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Calcutta, September 13, 2000 One of the country’s most important automobile vendors believes that it is high time car manufacturers here examined the possibility of reducing the number of suppliers from whom they source different items to save on costs, the only way to survive in a price-sensitive market like India. “Automobile companies should realise that having innumerable vendors, guided by the thinking that ‘we must have our own dedicated suppliers’ does not benefit anybody. Reducing the number of vendors is beneficial for both sides,” Machino Plastics chairman M D Jindal said. “The manufacturer is saved the bother of ensuring that products supplied by each vendor meet the same quality standards — a tedious task when one considers that the minimum number of vendors for some products may be 10 in number, of which several of them may not even be based in the same region. “From the supplier’s point of view also, the arrangement would work out to his advantage. Assured of a minimum value of orders, the vendor is in a position to upgrade his own facilities and reduce prices on the items supplied to his customer, the car manufacturer, who in turn can pass on this benefit to people like you and me, so that we are able to buy the product (car) far cheaper than what is currently possible,” he pointed out. [Machino Plastics, incidentally, has been one of the major suppliers to Maruti Udyog for quite some time now and has recently been chosen by the country’s most important player in the auto sector for supplying bumpers and dashboards for the Wagon-R model]. Jindal claimed American and Japanese auto majors had been following this practice for some time now and had obtained fairly good results. “There is no reason, therefore, for this policy not yielding similar results in India,” he said. The chairman said the Indian auto industry is in for a shakeout with “2-3 companies not likely to last very long.” He, however, declined to name the firms on the chopping block. This situation had arisen partly because of India’s gross domestic product not rising as was anticipated by industry and the “gross overestimation” of the purchasing power of the “famed Indian middle-class who were supposed to lap up the new model of cars,” he pointed out. “Given the intense competition in the automobile segment and the entry of so many players in the mid-size and economy ranges, companies have no other option but to play the price game in order to survive and it is here that the suggestion I made earlier may prove useful,” he asserted. Maruti Udyog, Jindal claimed, has already decided to bring down its vendors from 375 to 200 over a period of time as part of its cost-reduction exercise. “The company (Maruti) has very correctly diagnosed that if it is able to reduce its price by a few thousands, customers would thnk twice before doling out extra for buying a car from its competition,”he said. [It may be mentioned here that Maruti’s fairly good showing in the last fiscal, in the backdrop of the competition it is now up against, has rubbed off on its suppliers as well. Machino Plastics, for instance, saw its income from operations rise 20 per cent from Rs 34.85 crore in 1998-99 to Rs 41.93 crore in 1999-2000 and profit before interest, depreciation and exceptional income go up 31 per cent from Rs 9.5 crore to Rs 12.41 crore in the period under review]. Jindal said the downturn in the Indian auto industry would not last beyond 2001, by which time the segment would have been left with the “strong players only.” He said Maruti would continue to remain the market leader but pointed out that the firm would need to adapt faster to the changing situations in the business place to improve its bottomline year after year. Jindal refused to comment on whether Suzuki taking over 100 per cent control of Maruti would benefit the latter, saying he did not want to get into political debates. Maruti’s total sell-out to the Japanese firm, incidentally, is not being immediately contemplated by the NDA government because of the immense controversy that such an exercise may generate. For, even if one were to discount the Opposition, the authorities are unlikely to get the “swadeshis” to signal the go-ahead to such a measure all that easily. M D Jindal can be contacted at: Phone : (033) 479 2127, 439 9560
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