of certain developed economies shows that there are four main factors that together drive the growth of the car industry. These are:

▪	Availability of finance, and at affordable rates;
▪	A reduction in tax levels, such as, customs and excise;
▪	Development of road infrastructure and finally; and, of course,
▪	An overall growth trend in the economy.

 
That happy coincidence is happening in India. Interest rates are falling and organized vehicle finance is going deeper into the country. Taxation levels are certainly coming down. The economy is growing. The proportion of young people in total population is going up and of course, General Khanduri is pushing road infrastructure at full throttle.

Is India getting there? Have we reached the inflexion point?

The Indian small car market is today the second largest in the world, next only to Japan.

The Indian two-wheeler industry is second only in size to China, and it is capable of a global presence. The Indian car industry will export an impressive ONE HUNDRED THOUSAND cars in this financial year.

I feel we have only scratched the surface. Because, I firmly believe that India has the potential to emerge as the manufacturing hub for small cars in the world.

We have covered good ground in the recent past. The four positives I mentioned - cheap finance, lower taxes, economic growth and road development - are coinciding for us. We need to continue in that direction, and definitely accelerate those processes.

I will now turn to another dimension of Partnership. All of us are closely linked together as members of a single value chain. The customer is at the end of the value chain, though he has the primary position in this chain. The choice before us is clear:

▪	Should each of us focus on getting a larger share of the value chain? The manufacturer at the cost of the dealer, the dealer at the cost of the finance company, the manufacturer at the cost of the supplier, everyone of us at the cost of the customer?
▪	Do we adopt this Zero Sum approach? Or do we take a medium to long-term view, focus on enhancing the value across the chain and benefit everyone?

 
It is possible to take the second option. It works. Our experience in Maruti has shown that. About two years ago, we entered into new service businesses like auto insurance, car finance, lease and fleet management service for companies and sale and purchase of pre-owned cars. The business model for these services included our dealers as important players. After some initial hiccups, we started to offer these services to the customer. The customer found value in them. They became an additional source of revenue for dealerships. In fact, we believe that to some extent, these services have created a pull for our cars as well. All in all, these service businesses improved the viability of our dealerships. From a time only two years ago when there were question marks about their viability, we have come to a stage when many of them are making substantial investments in setting up new sales and service outlets. The point is that our partnerships have to focus on generating value across the chain. That is the way to survival and growth.

I am going to say something which is very obvious. That is: The customer is at the Centre. Unfortunately, we forget this obvious truth. I am very glad to notice that the dealer fraternity is working on a code of ethics. They are the front end of our industry.

And, going by the results of customer surveys, they are doing a very good job so far. Many of them make a very large contribution to community development. They generate employment. I compliment them now for working on ethics. Because, opportunity is always lurking somewhere. But you need Vision to notice it. And Character to execute and encash on that opportunity.

We will be partners in that effort

▪	Happy coincidence of four main factors that together drive the growth of the car industry is happening in India.
▪	I firmly believe that India has the potential to emerge as the manufacturing hub for small cars in the world.
▪	Do we adopt this Zero Sum approach? Or do we take a medium to long-term view, focus on enhancing the value across the chain and benefit everyone?
▪	Opportunity is always lurking somewhere. But you need Vision to notice it. And Character to execute and encash on that opportunity. We will be partners in that effort.