EVOLUTION OF AMBASSADOR CAR

Ambassador - the first car to be manufactured in India, has been ruling the Indian roads ever
since its inception in 1948 and the only automobile to ply Indian roads for more than five
decades now, has carved a special niche for itself in the passenger car segment. It's
dependability, spaciousness and comfort factor have made it the most preferred car for
generations of Indians.The Ambassador's time-tested, accommodating and practical
characteristics make it a truly Indianised car.
Evolution of Ambassador cars
Initial Years
Manufacturing was licensed
License Raj

High Customs duty on import

Steep excise duties &

sales tax
Major players:

Premier Automobiles Ltd

& Hindustan Motors
1980s
Entry of MUL, better product,

with government support

Sellers Market
Long Waiting Periods

Early to mid 90s

Sellers market and long waiting periods

Decrease in customs & excise

Auto finance boom- more players

foreign banks & non banking companies, better schemes.

Mid 90s Early 2000s

Buyers market

Easy Auto finance

Manufactures diversifying into related activities: finance lease, fleet management, insurance
and used car market

But HM diversified very lately compared to all other companies

MARKET SEGMENTATION OF AMBASSADOR CARS

Hindustan Ambassador has a vast service network. The Passenger Car and Utility Vehicle
market is being attended by a 115 strong dealer network, 50 Service and Parts dealers and
additional 60 exclusive Parts dealers. 4 Regional Offices and Nation-wide Territory Offices
support it. Two dealers serve the Earthmoving Equipment and Power Products market from
25 locations spread across the country.In a bid to streamline the after sales service, three
divisions have been made, namelyred, blueandgreen. The Red will handle the new Mitsubishi
Lancer,Blue the Ambassador and Contessa Classic, while the Green caters to the rural market
with the Trekker and the HM RTV.
All the cars manufactured by Hindustan Motors conform to Euro -1 emission norms. This has
been achieved by upgrading the Ambassador 1800 ISZ with multi - point fuel injection. The
Ambassador was always in conformance with these norms.
Segment Biggest USP
"B Sturdy and Tough

The 80s
Until the 1980s, Ambassador and Premier Automobiles Ltds (PAL) Padmini were the only
2 cars available in the Indian market. Ambassador was the vehicle of choice, Government of
India, and the official car for almost every Indian Prime Minister after independence.
There was no executive order that the government departments have to buy only ambassador
cars. Still all were buying as a prestige to own it.
HM derived a major part of its sales from senior politicians, top civilians, bank managers and
defense personnel.

Ambassador was very popular in the taxi segments as well, even in 2001 the segment
accounted for almost 65% of ambassadors sales because of the perception that the
ambassador was better suited for the rough Indian roads and its strong structure, its believed
to withstand the impact of accidents much better than any other car.
Till the early 1980s, Ambassador commanded more than 70% of the market share. Premier
Padmini, a locally manufactured car based on the Fiat, claimed the other 30%.

MULs Entry 1981

Though the sturdy Ambassador does not find many takers in India, with people looking to
more fancy cars but, its export has been steadily increasing, mainly in the British and
Japanese markets.
It is being said that Old Amby had to be taken to workshop after delivery of car from
showroom for re-welding and other modifications for the basic driving situation. This was
happening till MUL Marutis was launched.
During early 80s delivery of Amby usually takes a span of 6 months to 1 year for delivery
from the company or from the agencies dedicated in each market/state. Its been said The car
was making lot of sound from each part of the body except the horn during driving.
In 1981 with the entry of MUL, the scenario changed drastically, MULs 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 market share.

Segment Comparison
Segment and Brands (All models available in different variants)
Maruti Udyog Ltd. (MUL) is the first automobile company in the world to be honoured with
an ISO 9000:2000 certificate. The company has a joint venture with Suzuki Motor
Corporation of Japan. It is said that the company takes only 14 hours to make a car.
Trends in the automobile sector2k

Domestic Sales have been growing strongly

. Exports have nearly tripled in the years

HM was unable to hold position in market due to their drop in marketing strategies

Where as for HM
Brands
Ambassador (1948 -Present)
Contessa
Trekker
Opel Astra (1996 GM - Mid size luxury car)
Only after 1997, HM was able to JV with Mitsubishi
1997- Began the production of the Road Trusted Vehicle.
1998 - Commenced the Mitsubishi Lancer Car project.
Mitsubishi Montero - SUV
Mitsubishi Pajero - SUV
Mitsubishi Cedia - Sedan
Mitsubishi Lancer -Sedan
But MUL were able to look into all the market segment
Premium Segment Comparison

Comparing with competitors:.HM premium segment market share were being eaten up
drastically by MUL and Honda..Mostly due to advertising and effective marketing strategies
of the competitors

1984 launched the Contessa, which was labeled as one of the first up-market cars in India in
technical collaboration with Vauxhall Motors (VM).
1987 launched Contessa classic considered the most powerful car available.
Contessa was reasonably successful car, though it never managed to match Ambassadors
success
1997 Contessa GXL version with power steering was launched.
1996 launched Opel Astra in collaboration with GM
All brands were eventually failing
HM PASSENGER CAR SALES

Porters Model Analysis

AMBASSADOR was unable to create barrier for potential new entrants, many foreign
collaborated entrants like Maruti Suzuki, GM, Toyota launched and HM was unable to
compete with their existing strategies
Bargaining Power of Suppliers: Even suppliers were not looked into deep, company was in a
snail pace and couldnt take up the challenge of new potential entrants in the market,
including the suppliers of its different parts .HM didnt know where they fit in the existing
economy

Threat of Substitute: HM was focused only to one segment till 1997 and with in that time
MUL was able to bring out brands for each segment with in the nation. Substitute for the
brand was quite visible in the economy
Rivalry within the company also lead to downfall of the company and ultimately leading to
less market share. Eg. Internal Problems, Union problems etc.

External Environment Analysis

HMs share in automobiles is miniscule. Though the famous Ambassadors are still in
production, HM is gradually becoming a ghost town.
HM is an example of family enterprise the way it grows, flourishes, and dies. As most of the
manufacturing divisions are closed, the machineries have been sold or shifted, and most of
the land has shifted hand for building real estate or Software Park
HM is just that elephant that is still valuable for many. Surprisingly, CITU, the CPM union
that took over the reign of this industrial establishment many years ago has lost it to some
splinter group and presently fighting to take back the control. Thats what people there told
me.
At one time, the plant had about 15,000 workmen and engineers at one time. Today the
number must be hardly couple of thousands.
And who were responsible for this condition of HM?
CITU, the trade union of CPM played the major role. Neither the Birla management had the
guts and wills to make it a great automobile plant of the country, nor the government helped
it out. Surprisingly HM never gave any dividends to its shareholders.

Strategy Implementation
HRM supplies the company with a competent and willing workforce, which is responsible for
executing strategies.
Maruti Udyog and Hindustan Motors are manufacturing cars, essentially using identical
technology. The secret behind the meteoric rise of Maruti is its workforce.
Human resource today is heavily involved in the execution of the companys downsizing and
restructuring strategies, through out placing employees, instituting performance- linked pay
plans, reducing health- care costs and retraining employees. And, in an increasingly
competitive global market place, instituting people development practices that build
employee commitment can help improve an organizations responsiveness.
HM strategy failed : Sufficient attention is not paid to the people development dimension.

MARKETING STRATEGIES APPLIED TO COPE

COMPETITION

Hindustan motors decided to tap new segments to ease the competitive pressures from other
giants
HM collaborated with Oka Motor Co. to develop targeting at rural markets.
Launched Trekker (Rural Transport Vehicle)1995 in 3 northern states. Initially it was
received well in the market but vehicle soon became a criticism owing to a host of technical
problems.
1998, Trekker sales dropped by two thirds of its initial volumes to around 800 a year.
1999, HM launched the redesigned Trekker and an upgraded version of the amby.
All restructuring and efforts could not sustain in market for a longer time, there was high
decline in sales.

Myopic
Analysts opinioned that HMs condition was a result of its lax management policies and
shortsightedness.
Before MUL, HM was the marker leader. HM was able to sell whatever it produced and there
fore it did not care to upgrade the technology or production facilities.
Pressure from competition was another aspect in its fail
Other serious matter to look into is its internal problems.

Car Design
HMs design was not aesthetic and even failed in aerodynamic designs. Car was not up-to the
mark in design and performance compared to other segments of its competitors in the market.
Internal Problems in HM/Changes made
Uttarpara plant had a workforce of 14,000 employees and the wage bill alone constituted
22% of plants expenditure.
Against the standard output of 8-10 cars per employee per annum, the plants output was as
low as 3 cars per employee.
As per the fact each employee 8 cars, therefore with 14,000 employees = 1,12,000 cars
Analysts claimed that with the 1999 production level of 2500 cars, the plant should have been
staffed with no more than 3000 personnel.
Annual production at the plant declined from 30,822 cars in 1995-96 to 26,684 cars in 199697.
November 1997 2835 Ambassadors , 146 Contessa were produced from the plant and
ultimately the numbers came down to 1385 Ambassadors and 33 Contessas by October,
1998.
HM invested around INR 750 million to modernize the assembly line, building new body and
paint shops and even purchased new equipment.
Cost Cutting Measures

Company also embarked on a cost cutting exercise and announced a Voluntary Retirement
Scheme (VRS) for workers in April 1998 and in November 1998. Offering a package of 0.1
Million.

Trade Unions Role

. VRS was not received well by the strong Center of Indian Trade Union (CITU) and Indian
National Trade Union Congress . Similar segment VRS offered by FIAT was average of 0.35
million per worker. (FIAT Management at Kurla) Workers / Union were totally against the
VRS schemes and company management was finding it tough to convince workers about
VRS

Worse Situations of HM
CITU and INTUC refused to accept the VRS schemes offered by the company.
Unions were confident that the West Bengal State Government would back them on the issue.
Employee protests intensified
HM approached the state government with a proposal to run the plant for only 3 days in a
week. (attempt to save Rs.32 million every week)
Company also promised to pay the workforce full wages for an entire week .even though
workers were working only for 3 days in a week.

Government's Rejection of Proposal

Government rejected HMs proposal, following which the company decided to seek legal
recourse.
1999, January, HM filed a writ petition in the Calcutta High court, claiming that its decision
was not prompted by industrial relations, but by the companys poor financial position.
Company stated that the layoff in Uttarpara plant was temporary in nature and the company
would resume normal production as soon as demand pick up in market. (High court ordered
the sate government to reconsider the issue)
May 1999, Instead of reconsidering the issue, the sate government filed an appeal before the
division bench of the Calcutta High Court.

State government stated that HM had suppressed facts and figures during its meeting with
them to settle the issue.
The division bench directed that matter be referred to the Industrial Tribunal.
July1999, The Industrial Tribunal dismissed the companys proposal.
HM again filed a writ petition against the Tribunals order in the division bench of Calcutta
High Court, and the division bench upheld the Tribunals order.
July 1999, In response to the division bench's order, HM moved to Supreme Court for
further movement of the situation.
During all this time, productivity at plant suffered and other expenditures also increased
rather than cost cutting.

Turn Around Efforts strategies used to overcome declining sales

Reorganizing efforts did not pay off. So HM decided to look beyond its existing portfolio to
come out of its problems.
They considered Mckinsey recommendations, company explored the global auto components
business in 2000 and established a unit Indore to assemble engines and gearboxes.
By this time year 2000 most international companies like Toyota, GM etc.entered and
flourished into the economy with other tie-ups/JV.
Analysts said, HMs move was wise with its expertise and could easily become a super
component supplier for both domestic and global car majors.
HMs Executive Director Sarker Narayanan said:
We are open to such opportunities. It brings in extra cash and its an expensive way to upgrade
our skills by working with different customers. New Business ventures: In order to use its
design and engineering skills to enter new businesses. HM entered into an agreement with
Mahindra and Mahindra (M&M) for developing petrol engine for M&M vehicles.
HM also tied up with GM to market the entire range of transmission equipments
manufactured by Allison Automatics (owned by GM).
Change in Distribution Networks
(HM had a bad image in market offering very low dealer incentives and poor after sales
service)
HM overhauled the distribution system in order to become more market friendly.
1999, HM unveiled a new distribution system, wherein dealers where divided into three tiers
red blue and green depending on their location and performance records.
Red tier catered to the metros for selling and servicing lancers
Blue tier catered to the semi urban areas for Contessas and Ambassadors
Green tier to rural markets for Trekkers.

Exporting Era
2001, HM also decided to explore the overseas markets for its products and began by
exporting around 150 RTVs to Bangladesh.
HM also managed to secure an export order for 300 petrol engines from a UK based
company, in addition to the 1800 engines already supplied.
Cutting down the diversification / Cost benefit Analysis/ Measures
2001 February, HM sold its earthmoving equipment to Caterpillar Inc. (CAT) for Rs 3.3
Billion.
After the deal HM was able to bring down its high interest debts from Rs 255.5 million to Rs
156.9 million. (Starting first quarter of 1999-00 to corresponding quarter of 2000-01 fiscal).
Company used to repay debts worth Rs2.25 Billion from its long term borrowings of Rs 6.2
billion. Helped reduce gross loss to Rs 152.2 million from Rs 255.5 million in the
corresponding quarter of 1999-00.

First Mover Advantage

HM focused on the Internet also, becoming the first carmaker to offer customizing service to
its customers in India.
The company planned to install 16 such computer kiosks at its dealers premises across the
country by the end of fiscal 2001-02.
According to company sources, after the launch of the service, Lancers market share had
gone up by 4%.
Transformation to automotive parts/ supply division
November 2001, HM announced its plans to emerge as a major player in the engine
manufacturing business for other companies. The company was awaiting the outcome of its
bid to make the engines for Fords Ikon.
With the second phase of the restructuring efforts in place, HM hoped to improve its growth
in the automotive division and offset the losses from the passenger car segment.

Confident Boosters For HM Year 2K

The companys moves seemed to be finally bearing fruits as it was able to narrow down the
losses in the first quarter of 2001-02 by around 30%.
HM was banking on the Ambassadors niche markets (government and taxi) and hoped to
retain the segment by launching new variants.
The Trekker was also poised to do well after the relaunch and HM hoped to sell 3,200
vehicles in 2001-02.
Analysts however remained skeptical about HMs future prospects and its ability to make a
turnaround as a passenger carmaker.
They felt that the only way out of HM was to turn itself into auto-component supplier to
multi-nationals producing passenger cars in the country.
HM seemed confident that with Pajeros launch in early 2002, it would regain its position in
the Indian car market.

SWOT Analysis
Strengths
Hindustan Motors was the first Indian Car Company to start production In India in 1942.
HM has become a vast company, manufacturing cars like the sturdy Ambassador, the elegant
Contessa, and in collaboration with Mitsubishi of Japan now manufactures the new
Mitsubishi Lancer.
HM started production of the Landmaster in 1954, and in 1957 began the production of the
Ambassador. Later tie-ups with General Motors Corporation of USA, Vauxhall Motors, UK,
Marion Power Shovel Co, USA led to new products being launched.
In 1963 commenced the production of the Ambassador Mark2 Later versions and more
forays in related vehicle segments followed.
Export has been steadily increasing, mainly in the British and Japanese markets. Trucks are
being exported to Bangladesh, Egypt, New Zealand, Sri Lanka and Mauritius. The Earth
moving Equipments are being exported to Oman, Jordan, Iraq, Bangladesh, Mauritius and
Libya.

Future Plans
Hindustan Motors planned to launch Mitsubishi's small-car model iCar in India by the
end of 2009.
Reuters noted that the Indian passenger vehicle market is forecast to nearly double to 2m
units in annual sales by 2010 with small cars taking up over two-thirds of sales. A tax cut in
economy is encouraging on small cars launches. HM will benefit with this.
GM and Hindustan_Motors are toying with the idea of introducing CNG as a fuel option in
order to boost sales.
The companies have plans to introduce a CNG variant for the Optra and Lancer (old variant).
The two variants will be introduced in CNG-centric areas including Mumbai, Delhi and
Gujarat.
Before 90s (The License Raj)
This lack of product activity in the Indian market was mainly due to the Indian
government's complex regulatory system that effectively banned foreign-owned
operations.
Within this system (referred to informally as the "license raj"), any Indian firm
that wanted to import technology or products needed a license/permit from the government.
The difficulty of getting these licenses stifled automobile and component imports, creating a
low volume high cost car industry that was inefficient, unprofitable, and technologically
obsolete.
The dominant product Ambassador, although customized to the poor road conditions in India,
were based on a stale design concept (with outdated features), and were also fuel inefficient.
Inefficiency of Employees, Output of each employee was less due to Union interference
Inefficient management principles

Less presence in premium segment.

Lacks global tie-ups and thus finding it hard to tap export markets.
Opportunities
Efficiency through management principles
Exports
Acquisitions for strengthening its distribution tie-ups.
Entry into other related diversification categories like Truck parts manufacture, and other
parts automotives.
Can bring out more sophisticated cars with high technology standards
Threats
Emergence of strong players in the market mainly overseas competitors
Lack of employee motivation
Lack of design for cars (mainly new age look for cars)

REASONS FOR DOWNFALL OF AMBASSADOR

Out of all the fundamentals & techniques in marketing, it failed in almost all which led to
its failure.

Analysis:

Product: If we look at the product, Ambassador never changed with times. The brand
made many cosmetic changes from 1958-2000 and three upgrades was made which was
named as Mark II, Mark III and Mark IV. Beyond these so called cosmetic changes there
was no significant value addition between these upgrades. The look and the built quality
remained the same. A major change happened when the brand introduced an 1800 CC
Isuzu engine. It did lift the sales of the brand. But the euphoria was short lived. The
apathy of Hindustan Motor to offer product changes in tune with the times made the
brand stale.

Price: Hindustan Motor never bothered to rationalize the price of the brand. Ambassador
was costing around INR 4, 80,000. At the price a consumer could afford a more luxurious
& comfortable cars. According to reports, the Hindustan Motor plant had achieved full
depreciation in 2000. But the company did not even think about passing on the reduced
cost to the consumer. Had the company rationalised the price of Ambassador in 2000, the
brand might have survived the competition.

People: The Company failed to understand the mood of the people. Indian consumer was
spoilt with choices. The competition was immense and the quality of cars has also gone
up. Consumers now have new set of purchase considerations like quality, brand,
drivability, luxury, cost of maintenance etc.

Promotion: The Company did not promote the brand at all. With already declining
market and no promotion at all, made the matters worse. The brand has almost zero recall
value.

Brand Management: The Company also never invested in the brand. Without investing
in either brand or product, Hindustan Motors had sealed the fate of this brand. In the
brand management perspective, its suicidal not to continuously invest in a brand. Often
heritage brands wait till it becomes dated. Once the brand becomes dated, its virtually
impossible to rejuvenate the brand.

The task is to prevent the brand to become dated. For that the brand has to go to the
consumer for ideas. Changes in product or promotions can sustain the brand even in the
light of emerging competition.