Hindustan Motors' Struggle for Survival

"Hindustan Motors is a case study of complacency."

- A December 28, 1999, Business India report.

Hindustan Motors' Struggle for Survival: 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.

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 8,000². 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 1999-2001³.

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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 $.