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Suzuki’s Gujarat plant to export cars to Africa

Livemint:  January 29, 2015

Ahmedabad: Suzuki Motor Corp. plans to make automobiles for Africa, the company’s next big bet, as well as for India at its upcoming Gujarat plant, executive vice-president Toshihiro Suzuki said on Wednesday as the Japanese automaker started work on building the factory in Hansalpur, near Ahmedabad.

“This plant will make cars for India and Africa,” said Suzuki, who sits on the board of Maruti Suzuki India Ltd, and is the son of Suzuki chairman Osamu Suzuki. “We will be able to decide on the kind of models (to be) exported to Africa when this plant gets operational.

Through its Indian subsidiary, Suzuki Motor plans to introduce 10 new models in India and aims to control 50% of the local passenger car market by 2020. Suzuki said the Japanese auto maker expects the Indian passenger car market to reach four million units by 2020, up from 1.8 million units in 2013-14, and is targeting a market share of 50%.

The shipments to Africa will also be routed through Maruti Suzuki, to which the Japanese parent will sell the automobiles made in the Gujarat plant at cost price.

India’s largest car maker exported 110,000 vehicles in the last financial year; a market-wise break-up isn’t available, but shipments to Africa were minimal.

According to Dharmesh Shah, auto sector analyst at SBICAP Securities Ltd, Africa holds a lot of promise.

“...since none of the automakers have made headway in the continent, no one has a first mover’s advantage. Therefore, for Suzuki, which is primarily known for making affordable cars, Africa seems to be the right market,” he added.

In India, Maruti Suzuki‘s market share slipped below 40% in 2012 as labour trouble disrupted its production. The company has recovered ground and captured a market share of 52% in April-December 2014.

India has also given Suzuki Motor a footing in the global car market. The Japanese auto maker derives more than 30% of its consolidated profit from India.

“India continues to be a big market for us...” Suzuki said. “We would like to hold 50% market share if possible...it’s tough.

Suzuki said the company, known for its small cars, plans to build one “big car” in India that will be targeted at aspirational buyers, but will continue to dominate the small car market by introducing at least two new small cars every year until 2020.

The Gujarat plant has attracted its share of controversies. In January 2014, Suzuki announced that it would invest Rs.3,000 crore in the plant and sell the cars it produces there to Maruti Suzuki—a big shift from an earlier plan in which the latter would have built the plant itself.

The announcement raised concerns that Suzuki could sell the cars at a higher price to Maruti than it would have cost the latter to produce them itself.

Institutional shareholders such as Axis Mutual Fund, DSP BlackRock Mutual Fund, HDFC Mutual Fund, ICICI Prudential Mutual Fund, Reliance Mutual Fund, SBI Mutual Fund and UTI Mutual Fund opposed the plan, although the Japanese company said it only wanted to invest spare cash that wasn’t generating sufficient returns in its home market.

In March, Maruti Suzuki gave in to pressure from investors, independent directors and the Securities and Exchange Board of India and agreed to seek minority shareholders’ approval for the contract manufacturing agreement.

In the event, Suzuki Motor went ahead with the so-called ground-breaking ceremony for the Gujarat plant without Maruti Suzuki approaching minority shareholders for approval.

On Tuesday, unveiling its financial results for the December quarter, the Indian subsidiary’s management told analysts that it was waiting for more clarity on the new Companies Act and would be able to approach investors in the next six months.

The Gujarat plant is expected to start production in mid-2017 with an annual production capacity of 250,000 vehicles.

Suzuki Motor chairman and CEO Osamu Suzuki said that setting up of the plant in Gujarat marks “the beginning of a new era” for his company.

“When we were planning for a new factory, we were invited by the Gujarat government to come and set up a plant here. For the Suzuki group, setting up of this new manufacturing facility in Gujarat is the start of a new era,” said Osamu Suzuk.

He said the new facility will function in line with Prime Minister Narendra Modi’s Make in India programme, which aims to attract foreign investors to manufacture in India for selling their products overseas, and the company will focus heavily on productivity and efficiency.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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