Free Trade vs. Protected Trade: A Case Study
http://www.aworldconnected.org/article.php/301.html
The Ambassador: A Story of Protectionism Gone Awry
By Salil Singh
Comparative Study
TOYOTA
Year Began
HINDUSTAN MOTORS
1937
1942
18
2
Maximum Horsepower
240 hp @ 4,800 rpm
(Sequoia)
55 hp @ 4,500 rpm
(Ambassador)
Design changes since
inception
Too many to list
None worth mentioning
5.98 million
95,000
$3.9 billion in profits
Losses of over $25 million
Number of Models in
'02
Total cars made in past
year
Financial Results for
latest year
Based on an article by Barry Bearak, "An Icon Falls On Hard Times; In India, the
Ambassador Car Fights to Survive Competition," New York Times, March 4, 1999
Both Hindustan Motors of India and Toyota of Japan began production around the same
time, and faced similar challenges as they sought to grow as companies.
And yet there were some crucial differences in the respective cultures, political and
economic environments within which these companies existed.
The results of over a half-century of competing philosophies and circumstances are
starkly evident in some of these highlights:
At the Hindustan Motors plant near Calcutta, over 11,000 workers make 18,000
Ambassadors a year. At the Toyota City Lexus factory ouside Tokyo, 66 workers helped
by robots produce over 100,000 cars a year.
Until the 1980s almost every car sold in India was an Ambassador. In the following
decade, as India's closed auto market was opened up and auto sales doubled, the market
share for the Ambassador shrank to less than 5%. Meanwhile, Toyota continues to be a
world leader in the automobile industry.
Why such an astounding disparity in results? The answers may lie in the controls,
regulations, protections and licensing requirements under which Hindustan Motors has
operated in India.
While Toyota has competed on the global market, Hindustan Motors spent much of its
corporate history sheltered from competition.
The Ambassador is based on a 1950s British model and the design has stayed essentially
unchanged ever since. Although Hindustan Motors is now investing $43.5 million to
revamp its workhorse, the changes hold little promise for the survival of the company.
Similar investments in the past few years have produced little results.
The Ambassador, like Hindustan Motors, is a dinosaur from an era in which there was no
need to improve, innovate, and improve productivity.
Writing from Uttarpara, site of the Hindustan Motors plant near Calcutta, New York
Times reporter Barry Bearak writes, "Streets in India are an extraordinary sight for two
reasons, one of them the cows that wander sacredly and indifferently through traffic, the
other an antiquated-looking automobile with a bowler hat of a roof called the
Ambassador. Little in the look of the car has changed during its 41 years on the road."
He continues that "until the early 1980s, most every car sold in India was an Ambassador,
and, for its manufacturer, Hindustan Motors Ltd., this was clearly too much of a good
thing. Near monopoly conditions led to lingering corporate somnolence."
When the Indian government opened its auto market to competition in the 1990s, Indian
drivers migrated en masse to smaller, sleeker, and better made cars.
While the Ambassador, now priced at around $8,000, has always been a very easy car to
keep running, the ride is bumpy and the manufacturing quality is poor. Indians often joke
that everything in the Ambassador makes a sound except the horn.
Over the years, little was done to streamline production or attend to quality control. "A
fresh-from-the-factory Ambassador already could be a rattletrap with doors that did not
quite fit and windows that allowed water to seep in around the edges", wrote Bearak.
Faced with imminent extinction, Hindustan Motors has been scrambling to cut costs and
improve quality. But the resistance to change can be formidable.
The bloated workforce is heavily unionized, and any attempts at restructuring the work
week or laying off any of the 11,000 workers have met with fierce opposition.
The company has gone ahead with its plans to operate with a reduced work week, but
without government approval, it must continue to pay the workers their full wages. The
price tag: losses of over $25 million and counting in the past year.
The West Bengal labor department rejected the company's proposed retrenchment plan as
"absurd," issuing a decision that chastised management for inefficiency.
As far as the bureaucrats and unions are concerned, the company's financial woes are the
results of "poor management." There may be truth to this claim, but a stalemate between
management and labor may result in the loss of all 11,000 if the company shuts down.
"The car has so many benefits - its so big it can be used as a mobile office," says
Hindustan Motors' chief executive. "On Indian roads, where safety is a big issue, it's
rugged. Mechanically, it is unlikely to fail. If it does, any mechanic in India knows how
to fix it."
But, as reporter Barry Bearak has written that the "final virtue - the Ambassador's ease of
repair - may in the end prove its undoing as much as any cheaper, faster and flashier
competitors."
One Indian mechanic says, "What goes on inside an Ambassador is simple to understand,
no electric parts that no one's ever seen before. You can fix anything with a hammer and
a wrench. Six-year-olds can do it."
In Calcutta and most other big cities, there are entire markets where dozens of resourceful
mechanics not only sell used Ambassador parts but home-made "knock-offs" ones as
well.
These copies are cut-rate. An entirely "new" Ambassador body can be bought for $350,
an entire shiny "new" car for under $1,000.
"I can take a 1960 Ambassador and make it look and run the same as an Ambassador just
out of the factory," the mechanic says. "The Ambassador never changes. Why would
anyone buy a new one?"
Meanwhile, in July 2002, Toyota Motors celebrated the ten millionth vehicle
manufactured in North America alone, at a ceremony at its Erlanger, Ky. facility, the
headquarters of Toyota's manufacturing operations in the United States, Canada and
Mexico.
-------------------------------------------------------------------------------Salil Singh is a documentarian and freelance writer who lives in California.