Hindustan Motors' Struggle for Survival



Themes: Turnaround Strategy
Period : 1998-2002
Organization : Hindustan Motors
Pub Date : 2002
Countries : India
Industry : Automobile & Automotive

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Case Code : BSTR021
Case Length : 10 Pages
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Hindustan Motors' Struggle for Survival| Case Study

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Background Note Contd...

However in 1981, with the entry of MUL, the scenario changed drastically. MUL's small, fuel-efficient and well-designed car, Maruti 800, became a huge success. By the late 1980s, MUL became the market leader, leaving Hindustan Motors way behind in the war for market share. During the 1980s, HM was in the news only because of its tie-ups with GM and its subsidiary Vauxhall Motors (VM). In 1984, HM launched the Contessa, which was labeled one of the first 'upmarket' cars in India, in technical collaboration with VM.

In 1987, the company launched the Contessa Classic considered the most powerful car available then. The Contessa was a reasonably successful car, though it never managed to match Ambassador's success. In 1995, HM entered into a collaboration with the Japanese automobile major Mitsubishi Motor Corporation (Mitsubishi), wherein Mitsubishi agreed to provide technical assistance to HM to manufacture its products in India.

HM produced a mid-size luxury car, Opel Astra in collaboration with GM in 1996. In 1997, the Contessa GXL version with power steering was launched. HM terminated the GM joint venture in 1999, by selling off its stake to GM.

The Turnaround Efforts - Phase I

In the early 1990s, when the Indian economy was opened up for foreign players, many multinational automobile companies entered the country. In the 1990s, companies including Daewoo, General Motors, Daimler Benz, Hyundai and Honda entered India through joint ventures and partnerships with Indian firms.

HM was one of the worst affected companies due to this inflow of competitors. Forced to react due to the poor performance of its vehicles, HM launched the Ambassador Nova in 1990 (with better interiors) and an improved Ambassador 1800 ISZ (with better engine performance) in 1993. The company also appointed consultants McKinsey & Co for a restructuring plan to turn around its business.

McKinsey asked HM to focus on the marketing of components, refurbish the Ambassador model and upgrade other vehicles, speed up the delivery process and improve productivity through reengineering on the floor shop and reduce the workforce in its production plant at Uttarpara. The company began to implement the recommendations.

HM decided to tap new segments to ease the competitive pressures it was facing in the passenger car market. In 1995, the company collaborated with Oka Motor Co5 to develop a vehicle specifically targeted at rural markets. This led to the launch of the Trekker (also referred to as the Rural Transport Vehicle - RTV) in 1995. Launched in three northern states, the Trekker was received well in the rural markets. However, the vehicle soon came under criticism owing to a host of technical problems.

By late 1998, Trekker's sales dropped by two-thirds of its initial volumes to around 800 a year. In 1999, HM launched the redesigned Trekker and an upgraded version of the Ambassador. Despite all the product upgradations and restructuring efforts, HM could not stem the decline in sales. (Refer Table II).

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5] A West Australian automotive company specializing in designing and building four-wheel drive vehicles.