Hindustan Motors' Struggle for Survival|Business Strategy|Case Study|Case Studies

Hindustan Motors' Struggle for Survival

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Case Details:

Case Code : BSTR021
Case Length : 10 Pages
Period : 1998 - 2002
Organization : Hindustan Motors
Pub Date : 2002
Teaching Note : Available
Countries : India
Industry : Auto and Ancillaries

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Hindustan Motors is a case study of complacency."

- A December 28, 1999, Business India report.

Troubled Waters?

In October 1998, Hindustan Motors (HM), makers of one of India's best known cars - the Ambassador - launched a new car, the Mitsubishi Lancer (Lancer). The launch of Lancer, a new car from the HM stable after nearly two decades, was reported to be very important for the company, whose market share was on the decline.

HM was reportedly banking heavily on the Lancer's success to fight competition from other car companies. Lancer was positioned in the mid-size luxury car segment, which was dominated by Maruti Udyog's (MUL) Maruti Esteem and Honda's Honda City.

Lancer was received very well by automobile experts throughout the country, largely due to its technical finesse. The car's sales reached 2,866 units by the end of the fiscal 1998-99. Much to HM's delight, Lancer was even ranked as the top vehicle in India for the three consecutive years (1999, 2000 and 2001) by J. D. Powers1 for the least number of defects and high customer satisfaction in a countrywide survey of car owners.

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However, the company's euphoria was short-lived as Lancer's sales failed to pick up as expected. While 7,621 cars were sold in 1999, HM managed to sell only 7,635 cars in 2000-01 against a forecast of 8,000.2 On the other hand, sales of Honda City increased to 10,011 in 2001 from 9631 in 1999 (Refer Exhibit I for the sales comparison). Meanwhile, HM's other offerings Ambassador and Contessa were also faring badly.

In 1999, Ambassador's sales were down to 15,374 from 18,312 in 1998 and Contessa's to 285 from 575 in 1998. This poor performance took a heavy toll on the company's bottomline and HM reported a net loss of Rs 615.8 million for the fiscal 1999-00. (Refer Table I). The company had reportedly accumulated losses worth Rs 1.1 billion during 1999-2001.3 In late 2001, HM announced its plans to launch another car, the Mitsubishi Pajero. The company planned to import fully assembled cars and sell them by early 2002. Analysts remarked that the Pajero could do little to revive the company's fortunes as despite many efforts to turn itself around, HM had failed to regain its 4-decade long leadership in the Indian passenger car market. Its 3.3% market share in the half-year ending September 2001, proved beyond doubt that the company was struggling to stay afloat.

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1] J. D. Power and Associates is a global marketing information services firm established in 1968. The firm provides clients with relevant and actionable market research, forecasting, consulting and training services.

2] A portion of the lost sales was accounted for by supply related problems in April and May 2001.

3] In September 2002, Rs 48 equaled 1 US $.


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