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Unit 11: Monopolistic Competition

Competition has already begun to put pressure on the company's financials. For example, Notes
when Maruti launched the upgraded version of the Zen recently, it decided not to increase
the cost of the car even though it had been hit both by the customs and excise duty hikes
and the extra cost of the upgradation. That is a sharp reversal of its earlier practice of
increasing Maruti 800 prices after it launched an upgrade.
In fact, Maruti is not passing on the customs and excise increases for any model on to its
customers. The cost increase on the Zen alone is 28,000 per car. As a result, Maruti has had
to absorb 120 crore on this account plus 80 crore for upgradation.
Worse, with the depreciation of the rupee, imported components will cost more leading
to an extra outflow of over 40 crore. So the total extra tab that will immediately affect the
bottomline will be 240 crore.

On the other hand, cost savings for 1998-99 will account for over 100 crore – which means
that more than a fifth of Maruti's net profits last year will be wiped out.

This year Maruti will save around 30 crore more – from 50 crore to 80 crore through
improvements in techniques and another 50-60 crore through further indigenisation.
And while negotiations are on with vendors to cut costs, insiders say this would
probably be neutralised by Suzuki deciding to hike the price of components it supplies
to its joint venture.
Why India's Largest Car Maker will be under threat from this fiscal
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