Maruti Suzuki’s battle against Covid-19

Maruti Suzuki India Ltd chairman R.C. Bhargava is synonymous with the growth of the firm. The 86-year-old has spent half his life developing and managing operations at India's largest carmaker. Today, as the world faces a pandemic, Maruti is shifting gears to help ease the pressure on India’s healthcare system by committing to contribute ventilators, masks, and other protective gear.

Rising to the challenge

You intend to make 10,000 ventilators per month. Since this is not your area of expertise, what were some of the initial roadblocks?

The first point is that we’re not doing this in our factory because Maruti does not have either the know-how or the technology or an approved product which is a ventilator. So, we have joined hands with an approved manufacturer of ventilators, AgVaHealthcare. This product has been approved by the government which has placed an order for 10,000 ventilators. Currently, that’s the order. And our strategy is... because AgVaHealthcare is a very small company and doesn’t have the means or the resources or the know-how to rapidly scale up production, that is where we have the expertise.

What is your synergy with AgVa Healthcare like?

We have secured a temporary working area in Noida to assemble the ventilators. We have got three of our vendors at the moment who are working to produce the components in large volumes for us to take up their production. The vendors themselves are by and large small companies. And we're still checking but most of them will not have the ability to produce reliably in large volumes. So, that’s where we come in.

Then the other big problem is that AgVa, because it doesn’t have money, it’s unable to open letters of credit and have working capital. We’re working with AgVa to solve this problem. We are also working with them about this whole question of [other processes]. To start manufacturing the ventilators, there must be an appropriate arrangement not only for training the operators but also for after-sales service and supply of spare parts to the users of these ventilators. So, that organisation also has to be built. These are the various steps where we will be involved and AgVa will basically be giving us the technology of the product.

And you’ll be providing the workforce and service?

By and large, yes. We are providing all our services free of cost. Our vendors are quite capable of scaling up. They are used to large volumes of production. We do something like 6,000 cars a day and a car has maybe 20,000 parts. See the numbers which are produced. Very few people in this country have that kind of volume. That’s why our vendors getting involved in it is a major advantage in scaling up.

Where are these parts being imported from?

They’re being imported from China. Once we receive the parts, then we can start something. We are also exploring an alternate source of supply for these components both from within the country and from other countries, but that may take sometime before we can find out where and if it’s possible to buy components elsewhere.

When will you begin production of the ventilators?

The start of the production of ventilators essentially depends on two things: One is that there are some components of a ventilator which are imported and at the moment AgVa has zero stock of those components. So, as soon as we can get those imported supplies, we will be able to start production. We are hoping that it maybe possible in the next few days... And second is that before we start large-scale production, we want to make one or two prototypes and we will send those to Medanta in Gurugram where [its chairman and managing director] Dr Naresh Trehan will test these ventilators by actual use on patients. That’s because the ventilators have not been tested in actual use though AgVa has got government approval.

And what about the masks?

A separate vendor has taken up the production of masks. [Krishna Maruti Ltd—a joint venture between Maruti Suzuki and the KrishnaGroup which makes car seats—is producing 50,000 triple-ply masks daily at its Gurugram facility. They are being supplied to the central government and the Haryana government.]

There is other protective gear also...

That requires special equipment. Those suits have to be manufactured. We are also attempting to do that and for that we’re trying to procure the special equipment. That will basically be manufactured from scratch at our vendor’s factories. I am not sure when production is expected to start for that because the vendor is getting all the equipment in place. It may even require some equipment to be imported.

Has the movement of migrant workers back to their hometowns affected you?

That hasn’t affected us as we have regular and temporary workers but not so many migrant workers. But that whole migration is a very sad commentary on not the migration, but why have we in the last 70 years failed to create conditions where people can find work in their home state. Why is it necessary every year for lakhs and lakhs of people to move from Bihar, Uttar Pradesh, and Rajasthan to seek work? It tells us what all we have failed to do.

Till the time a vaccine is developed against Coronavirus, everybody, including me, and particularly people like me, will have to take all precautions not only in their own self-interest but also in the larger interest of the community. Social distancing is necessary not only for yourself but for everybody in the country. And still people are careless and have congregated. They fail to realise the kind of damage they’re doing to the whole country by doing that.

The world after COVID-19

The Supreme Court has allowed auto dealers to sell only 10% of BSIV stocks within 10 days of the lockdown getting over. Is that enough?

We are not particularly bothered because we don’t have a problem of BS IV. We had planned our production and sales that by the time when we were nearing the end of the year, there was hardly any vehicle left to sell. People who have thousands and thousands of vehicles left, they are the ones who are worried... the Supreme Court has said “You people had enough time, why didn’t you plan it better?”

But not every carmaker is in that situation. Somebody has to take a loss. Either they export the vehicles or the dealer registers them in his name and then sells them as second-hand vehicles. That’s allowed. Dealers are not really responsible. The OEMs [original equipment manufacturers] should have planned better and not left them with so much stock.

What will the new post-Coronavirus world order and global supply chains look like?

I think it’s a big question because this is a mix of economics, politics, national and strategic interests—all kinds of considerations will come in. It’s not as simple as just a production issue. We all need to sit and think about these answers.

Are there any lessons that we’ve learnt from the crisis in terms of being more self-reliant when it comes to our supply chains?

It comes back to the same question. Why are we so reliant on others? Why have we in these 70 years failed to build up our own industrial capacity? And the real lesson that we have to learn is that if you fail to do things in the past, at some point the future generation will have to pay the price. Which is what’s happening today.

Whether we learn this lesson...whether it’s the bureaucrat, the industrialist, the politician... whether they all learn this lesson... we get so involved in short-term bickering that we neglect the fundamental thing of developing the strength of the economy. Our industry has failed to develop over 70 years. On almost everything we’re reliant on somebody or the other.

For example, these masks you’re asking me about, the protective equipment we’re talking about, require machines that can do double-stitching so that there are no holes through which the virus or the germs can go to the wearer of the equipment. There is no manufacturer that can make a double-stitch machine in India. All the electronics in India, everything is imported. We have not developed an electronics industry in India. China has a huge supply chain of all companies coming and investing there. We have been so taken up with ideologies that the net result we have seen is that nobody comes to invest in India.

Why are we not asking this question to all the governments in the past and why did they fail us and are we learning from this at least? I hope people continue to ask these questions. My fear is that once this is over people will go back to life without learning anything from this.

With production in your factories coming to a halt, can you estimate the kind of impact the lockdown will have on Maruti?

I am very reluctant to make a forecast for the future because nobody knows right now what’s going to happen one month from today. How will the economy work out, how will the whole system work, how will people get back to normal activity, what kind of precautions will still be required? Because the virus is not going to go away. While the economy will restart, everybody will have to take a lot of precautions.

Will it be difficult for the auto sector, already reeling under a slowdown, to come back from the economic blow of the Coronavirus crisis?

I don’t think anything is easy and especially with the crisis like what we've been hit with, because of this very unexpected virus problem, it will be a struggle. But I am confident that all of us in India will have the resilience and the ability to come back, fight against the odds, and win. I don’t think anybody should get despondent about it at all. We have overcome huge calamities in the past.

Go back to Indian history. In 2008, there was a considerable slowdown in the auto industry. This time also, it was somewhat expected. But in both the previous elections, the market picked up sharply. Initially, the expectation was that the same thing would happen this time, that we would pick up from the slowdown later in 2019.

But that didn’t happen and it looks like the reason was that a lot of things came together. The prices of cars went up partly because of the BS VIchangeover, new standards of safety which came in and the road taxes which were increased by the state governments. So, the total cost of acquiring a car went up sharply.

In addition, there was a financial crisis, because the whole NBFC structure had a crisis and as a result of that, the flow of funds to customer finance fell by almost 33%. The initial deposits were increased by the banks from 10% to 20%-25%. Despite the RBI cutting the repo rates, the rates actually went up. The customer couldn’t afford to pay these higher costs of acquisition. And today, India’s car industry is amongst the highest taxed, if you look at America, Europe, Japan, or Korea. The growth of the industry depends completely on the availability and affordability of the product so that the market continues to take bigger and bigger volumes. We tax cars as if they’re luxury products.

(This interview was originally published in the May 2020 issue of the magazine.)