In search of another cash cow

BT, May 22-April 6, 2000
And, sooner than later, Maruti Udyog Ltd (MUL) will have to make what will, perhaps, be its most difficult decision: the future of the Maruti 800, which accounted for 189,061 units, or 49 per cent of the company's sales (excluding exports) in 1999-2000.

Phasing out the 800 will not be an easy decision for the company. Typically, low-end product offerings like the 800 make up through volumes what they cannot through value. Thus, although MUL's margins on the 800 are not big, the product is central to its continued financial health. For, it ensures that the company's capacity utilisation is up there.

This is critical from two perspectives: one, it ensures that the company has enough volumes to strike better bargains with its vendors; and two, it apportions fixed costs over a large number of units. In the auto parts business, volumes mean power and MUL, thanks to its huge volumes, gets the best deals.

If it does wish to phase out the 800, it is imperative that MUL finds a replacement. The Zen is an ideal candidate. Rohtash Mal, 46, Chief General Manager, MUL, demurs: "The Zen is a volume player at 80,000 units a year. And why should an existing model replace another existing model?"

By that logic, the 800's replacement need not be the WagonR—which sold 8,221 units till April, 2000—either. It could be a new small car. Or a combination of the Zen, WagonR, and the new car could, together, sell as many units as the 800 did.

(MUL phased out the 800 from 13 major cities in the country in April 2010, when Bharat Stage-IV (BS-IV) norms kicked in. MUL says that it has no plans to completely phase out the Maruti 800, as the model still sells in small towns.)