The decision to build a new engine line comes after the company last year shelved its plans to further expand production of the Fiat-sourced 1.3-litre diesel engine (it makes under licence) because of declining demand for diesel cars. Used across popular models like the Swift, Dzire and Ertiga, the 1.3-litre engine is the only diesel engine in Maruti's portfolio today and, hence, a key leg of its business strategy. Adding more diesel engine options will significantly help the company cater to a new set of customers.
For diesel engines, we currently have a 3-lakh per year capacity at Manesar and we recently put up more capacity of 1.5-lakh units at Manesar, so thats 4.5 lakh a year. Something else is also coming up, more capacity for the future, Bhargava said.
He added, We had put on hold our plans to double diesel engine capacity at Gurgaon, but now we are adding a new line for our 800cc diesel engine that will be used in the upcoming LCV model and some new small cars. Initially the engine blocks will be imported from Japan, but later they will be sourced locally. Apart from producing the Fiat 1.3-litre diesel engine in-house, Maruti had also entered into a three-year agreement to source about 1 lakh engines a year additionally from Fiat's plant near Pune. However, industry sources indicated that with the company expanding its own diesel engine output, this Fiat sourcing contract which is in its last year may also end abruptly.
Maruti's 800cc diesel engine is key to the company's future since it will be the smallest diesel engine in the car market, possibly allowing the company to offer diesel engine options in entry cars like the Alto and WagonR and expand market share in India's 25 lakh units passenger vehicle market from the current 42%, in fact, for FY15 Maruti has set a market share target of 45% on the back of three new launches and several facelifts. With Tata Motors reportedly shelving its plans to launch a similar 800cc diesel engine in the Nano, the smallest diesel engine in the market today is a one litre (936cc) unit sold on the Chevrolet Beat.
Plans to make more engines at its first home in Gurgaon run parallel with Marutis strategy to de-congest the facility over the next few years on the back of several complaints the company has received from nearby residents.
The Maruti Suzuki scrip closed 0.28% up at R2,379.90 on Thursday, on BSE.