CEO Speak

Former Maruti Suzuki CEO Jagdish Khattar on dealing with economic slowdown

As the CEO of Maruti Suzuki, Jagdish Khattar dealt with several challenging situations by building strong relationships with his team and ecosystem partners, and keeping his ear to the ground

Published 4 years ago on Dec 10, 2019 6 minutes Read

Is the auto industry facing a temporary slowdown or would you say it’s a structural one?

I could be wrong, but I believe it’s a structural change due to a combination of factors. We are seeing a clear change in people’s mindset. For instance, my nephew’s son who is 21 years old refuses to get a driving licence since he doesn’t want to own a car. Consumers are rethinking spending over a million rupees to buy a vehicle when you don’t even have enough space to park, especially in cities. Then of course, there are several ride-share apps these days, which change the dynamics. 

When it comes to youngsters, their top priority is to travel; buying a car is way down the list. That was not the case a few decades ago. Back then, you would buy a house and then look to buy a car. Today, uncertainty around income and jobs is also proving to be a dampener on buyer sentiment.

When you took over at Maruti in 1999, what kind of challenges did you face?

That time, it was the entry of new players that posed a problem [Hyundai and Daewoo]. The slowdown only came a few years later. Maruti had a virtual monopoly and it was selling cars at a premium. It was arrogant and the delivery system was not streamlined. Middlemen were profiting from the troubles, buying cars from the dealers and selling them at a higher price in the market. Dealers also wanted to leave and switch sides because of all the issues. I couldn’t blame them, but pleaded with them to give me time to fix those issues. So, my immediate task was to ensure that we protected the interests of dealers who were sticking with us. I told my colleagues we couldn’t stay arrogant and keep prices that high, because customers would abandon us as supply from other players increased. I also introduced tatkal booking wherein a customer could pay Rs.15,000 extra and own the car immediately. The idea behind this was to eliminate the middlemen.

It was a time when Maruti was only making small cars. The new entrants launched bigger ones, with campaigns that said small was no longer relevant. Despite that, Maruti has continued to hold over 50% market share over the past 20 years. This has not happened anywhere in the world.

When the slowdown hit in 2002, how did you respond? 

Our market share then was around 55%. So, when my team told me we were in a slowdown, my argument was very simple: If the competition is selling 50 units, we need to be selling at least 10. 

We did that by being on the ground, meeting dealers, not sitting in AC cabins. I believe it’s all about personal engagement. We would talk to our sales team constantly. I would have dinner with them over an informal setting and ask them if they could hit a particular target, say Y, when they were making X numbers. If they committed to the upgraded figure, I would check a month later. So, everyone knew that they had to deliver. 

So, are people skills more important when navigating a slowdown?

I never approached the team with a ‘know-it-all’ attitude. In fact, I would say, “I am a law and history student. You are the experts from marketing and engineering; you tell me about the problem and offer a solution.” And they did. They also received credit for that. As a leader, you have to ensure that the team gets credit where it’s due. 

Similarly, when we tied up with State Bank of India for car financing, its chairman AK Purwar had stated at a conference that they would support Maruti and do whatever it took to help us grow. I made video copies of that statement and sent it across to the bank’s 5,000 retail branches. So, the message was loud and clear to all the branch managers that their chairman was backing Maruti. They had to finance our vehicles then. 

We had the advantage of being the market leader with six models in the market as compared to two for others. I remember, a few young dealers once told me to not get paranoid since they believed Maruti cars would continue to sell. But the market got so tough sometimes that I wouldn’t be convinced. It also helped that our foray into True Value came in handy when dealing with customers who would come to get their cars serviced. Those meetings ended up being fruitful because we could also offer them upgrades, thanks to our financing tie-ups. So, it was a virtuous cycle that Maruti had established.

In a slowdown, what’s critical — market share or volume?

It’s volume. Consider this scenario. The market has shrunk from 100 to 80, and your market share has risen by 5. But, your volume has fallen from 40 units to 35. Then the market share gain is immaterial.

Today, Maruti is in a much better position. Players with 1-2% market share are going through pain and they will become weaker, while Maruti will get more powerful. It has the muscle in terms of dealer and service network, an array of models and the financial wherewithal.

But the first casualty of an auto slowdown is the dealer. How do you address their concerns?

During my time, I never asked dealers to invest a lot of money — slowdown or no slowdown. They would invest enough to keep Maruti’s brand image consistent. I was never in favour of three-storeyed showrooms. It gets expensive and dealers have to earn that much more to repay. That’s where most dealers go bust. Ensure that they follow what’s essential for the corporate identity, but no razzmatazz. Dealers love to earn and invest, don’t force them to leverage. Since the auto industry goes through cycles, you have to ensure that dealers can survive a slowdown to benefit from the turnaround, because a slowdown is not permanent.

Is there a framework to deal with a slowdown?

As a CEO, you can’t let the company tank. That’s survival. The CEO cannot ensure the growth of the industry or the economy. But during a slowdown, s/he has to ensure the ship is sailing till better days return. In the auto business, if times are tough, map out regions and markets, focus on dealers who are enterprising and assess micro markets where one can snatch sales from competition. So, in some sense, one has to plan more granularly.

Is investing during a slowdown a good idea?

If you are a market leader, then yes, you must invest even during a slowdown. There can never be a better time because any slowdown does not last for more than a couple of years. Similarly, any new investment cycle also takes a few years. So, it’s an opportune time to invest. But if you are a weak or a marginal player, then reining in costs and living out the storm is more important. But the nature of the automobile business is such that players have to keep on investing, irrespective of how well one is faring. If not, then you are doomed.

What should a CEO be more cognisant of during a slowdown?

A leader cannot master every discipline. When I joined Maruti, 80% were engineers, 15% were MBAs, and 4.99% were CAs. The company secretary and I were the only two lawyers. So, I told the team, “Don’t expect me to lead you, but if you want help and guidance, then I am always there.” I told them to always come to me with solutions for any problem that they were going to raise with me. “Don’t ask me for a solution,” I’d say. As a consequence, 50% of issues were resolved even before they came to my table.

The other thing a CEO has to ensure, especially during tough times, is to build mental and emotional resilience. Because when things get tough, the stress is internal. More importantly, look after your customers — don’t short-change them; they are spoilt for choice these days. They need assurance more than marketing glitz.