Toyota Kirloskar is finalising plans to invest ~1,000 crore to manufacture Maruti Suzuki models, which it would sell under the Toyota badge
The pact between Toyota Motor and Suzuki Motor has started taking shape about a year after they inked an agreement for a mutual supply of hybrids and other models for India and other emerging markets.
Toyota Kirloskar Motor (TKM), the local arm of Toyota Motor, is finalising plans to invest more than Rs 1,000 crore in its facility to manufacture Maruti Suzuki models, which it would sell under the Toyota badge, said a top official of TKM.
As part of the pact, the local arms of the Japanese manufacturers will manufacture vehicles for each other in the Indian market.
“There will be some additional investment required. The investment would be more than Rs 1,000 crore over a period of time. The plans have yet to be firmed up,” Shekar Viswanathan, vice-chairman, TKM, told Business Standard, adding that the first model as part of the agreement would go on sale later this year.
“Right now they are going through extensive testing and design changes,” he said, adding that there is a possibility of TKM getting the first batch of Suzuki models that will sell under the Toyota badge before TKM starts producing them in its factory. It will take at least two years to build the tools, jigs and fixtures for a new model introduction, said Viswanathan, pointing out that the investment will be spread over two to three years.
As part of the arrangement, Suzuki will supply the Baleno, the premium hatchback, and the Vitara Brezza, a compact sports utility vehicle, to Toyota, which will sell those under its own brand through its India subsidiary, TKM.
Toyota will supply its executive sedan, the Corolla, to Suzuki to be sold through Maruti Suzuki. The agreement will help Toyota which hasn’t been able to get a foothold in India’s mass car market, utilize its factory in the outskirts of Bengaluru, optimally. With a below 5 per cent market share, under-utilised capacity, a relatively small product portfolio and smaller sales network, Toyota’s India unit is likely to be a bigger beneficiary of the deal. Maruti Suzuki, which corners more than half the passenger vehicle market in India and boasts a large product portfolio, doesn’t seem to gain much from the deal.
For 10 months that ended in January, Toyota sold 125,947 units in India, up 8.34 per cent over the same period a year ago. Its market share during the same period inched up to 4.48 per cent from 4.29 per cent, according to Society of Indian Automobile Manufacturers (Siam).
In the same period, Maruti Suzuki sold 1.4 million units in the domestic market against 1.3 million units a year before.
For the vehicle models covered by the basic agreement, the two companies will step up efforts to procure components locally to the extent possible toward the achievement of the “Make in India” initiative promoted by the Indian government, the companies had said in the joint statement last year.
Puneet Gupta associate director, I.H.S Markit, a sales forecasting and market research firm, pointed out “besides helping the companies the landmark agreement between the two firms will also help the supplier base as they get scale by virtue of becoming a part of the global supply chain”.