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Having learnt from the slowdown, the auto industry is now on a rebound

“A slowdown is a good time to review the business, and try to reduce cost and improve efficiency,” says RC Bhargava, chairman of Maruti Suzuki.

Updated: Sep 16, 2014, 08.02 AM IST
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The pain of the slowdown wasn’t wasted on the auto sector. Lessons learnt will lubricate engines as companies gear up for growth again.
The pain of the slowdown wasn’t wasted on the auto sector. Lessons learnt will lubricate engines as companies gear up for growth again.
Having learnt from the slowdown, the auto industry is now on a reboundAfter a crippling 2013-14, when car sales declined 6 per cent, the first such drop in 13 years, the Indian auto industry is now on the rebound with four consecutive months of growth.

Looking back, CEOs say the slowdown wasn’t entirely a disaster; several lessons learnt during the difficult year will help them make the most of the coming growth phase.

“A slowdown is a good time to review the business, and try to reduce cost and improve efficiency,” says RC Bhargava, chairman of Maruti Suzuki.

The company did plenty of that during the slowdown, not just at the top-management level but by also involving the rank and file. Maruti actively sought cost and efficiency improvement suggestions from its employees.

It received 350,000-400,000 such ideas. About 75 suggestions that were implemented saved it Rs 300-400 crore in cost, according to Bhargava. For example, Maruti used to source components from vendors in a trolley, which had disposable plastic covers.

A suggestion to use a more durable cover resulted in the company reusing the covers. While the initial cost was more, the company saved in the longer run. Chennai-based Ashok Leyland also navigated the slowdown with a similar mindset.

“We looked at the downturn as a blessing in disguise,” says Vinod Dasari, its managing director. “This was our one opportunity to fix what was wrong with the company and prepare ourselves to be future ready. That was our whole theme (through the slowdown).”

The commercial vehicles maker reduced working capital significantly, almost halved its debt (Rs 2,500 crore), sold non-core businesses, and made the organisation leaner and more efficient.

Time To Introspect

A slowdown also forces companies to think out of the box and explore cost-cutting options it may not otherwise have considered. Maruti took the central bank’s permission to hedge currency on behalf of its vendors.

More recently, to further cushion itself from a fluctuating currency, the company decided to pay royalty to parent Suzuki in rupees instead of yen. The company paid Rs 2,485 crore as royalty in 2013-14.

Over the last couple of years, Maruti also helped its vendors to improve localisation, which has aided in reducing cost through lower import content. Even though Maruti’s sales have declined marginally, its profit margin has gone up.

Several companies retrenched workers to survive the slowdown. Others cut pay for all employees hoping to save a few jobs, while increasing communication with employees. Ashok Leyland effected a 5 per cent across-the-board cut.

“It was painful, but if you don’t fix the company, then you would be in deeper pain in the future,” says Dasari. With the market reviving now, salaries and performance pay cuts have been restored. But to keep employee morale up in the midst of these painful decisions, the top management stepped up engagement with employees.

Every quarter, Dasari shared the presentation made to his board with all employees as well. For some companies, a slowdown brings the resolve to drive against the tide. Toyota decided to do away with discounts on the Etios and Liva even though most other companies were offering plenty.

“Discounting will give us the volumes, but it will destroy the brand,” says Naomi Ishii, MD of Toyota Kirloskar. “So, from April onwards, we decided to stop all schemes on Etios and Liva. We have also realigned our expectations from these two models.”

Across the industry, companies are now leaner, thanks to cost-cutting measures initiated during the slowdown. The Rs 6,700 crore Anand Automotive shifted its focus to efficiency improvement and costcutting initiatives.

“We also managed to engage our suppliers to manage their costs and improve fiscal discipline,” says Sandeep Balooja, president for business development, Anand Group. Companies that genuinely believed that even the pain of bleak times could be turned to profit will gain so much more as growth comes calling again.

Inputs from Chanchal Pal Chauhan and Nabeel Khan

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