Suzuki's no-frills cars once ruled India, then buyers demanded frills

Highlights:

• Maruti Suzuki found it hard to adapt its cost-focused culture to the tastes of increasingly wealthy Indians
• Japanese-owned carmaker was slow to roll out popular features like sunroofs and advanced technology, as well as SUVs
• Company's market share hovers around 39%, near an all-time low; CEO targets 50%
• Firm is spending more on R&D and increasing the autonomy of local managers - sources

For some 40 years, Suzuki cars dominated India's roads.

The Japanese company's relentless focus on keeping prices and running costs low put millions of people behind the wheel. Hatchbacks made by its Indian arm Maruti Suzuki commanded between half and four-fifths of the country's new car sales in recent decades.

But as Indians got richer, they gravitated to bigger and flashier rides – and the automaker's emphasis on affordability started to become a drag. Maruti Suzuki's share of the world's third-largest autos market now lingers at around 39%, near an all-time low.

Suzuki's struggles reflect how cost-sensitive managers in Japan were slow to adapt to the changing tastes of newly affluent Indians, four people familiar with its business told Reuters. Executives, the people said, for years felt that demand for sunroofs, advanced technology and SUVs hadn't trumped questions of affordability for Indians.

Reuters is reporting for the first time details about the deliberations between Indian and Japanese executives at Suzuki as they struggled to pivot beyond a long-successful strategy that emphasised value before almost everything else.

Maruti Suzuki managers first floated the idea of adding sunroofs about a decade ago, the people said. But Japanese bosses considered the feature – which has become a symbol of upward mobility in India – impractical given India's extreme heat and dusty roads. They worried that adding a more powerful air conditioning unit and strengthening the cabin to accommodate the panel would increase costs and distract from Suzuki's mission of providing affordable transport.

The carmaker didn't introduce sunroofs until 2022. By then, fast-growing domestic rivals Tata Motors and Mahindra & Mahindra — which both currently have a market share of around 14% — had sunroofs as standard features on between a quarter and a third of their cars sold in India, according to data from auto research firm JATO Dynamics.

This account of the missteps that eroded Suzuki's iron grip on India and its subsequent efforts to woo customers back is based on interviews with more than 20 people, including executives, suppliers and others with direct knowledge of the automaker and its Indian business. Most spoke on condition of anonymity because they were not allowed to talk to the media.

Maruti's head of corporate affairs, Rahul Bharti, said in an interview that Japanese managers were not reluctant to embrace the changing tastes of local customers. Instead, he said, they had prioritised factors such as cost and climate, as well as emissions and safety considerations.

Indian and Japanese executives engage in "extensive" talks before introducing products and new features, Bharti said. Maruti's market share had declined recently because of a collapse in demand for small cars, the automaker's slow rollout of SUVs and its 2020 decision to stop selling diesel cars, he added.

While it is committed to building affordable and compact models, Suzuki has now directed local managers to "pay more attention to the Indian customer," Bharti said.

Tata and Mahindra did not return requests for comment.

To be sure, Maruti Suzuki still runs a lucrative business in India. Revenue has more than doubled over the last five years to $19 billion and profit tripled to $1.5 billion as margins improved. About 60% of the 3.3 million cars Suzuki sold in the last financial year were in India, and Maruti contributed nearly half of its profits.

But while it is making more money from selling fewer cars, the company has fallen short of chief executive Toshihiro Suzuki's goal of owning half the market.

Maruti Suzuki also risks being seen by younger drivers as a "brand for their parents or grandparents," said Toshihide Kinoshita, an automotive analyst at Nomura Securities.

In India, the typical buyer of a new car is in their mid-30s. The average age in the United States is 51, according to data from Cox Automotive.

The people's car

Japanese car manufacturers increasingly see India, the world's fastest-growing major economy, as a lifeline.

Many face an existential threat in traditional strongholds like Southeast Asia from the low costs and fast-paced innovation of Chinese rivals. They are also being squeezed by tariffs in the United States and slow growth at home as Japan's population shrinks.

Chinese EV makers, however, are largely shut out of India, which has increased scrutiny of investments from China after a deadly border clash between the two countries in 2020. Japanese carmakers sense the opportunity: Toyota and Suzuki have announced plans to spend a cumulative $11 billion to expand manufacturing and other operations in India by 2030.

Maruti Suzuki is now a symbol of Prime Minister Narendra Modi's push to turn India into a global manufacturing hub.

Suzuki first invested in Maruti in the early 1980s when the Indian brand was state-owned. Then-Prime Minister Indira Gandhi wanted to provide a "people's car" to fulfil the dream of her late son Sanjay, an autos enthusiast who had sought to bring affordable mobility to the middle class.

The Maruti 800 arrived in 1983. It was priced at around $9,000 in inflation-adjusted dollars and became synonymous with India's modernisation. Over three decades, Maruti sold nearly 3 million of the small hatchbacks. Such was the scale of Suzuki's dominance in India that its former CEO Osamu Suzuki said he aimed to keep a 50% market share "for eternity."

India's economy has grown some 18-fold since Suzuki entered the market. Yet Suzuki's cost-control culture meant managers initially faced resistance when they lobbied to offer advanced driver assistance systems that Mahindra introduced around 2021, some four years before Maruti, three people said.

For many buyers, the modernity and aspiration that Maruti once represented is found in Tata and Mahindra's feature-laden SUVs, rather than Maruti's workaday models. Maruti does not have "the bells and whistles" that customers now want, said JATO Dynamics president Ravi Bhatia.

One erstwhile loyalist looking elsewhere is Anil Tiwari, who is seeking a car to supplement his family's 17-year-old Maruti Alto hatchback. The insurance agent has narrowed his choices down to a Mahindra or Toyota SUV after his wife and children demanded a sunroof and a large infotainment display, among other technologies.

"My wife and children want the best," he said.

Fightback?

Maruti has been here before. Its market share dipped below 40% in 2011, though newer models and an expanded sales network helped it recover.

This time, competition is fiercer. Better-equipped rivals and the fall in market share mean Suzuki now faces its toughest situation in India "in the last 40 years," chief executive Suzuki told reporters at the Tokyo auto show last year.

In an attempt to regain dominance, Suzuki is expanding R&D teams at Maruti and giving executives flexibility to make more decisions locally, five people told Reuters. It aims to cut the average product development time to 36 months from 48 months, four sources added.

Maruti has also built more car-testing labs in India to speed up design and execution, Bharti told Reuters.

Maruti has introduced pricier and more design-forward cars, including a three-row minivan that starts at about $25,000. It plans seven more SUVs by 2030, which will join a recently released model that has a sunroof and advanced driver assistance systems.

The brand is also reversing its decision not to use large display screens in some vehicles, according to three sources, who said Japanese executives had felt they would be a distraction for drivers.

Bharti confirmed that Maruti and Suzuki executives had discussed those concerns. Large displays and similar features are always "on the cards," he said, though the company continues to weigh customer demand against the realities of Indian driving conditions.

One open question is whether Maruti's more expensive cars will sell. The brand's association with affordability means Indians willing to spend more usually don't consider Maruti, six people told Reuters. Less than 3% of Maruti's sales come from cars priced above $15,500, compared with over 21% for the rest of the industry, according to JATO Dynamics.

That perception is shaping the choice for buyers like Deepanshu Singhal, a sales executive who plans to upgrade to a Mahindra or Toyota SUV from the Maruti Dzire saloon he has driven for seven years.

"I'd rather spend a little more money for a better car that has some freshness and newness," he said.