Maruti looks beyond cars to de-risk biz, LCVs on agenda

Written by fe Bureau | New Delhi | Updated: Jul 28 2013, 10:14am hrs
Amid a slowdown in car sales, Maruti Suzuki India said on Saturday it will foray into the light commercial vehicles segment, 30 years after an initial plan was shelved when the company started operations.

The company plans to challenge Tata Motors top-selling light commercial vehicle (LCV) Ace as part of the strategy, which will see Indias largest car maker diversifying and de-risking its business from the passenger vehicle segment.

Based on parent Suzuki Motor Corps Carry platform, a new LCV model is being developed for launch in India by 2015-16, which will offer both diesel and CNG engine options and also target export markets.

Maruti chairman RC Bhargava said the companys board has approved making of an LCV aimed at goods transport, though details on pricing and sales network is yet to be finalised. We thought that if there is a market for it and we have a product, why dont we get it. My car segment will grow, so why not grow another segment; in a sense its both de-risking and expansion of the range. I think the Maruti brand is strong enough, so any motor vehicle format the company forays into will have good acceptance, Bhargava said.

Parent Suzuki Motor, which has a 56.21% share in Maruti, already sells variants of the Carry LCV in markets like Indonesia, China and Pakistan.

In fact, Maruti had previously tried to market the product in 1982 when the company started operations. It had taken orders for both the 800 and the Carry, but then stopped short of launching the model because of low demand.

The Carry was part of the original licence agreement for India, but while we got orders for over 1 lakh units of the 800, only 2,000 units of the Carry were booked. That made it unviable then, and in 1983 we gave up plans to make it. But in the past few years, we have got into the diesel market, so we decided to bring this vehicle back into our portfolio, Bhargava said.

Among rivals is the Tata Ace, which sold over 3.25 lakh units (with variants) in FY13, apart from Mahindras Maxximo and Ashok Leylands Dost. The LCV segment has been the major driver for the commercial vehicle industry in the past two years, as heavy truck sales remain sluggish and major cities ban larger goods vehicle to ply on roads during the day.

The move to expand into newer segments will help Maruti utilise its large production capacity, of which a huge portion is currently not utilised today because of a slump in market demand.

Maruti today has an annual production capacity of over 1.2 million units across its Gurgaon and Manesar plants, but after an ongoing expansion plan, annual capacity will touch 1.5 lakh units by September this year, and go up to 2 million units by 2016.

Capacity is far ahead of salesin FY13 sales stood at 1.17 million units, with FY14 expected to add just about 5% growth in volumes.

Till last year diesel cars were doing well. They touched a peak of 61% (October 2012) in terms of their share of new car sales versus petrol, but this has since declined to 54% after the policy of hiking diesel prices was announced in January this year. Diesel will no longer be a driver for the industry, Bhargava said. He added that while gains due to forex movement may not be sustainable, the company will continue to get benefits out of worker suggestions and increasing localisation at the vendors.

Bhargava also indicated that the company has no plans to quit Manesar, but it has completely removed all contractors from the factory. The company will now keep a target of up to 35% temporary staff to handle change in market demand, but both permanent and temporary workers will now be Maruti employees. The same process will also take place in its Gurgaon factory shortly.

The market is not growing, which is why we are bringing down inventory. Instead of cutting daily production, its better to shut the plant for a few days because it keeps discipline, Bhargava said.