In an attempt to offset dipping exports to European markets, the country?s largest carmaker, Maruti Suzuki, is considering various options. The plan currently under discussion is that cars which are for the European market should have up to 40% components sourced from that very market so that it can be competitively priced.
According to certain domestic legislation in Europe, which are aimed at encouraging local manufacturing, OEMs sourcing 40% or more components from Europe are liable to get reduction in tax and VAT which can amount to almost 5% of the overall cost of the vehicle, according to analysts. Explaining the rationale behind the move, managing executive officer (supply chain) of Maruti Suzuki S Maitra told FE that the attempts formed a part of the company’s overall strategy to reduce Yen dependency and increase its exports to the European markets.
?We are are now looking at the possibility of sourcing components from Europe especially for cars that are going to be exported there. There is a clause that says if components are of European origin to the extent of 40% (on cars) then the governments give cost benefit. That’s what we are trying to do,? he said.
Maitra said that typically Maruti sources a chunk of its components from Europe but does not often meet the 40% threshold limit which would make them eligible for benefits.
He said that owing to the cost benefits, the company?s cars exported to Europe could be more competitively priced thereby giving a filip to Maruti’s European exports. Over the last one year, the company has been trying to explore various options to reduce its exposure to the yen. In the last one year the yen has appreciated to around 82 to a dollar from 87.
Adding that the company is looking at sourcing from other markets as well, Maitra said, ?We are seeing that a number of Japanese plants have their transplants outside Japan in places like Malaysia, Thailand and China. So, even we are trying to source from these countries because it saves cost since yen is very expensive,? he said. Analysts said that while the move is a smart corporate strategy, it might not trickle down into major cost benefit for European customers. Assistant vice-president with Sharekhan Securities Deepak Jain said that increased sourcing could help the company get a marginal relief on income taxes and value-added tax.