6/23/2016 HindustanMotors'StruggleforSurvival|TroubledWaters?

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HindustanMotors'StruggleforSurvival
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Themes:TurnaroundStrategy
Period:19982002
Organization:HindustanMotors CaseCode:BSTR021
PubDate:2002 CaseLength:10Pages
Countries:India Price:Rs.300
Industry:Automobile&
Automotive

"HindustanMotorsisacasestudyofcomplacency."

ADecember28,1999,BusinessIndiareport.

HindustanMotors'StruggleforSurvival:TroubledWaters?
In October 1998, Hindustan Motors (HM), makers of one of India's best
knowncarstheAmbassadorlaunchedanewcar,theMitsubishiLancer
(Lancer).ThelaunchofLancer,anewcarfromtheHMstableafternearly
two decades, was reported to be very important for the company, whose
marketsharewasonthedecline.

HM was reportedly banking heavily on the Lancer's success to fight

competitionfromothercarcompanies.Lancerwaspositionedinthemid
size luxury car segment, which was dominated by Maruti Udyog's (MUL)
MarutiEsteemandHonda'sHondaCity.

Lancer was received very well by automobile experts throughout the

country,largelyduetoitstechnicalfinesse.Thecar'ssalesreached2,866
units by the end of the fiscal 199899. 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
andhighcustomersatisfactioninacountrywidesurveyofcarowners.

However,thecompany'seuphoriawasshortlivedasLancer'ssalesfailedtopickupasexpected.While7,621carsweresold
in1999,HMmanagedtosellonly7,635carsin200001againstaforecastof8,0002.Ontheotherhand,salesofHondaCity
increasedto10,011in2001from9631in1999(ReferExhibitIforthesalescomparison).

Meanwhile,HM'sotherofferingsAmbassadorandContessawerealsofaringbadly.In1999,Ambassador'ssalesweredownto
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'sbottomlineandHMreportedanetlossofRs615.8millionforthefiscal199900.(ReferTableI).Thecompanyhad
reportedlyaccumulatedlossesworthRs1.1billionduring199920013.

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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,consultingandtrainingservices.
2]AportionofthelostsaleswasaccountedforbysupplyrelatedproblemsinAprilandMay2001.
3]InSeptember2002,Rs48equaled1US$.

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