Maruti, suppliers gear up for prolonged pain3 min read . Updated: 12 Sep 2019, 11:58 PM IST
- The carmaker has hired KPMG, PwC to advise its parts suppliers on how to manage their business during the downturn
- Hiring the consulting firms shows Maruti Suzuki’s intent to keep its ecosystem sustainable
New Delhi: Maruti Suzuki India Ltd has collaborated with consulting firms KPMG and PricewaterhouseCoopers (PwC) to suggest to its suppliers on how to efficiently run their operations and survive the current turbulence in India’s passenger vehicle market, said two people aware of the development.
The step indicates that the Suzuki Motor Corp. unit is preparing for a prolonged slump in domestic demand, despite a raft of measures implemented by the Union government to boost car sales.
In a meeting organized by Maruti Suzuki Suppliers Welfare Association on Wednesday, both KPMG and PwC told vendors how to manage their businesses during a downturn and also emphasized the reasons for the slowdown, the two people said, requesting anonymity.
PwC was also tapped by some European automakers to advise their parts makers during the financial downturn in 2008-2010, one of the two people cited earlier said. Maruti has therefore decided to use PwC’s experience to help its own suppliers strengthen operations, the person said.
“This move by the company also indicates that it is not expecting the slowdown to go away in the near future. The suppliers have been the biggest casualty of the slowdown as most of them had to retrench a lot of their employees to reduce operational cost. This also shows the maturity of Maruti as a company as well," the person said.
Maruti Suzuki, KPMG and PwC did not immediately respond to emailed queries.
An unprecedented slowdown in India’s auto industry since July last year has forced automakers and their vendors including those of Maruti to shed temporary workers.
Passenger vehicle sales in India plunged 32% year-on-year in August to 196,524 units, according to the Society of Indian Automobile Manufacturers (Siam). It was the 10th straight decline in passenger vehicle sales and the worst since Siam began compiling monthly sales data in 1997-98.
Maruti, which sells one in two cars in India, saw sales drop 25% in the April-August period to 562,923 units from a year earlier.
Vehicle production at Maruti’s three plants, including the one in Gujarat, plunged 34% to 111,370 units in August. Domestic wholesales fell 36% to 94,728 units last month, the third time the company has dispatched fewer than 100,000 vehicles to its dealerships in a particular month since July 2017.
“Maruti is by far one of the most organized automakers and planned for the long-term scenario," said Avik Chattopadhayay, founder of Expereal, a brand consulting firm. “They realize that the current situation will take time to repair... probably a few quarters, if not a full year to be back to August 2018 levels. Therefore, the preparation to dig their heels deep and arm themselves for a protracted battle. To ride out the storm earlier, you have to be better prepared."
KPMG and PwC have informed the suppliers that they should undertake aggressive financial monitoring of their operations, focus on cash conversion cycles, convert fixed cost to variable ones, that is, monetize fixed assets such as warehouses, cut costs in the right place and review planned manufacturing to survive during a slowdown, said the second person.
Both urged the suppliers to have a “clean sheet" or a back-to-the-drawing-board approach for every cost item and think of collaborating with rivals to improve capacity utilization. They also advised parts makers to reskill their workforce and embark on a top-down business transformation to survive, the person said.
Mint reported on 8 August that 40,000-50,000 workers had been retrenched at Gurugram and Manesar in Haryana, the country’s biggest automotive hub, as original equipment manufacturers and vendors have reduced their contract labour force. Some of the vendors have temporarily shut factories as Maruti adjusted production at its twin plants in Gurugram and Manesar in line with waning demand.
The second person said hiring the consulting firms shows Maruti’s intent to keep its ecosystem sustainable both financially and operationally during this slowdown as a turnaround is not expected anytime soon.
“The current slowdown is not like the one we experienced earlier in 2008 and 2013. A year after declining sales, still we don’t have any recovery in sight. With BS-VI coming in from next fiscal, this is expected to exacerbate," the person said. “Leading suppliers of Maruti have invested quite a lot in Gujarat as well thinking of robust growth orders. These companies need to be protected now, as they are very important to the overall sustainability of Maruti in the long term."