Once a monoploy, Maruti now struggles to hold its own under a corporate leadership which seems to have few solutions to its problems. A Maruti car is now widely associated with indifferent standards, particularly after-sales service.

The year started off on a bad note with April to June recording sluggish sales, and things had started looking up with the company launching the Alto in September - pegged as it's only ray of hope to face the onslaught of competition.

After continuously battling it out in the market, the company is now embroiled in a dispute with its employees for over a month. This does not bode well for the auto major whose market share has been slipping this year and profitability eroding over the last two years. Production has dropped by 50 per cent and the company is manufacturing over 750 units in the last couple of days. And this has come at a time which is considered to be the best season in terms of sales.

In most of the models including Maruti 800 -which is 70 per cent of the company's total sales; for Zen and Alto, there is a waiting period of a few weeks. At the crux of the problem is an incentive scheme, linked to the company's production, which is revised every four years. The scheme was being negotiated over the last few months since it lapsed in March 1999.

Over 5,000-odd Maruti Udyog employees since September resorted to a tool-down agitation so as to pressurise the management to accede to their demand of a revision in the incentive scheme. The employees have asked for an increase in the cost to the company (per employee) to Rs 42,599 per month from the existing Rs 23,008 per month.

The company, which was earlier not budging from its stand, agreed to increase the average monthly cost to the company per employee to Rs 33,767, which involves a burden of Rs 50 crore per annum. "If the company were to agree to the union's demands, there would be an additional burden of Rs 42 crore per annum, which is not in the interest of the company", says MUL managing director, Mr Jagdish Khattar. He has also communicated to the employees that accepting further demands would jeorpardise its future and "major international players would find it much easier to take away more of our market share and threaten our leadership as our ability to further invest in modernisation and new models would become extremely difficult".

He said that over the last two years, profit margins are under pressure and it is becoming a challenge to remain in black. "The union's stand is not in the long term interest of the company in the present market scenario where there is a price war amongst car manufacturers" he added.

Interestingly, compared with Hyundai Motor India, the management has argued that 50 per cent of MUL production is of low value cars. Hyundai produces more cars of higher value. In the case of Hyundai, the labour cost per vehicle is Rs 1617 at a reduced capacity utilisation and including foundry operation, as against MUL where it is Rs 2696 per vehicle. The cost structure is already making MUL uncompetitive, according to the management.

Market analysts also pointed out that MUL employees are the best paid in the industry. There seems to be a deadlock with the management insisting that only those employees who sign an undertaking of not taking part in strikes or protests would be allowed entry into the factory, and the employees sticking to its stand of withdrawal of the undertaking as a pre-condition for any negotiation.

Till Friday, 500-odd employees had signed the agreement, but the management expects many more to come for work and expects to ramp up production to 1000 cars daily, in the next few days close to a normal production of 1200 to 1400 cars per day.

Post 1997-98, increased competition has led to pressure on realisations forcing MUL to introduce stripped down variants of its existing models at lower prices and new models with high import content, adversely affecting the company's margins. The negative impact has been mitigated to some extent by reducing costs through continuous indigenisation. The advances from customers have been declining over the years, reflecting faster delivery of vehicles by MUL in response to increased competition. This has forced Maruti to borrow partially to fund its working capital requirements during 1999-2000 and also in this fiscal. However, the company continues to have unutilised working capital limits from multiple banks.

While MUL lost its market share in 1999-2000, it continues to be a dominant player with 61.4 per cent per cent, down from 82.8 per cent in 1997-98.