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Maruti to develop small cars for Japanese market

Maruti to develop small cars for Japanese market

New Delhi: In a move that could buck the trend in the local automobile industry, Maruti Suzuki India Ltd will develop small cars from scratch for the Japanese market.

“We will be making small cars for Suzuki in India, which will be exported to Japan," said chairman R.C. Bhargava in a telephone interview on Friday. “We will be developing and producing completely new small-car models for them." He declined to share further details.

Tokyo-listed Suzuki Motor Corp. has been stepping up investments in research and development (R&D) in India and has formed Suzuki Powertrain India Ltd—a 70:30 joint venture between Suzuki Motor and Maruti Suzuki at Manesar, Haryana, which manufactures diesel engines and transmissions for cars. Suzuki Motor has invested 1,500 crore in an R&D centre coming up at Rohtak, also in Haryana. This will be its first such centre outside of Japan. Spread over 700 acres, the first phase of the project is likely to be completed by 2012.

“Ultimately, the entire engineering process will move to India and all small cars will (be) conceptualized and developed in India," a Maruti Suzuki official said, requesting anonymity. “That’s the company’s vision. We are still in the ideation process. There is no time frame for this target."

Some analysts have anticipated such a move. “Suzuki Japan is making Maruti a manufacturing hub to cater to the increasing global demand for small cars due to rising fuel prices and stricter emission standards," wrote Yaresh Kothari, sector analyst, Angel Broking Ltd, in a 26 July report on the company’s results in the three months ended 30 June. “Moreover, R&D capabilities, so far largely housed at Suzuki Japan, are progressively moving to Maruti. The company is aiming to achieve full model change capabilities over the next couple of years, which will enable it to launch new models and variants at a much faster pace."

Another industry expert said the rise of the yen against the US dollar has been bothering the Japanese parent. “This may have culminated in taking such a step," he said on condition of anonymity.

Bhargava declined to comment on this aspect. “This (developing new cars in India) is a part of the long-term plan," he said. “I would not like to relate it to the yen’s valuation."

A sharp appreciation of the yen has taken a toll on the Japanese firm’s profits, leading to its desire to move part of its production out of Japan, which could give Maruti Suzuki a larger say in Suzuki Motor’s scheme of things.

“I feel very sad there is no one in Japan to take action on the yen," executive vice-president Toshihiro Suzuki, son of chairman and president Osamu Suzuki, said on 3 August. He said the auto maker may need to think about moving production overseas if the yen strengthens further. The Japanese government intervened in currency markets last week.

Suzuki, 20%-owned by Volkswagen AG, announced a 20% fall in the first-quarter operating profit after the 11 March earthquake disrupted production.

The Japanese currency gained 11% against the dollar in the April-June quarter from a year earlier, hurting the value of profits from exports. The yen surged nearly 5% in the past month and closed on a record high against the dollar on 1 August.

With the Indian car market expected to touch five million a year by 2015, Maruti Suzuki has been on an expansion drive.

“This can be seen in line with the mega expansion programme, which Maruti is undertaking," said the industry expert cited above. Maruti currently has a capacity of producing 1.2 million cars a year, which will rise to three million in two-three years. It has got three assembly lines—one at its Manesar plant and two at the Gurgaon factory.

Two more production lines will be operational early next year at Manesar. The company is also in talks with the Gujarat government to build a factory by investing at least 6,000 crore.


Bloomberg contributed to this story.

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