05 November 2012 Business Maruti 17 in 1998

They Fought Over The Cake

They Fought Over The Cake
Reuters (From Outlook 05 November 2012)
They Fought Over The Cake

The year 1998, Maruti Udyog’s 17th, was marked by huge change—in the automobile market, in government, and in the relations between the company’s parent, the Suzuki Motor Corporation (SMC), and its joint venture partner—the government of India. The two were in the middle of a fierce tussle for control of what had become India’s showpiece auto company. Whose decisions would prevail over the affairs of Maruti? Whose nominee would head the  company? While the government had pushed in its nominee R.S.S.L.N. Bhaskarudu as the MD, SMC wanted its own choice, Jagdish Khattar (who was earlier the government nominee on the board), to take the corner room.

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Says former MD R.C. Bhargava in his book The Maruti Story, which he has co-authored with business journalist Seetha, “The flashpoint came when, at a board meeting on August 27, 1997, the government nominated Bhaskarudu as managing director to succeed me.... Suzuki objected on the grounds that SMC had not been consulted and made it very clear that Bhaskarudu was not acceptable. The government argued that consultation was not necessary, since it was its turn to nominate the managing director under the 1992 agreement. Suzuki did not agree and suggested that Maruti remain without a managing director till the next annual general meeting....”

Though SMC grudgingly relented on having Bhaskarudu as MD, the year remained turbulent for Maruti as this was followed by a tussle over who would appoint the chairman. SMC also took the issue of the appointment of the MD to the International Council for Arbitration, and matters came to a head with Union industries minister Murasoli Maran saying “SMC was free to exit from Maruti and that a number of foreign firms would be quite willing to step in”. The government’s strength came from the fact that Korean major Daewoo had offered to buy out SMC’s stake in the company. Thankfully, that never happened as Daewoo went bankrupt soon after.

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In March 1998, a BJP-led coalition took over the wheel at the Centre, and with that came changes in the industries ministry and the people who led policies for Maruti. In May, with the nuclear tests, India faced sanctions from Japan among other countries and there was pressure on the government to end the stalemate with SMC. In June, the government announced that a compromise had been worked out and that SMC would withdraw its case at the ica and appoint its own chairman.

Bhaskarudu would step down in December 1999, almost three years before his term ended, and Khattar would take over. In fact, Khattar would take over as joint MD from July 1998 itself. There was a furore in Parliament as Opposition leaders, many of them ex-industries ministers, accused the government of selling out to SMC. The government, however, did not change its decision.

With the delicensing of car manufacturing in 1994, India had become the prime destination for global automakers. In 1998 many of them, including Daewoo and Peugeot, started making inroads into India. As Bhargava and Seetha write in The Maruti Story, “Foreign car manufacturers had been watching, with some degree of envy, the success enjoyed by SMC in India.... The almost 20 per cent growth of sales and high profits being made by the company were not available anywhere in the world at that time. Thus delicensing was seen as an opportunity to invest in a growing and profitable market. Many companies lost no time in tying up with Indian firms to start automobile ventures.”

But this were also the years when the economy was feeling the shock of the Asian financial crisis and the automobile market shrunk by 5 per cent. Change came at Maruti in 1998, but for a price. The tussle with the government, the slowing economy and opening up of the market had taken its toll, and Maruti saw a decline in its sales this year, for the first time since its inception.

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