Most of the future large-sized diesel SUVs launched by Maruti Suzuki will be sourced from Toyota, as the country's largest car maker plans to leverage the expertise of the latter in the fast growing SUV segment and protect its market share, people aware of the development said. The plan to source SUVs from Toyota is an extension of the global partnership the manufacturers have formed, as part of efforts to arrest possible decline in volumes and market share, given that Maruti has decided to stop making diesel cars from April 1, 2020, when BS-VI emission norms come into effect. “While the gap of diesel variants in the small car segment is likely to be filled by the CNG models, demand in the large SUVs will still be predominantly for diesel variants,” one of the persons said.
Maruti’s current diesel portfolio, which accounts for about 20% of the total volumes and includes models like Vitara Brezza, S-Cross Ertiga and XL6, will be converted to petrol towards the end of this fiscal. The call on design and price points will be taken by Suzuki — Maruti’s Japanese parent — while the vehicles will be built on Toyota’s platform in India, the person said. When contacted, both the companies declined comment on the development saying that they do not comment on future product product plans. Toyota will also make Maruti’s Vitara Brezza at its plant in Bidadi from 2022.
The strategy is likely to help Maruti save vehicle development costs and ensure economies of scale as the company will pay royalty and share most of the costs. Analysts believe Maruti’s move to stop manufacturing diesel cars could result in loss of market share. “We see risk to Maruti’s market share and expect it to decline 200 bps over FY19-22 on exit from diesel segment and limited portfolio gaps in existing segments,” analysts at Axis capital said. Citing huge costs of upgrading diesel engines to be compliant with BS-VI emission norms, Maruti had announced it will stop manufacturing them, but will evaluate options of 1.5 litre diesel engines.
SUVs account for over 25% of the total car sales, with average monthly volumes ranging between 85,000-1 lakh units. While Maruti holds over 60% market share of the passenger cars, it’s share in the SUVs stands at around 24%. With most of the SUVs and MPVs converted to petrol engines, there is a risk of Maruti losing market share as rivals including Hyundai, Mahindra & Mahindra will continue selling diesel cars. Even as share of diesel cars have fallen to below 20% currently against over 40% seven years ago, demand for SUVs are still driven by diesel variants. In fact, diesels accounted for around 80% of utility vehicles sold in the last fiscal.
Experts said presence in the high end SUVs for Maruti is extremely important. “Maruti will need to be watchful of losing further market share. The partnership with Toyota could also be useful in taking on the competition, especially in higher-cc SUVs, where Maruti has met with limited success thus far,” analysts at Citi research equities said. As part of the earlier agreement between the two companies, Maruti will supply its models including Brezza, Ciaz and Ertiga — to Toyota, and the latter will provide Suzuki its hybrid electric vehicle (HEV) technologies. Toyota has had a runaway success with its SUVs like Innova and Fortuner. However, the company’s market share hovers around 4% due to lack of enough products in the hatchback, sedan and compact SUV segment. Maruti, on the other hand controls over half of the car market but does not have a high-end SUV in its portfolio.