Suzuki-Toyota to benefit from tie-up in long run

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Published: April 5, 2018 12:30:17 AM

Under the arrangement, Suzuki will supply Toyota two of its best-selling vehicles – Baleno and Brezza for the Indian market whilst Toyota will supply Maruti its executive sedan Corolla.

Suzuki Toyota, Suzuki, toyota,  Baleno, Brezza, corollaUnder the arrangement, Suzuki will supply Toyota two of its best-selling vehicles – Baleno and Brezza for the Indian market whilst Toyota will supply Maruti its executive sedan Corolla.

Further to a tie-up announced in February 2017, Suzuki and Toyota have announced an agreement for mutual supply of vehicles. Under the arrangement, Suzuki will supply Toyota two of its best-selling vehicles – Baleno and Brezza for the Indian market whilst Toyota will supply Maruti its executive sedan Corolla. We reckon this leg of the deal is much more beneficial to Toyota India as it helps it target a much wider part of the Indian market. Whilst the Corolla sold a monthly average of 400 units in 11M FY18, Baleno and Brezza sold a combined 28k units per month. Maruti also has a much superior cost structure to Toyota in India, given its much larger scale and significantly higher localisation. Thus, Toyota will get the Baleno and Brezza cheaper than it could have made on its own and will also use the arrangement to increase localisation on the Corolla and reduce its price. In the long run, the tie-up should benefit Maruti as well with Toyota’s strength in green technologies and higher-end vehicles becoming useful once the market matures. In the near term, however, Toyota stands to gain more from the alliance. Post the announcement of their intention to collaborate with each other in February 2017, Suzuki and Toyota have announced a mutual supply arrangement for the Indian market with Suzuki supplying Baleno and Brezza to Toyota, which the company will sell with some minor modifications and Toyota supplying its Corolla to Maruti (we assume this will be sold through Nexa). Toyota and Maruti’s product portfolio in India is very complementary, with 95% of Maruti’s volumes coming from the sub R1 mn price point and 75% of Toyota’s volumes coming from the >R1 mn price segment. Executive sedan is a very small segment with monthly volumes of only 1,000 units per month. Also, it is a shrinking segment, with volumes in the segment shifting towards SUVs. On the other hand, the Baleno and Brezza segments, with volumes of almost 60k units per month, are amongst the fastest growing segment in the market. In our view, it is much easier for a brand going down a price point to gain traction (especially if it manages to get the cost structure right) than for a brand to move in upper segments.

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