Suzuki calls for closer ties with Maruti to save costs

Written by Roudra Bhattacharya | New Delhi | Updated: Jan 29 2013, 08:41am hrs
Maruti Suzukis reputation for cost-competitiveness is now being sought out by its Japanese parent Suzuki Motor Corporation (SMC) as it looks to protect margins and fend off increasing competition amidst a global slowdown in sales.

Osamu Suzuki, SMC chairman, has pressed for closer working ties in divisions like finance, production and IT with domestic car market leader Maruti, in which it owns a 54.21% stake. Speaking at Marutis board meeting on January 25, Suzuki told top Maruti officials that the two companies need to increase communication, and not keep it restricted to engineering and R&D functions. Leverage on common sourcing and other functions will reduce duplication of effort and save on costs.

He said (Osamu Suzuki) that both companies need to work much more closely together, given that Marutis role is much more important now in the total scheme of things. The idea is to have discussions together on things like sourcing and finance. Currently, prices paid by the two companies are different, but a larger scale may help us get better rates from suppliers, a source close to the development said.

The source added that common sourcing may not be possible across all components given logistic costs and the different requirement of markets for things like steel, but in some components there may be significant cost benefits for Maruti as well.

Suzukis emphasis on closer ties follows Marutis increased prominence in Suzukis global operations Maruti now accounts 40% of its global sales and a fourth of its revenues. Additionally, analysts added that Marutis first mover advantage in the Indian car market has given it access to a large and loyal component vendor base. Annual domestic sales of over 1 million cars also gives Maruti the volumes to command competitive prices.

His (Osamu Suzuki) basic message was that both Maruti and Suzuki Japan need to work together to meet challenges such as increased competition. Although one is yet to see what change will happen, the move is expected to improve capabilities, quality and efficiency levels in manufacturing, another source said.

The move further assumes importance given Marutis plan to invest over R20,000 crore (with suppliers) in two large production facilities across 1,300 acres in Gujarat, where the first of six plants will start operations in 2015-16.

With a plan to make it Suzukis global small car hub, the primary focus of the Gujarat plants will be exports. These facilities will take total annual capacity (with the Gurgaon and Manesar plants) to over 3 million units by 2020.

On Monday, Maruti Suzuki share closed up 0.44% at R1,607.25 on the BSE. Marutis Q3 profits jumped 144% to R501 crore while total income rose 45% at R11,200 crore.