'Heartect' could be Maruti-Suzuki's next growth engine

Come rain or shine, Maruti-Suzuki - India's largest car-maker - has always defied logic and gone from strength to strength. Be it the liberalization in the nineties that saw global auto majors making a beeline into India, the advent of stricter emission norms and safety regulations over the years, the economic depression that gripped the world in 2007-08 forcing many car-makers into bankruptcy, the continued onslaught of rivals or the rare decline the Indian market experienced in 2019, Maruti-Suzuki had somehow used every one of these as an opportunity to emerge stronger.

What is it they do that the rest of the industry aren't able to? Are they churning out aspirational cars we can't say no to when we're out car-shopping? Absolutely not. Are cars wearing the 'S' badge more stylish and safer than their rivals? Hardly. Are they the last word in performance and handling that enthusiasts crave for? That's a joke, don't fume!

So, what's the driving force behind this juggernaut that, in 2020, still sells every second car in the Indian market? The magic words are - and have always been - 'economies of scale'.

In microeconomics parlance, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, with the cost per unit of output decreasing with increasing scale. In other words, as the volume over which investments are spread out increases, the cost to manufacture the product decreases.

Look no further than 'Heartect', the car-maker's new-generation platform that underpins a host of their recent models, to understand this. Maruti-Suzuki says the combination of advanced high-strength steel used and the smooth, continuous frame makes this platform lighter, stronger and safer than ever before. While those attributes are always disputable, what's not is the money that goes into developing platforms like these. We're talking about millions of dollars here.

Already, eight models in the brand's line-up - S-Presso, WagonR, Ignis, Swift, Baleno, Dzire, Ertiga and Vitara Brezza - are built on the Heartect platform. Bring in the badge-engineered XL6 (restyled Ertiga) and Toyota Glanza (rebadged Baleno) and the count goes up to ten. A slew of future models from Maruti-Suzuki and its new partner Toyota are going to be built on the same platform too, giving them enormous scale that could potentially drive rivals out of business.

By getting to amortize investments worth millions over such a wide spread of models that sell in tens of thousands every month, the cost incurred per unit by Maruti-Suzuki is significantly lesser. In contrast, imagine Volkswagen or Ford coming out with an all-new platform. They neither have the model spread nor the sales volume to make such investments financially viable for India.

In the last six months until February 2020, Maruti-Suzuki sold an average of 95,664 cars built on the Heartect platform every month. That's more than what brands like Renault, Ford, Volkswagen, Skoda, MG and Jeep sold the whole of 2019. Not even Hyundai and it's platform-sharing sibling Kia can boast of numbers like that. Lest we forget, the two Korean brands are second and third on the sales charts right now. 

This isn't the first instance economies of scale favour India's largest car-maker big-time. They made a killing out of the 1.3-liter DDiS diesel engine for over a decade and half while Fiat - the brand that designed and developed it - couldn't make it work and had to be content with the royalty Maruti-Suzuki paid for every engine. 

With the Heartect, they don't even have royalties to worry about. In short, this new platform could just be the catalyst Maruti-Suzuki needed to grow in the Indian market over the next few years. By growth, we mean more of revenue and profits and less of absolute volumes. In other words, it could turn out to be the runaway leader's ruthless weapon of dominance rivals ought to be afraid of.