The Hindu : Business : Suzuki's new initiatives raise many eyebrows

Online edition of India's National Newspaper
Wednesday, Sep 15, 2004

Business

Business

Suzuki's new initiatives raise many eyebrows

By K. T. Jagannathan

CHENNAI, SEPT. 14. Will Suzuki Motor Corporation (SMC) enter diesel engine production on its own? Or will it make its foray into the field through a joint venture? Confusion seems to persist on its diesel engine dream in India, though.

Maruti Udyog Ltd. (MUL) has said that Suzuki's diesel engine foray in India will be through an existing company, Suzuki Metal India Ltd. Operating a foundry plant at Manesar in Haryana, Susuki Metal India is a running joint venture between the Japanese automaker and its Indian subsidiary MUL. Suzuki holds 51 per cent in the company and MUL 49 per cent. Suzuki Metal makes engine components such as aluminium castings, cylinder blocks, transmission cases and cylinder heads.

According to an MUL notification to the stock exchange, Suzuki Metal will undergo a name change. It will be rechristened as Suzuki Engineering India Ltd., to reflect the enlarged scope of its business. The proposed diesel engine plant, according to the MUL notification, will also be located at Manesar in Haryana. However, it would be situated away from the foundry plant of Suzuki Metal, the notification added.

MUL said that besides meeting the needs of Maruti, the engine plant was expected to service the diesel engines requirements of Suzuki's subsidiaries and joint ventures in Asia, including China, Japan and Indonesia.

Agency reports, however, quoted a Suzuki spokesman as saying, "The upcoming one lakh-unit a year engine plant could be a joint venture with Maruti or wholly owned by Suzuki and that no decision has been reached as yet".

The spokesman, according to agency reports, stated further that "the company is still in the process of deciding the capital ratio for the new entity".

Suzuki has also announced that it will set up yet one more car plant in India through an independent joint venture with Maruti in Haryana.

A spokesman of MUL said that a new independent company, Suzuki Maruti India Ltd., would implement the proposed car project to make 2.50 lakh vehicles. Sources said MUL would buy and market the cars produced by the new plant. Quizzed on the nature of the share holding in the new company, he said these were still being worked out. Why is Suzuki going in for an independent joint venture company for its new car plant and not opt to implement it under MUL? Many factors are touted for this. For one, Suzuki is obviously trying to spread the investment risk by going in for an independent company to implement the new car project. For another, it is, perhaps, trying to have a greater control and consequently a larger share to the profits from the new venture. If so, why has it not gone on its own?

Given the political environment, Suzuki, one may argue, is playing safe through this joint venture move. While trying to get lot more freedom, the joint venture move would also help Suzuki keep the powers-that-be happy. After all, MUL (where government still holds some 18 per cent stake) will also be on board with it in the new car plant initiative. One theory for this plant outside existing MUL is that the depreciation arising out of new investment could bring down profits of MUL. In any case, Suzuki's diesel engine initiative and new car venture have kicked up quite a dust already.

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