Suzuki-Volkswagen deal contours in 2 months

The contours of the Suzuki-Volkswagen deal should become clear in the next two months or by early next year.

Amid continued speculation over the two companies sharing models and technology (diesel) in India, Maruti Suzuki’s managing director Shinzo Nakanishi said on Saturday that clarity on the partnership should emerge soon.

“Japan and Germany are discussing but no definite plan has come to us. By the end of this year or beginning of next year, there may be some announcement,” he said.

Last year, Volkswagen bought a 19.9% stake in Suzuki Motor Corp, which owns 54% in Maruti Suzuki India.

This declaration of a timeline to the joint venture’s contours assumes importance since there has been speculation over Maruti and Volkswagen sharing small car platforms and the local market leader getting access to Volkswagen’s diesel technology.

Maruti has access to only a 1.3 litre diesel engine as of now. To a question on expansion of the diesel portfolio, Nakanishi said, “Right now, we have the 1.3 litre diesel engine and there is no plan to introduce any other engine portfolio”.

Nakanishi was answering questions from analysts during a second-quarter results’ conference call on Saturday.

He also revealed the company’s diesel car sales amount to about 17,000 units a month or about 15% of total production.

The Swift and Dzire models account for 14,000 units and the Ritz diesel makes up the remaining numbers.

On the recently introduced CNG models, company officials said that these were launched only in Mumbai, Delhi and Gujarat and account for 15-18% of sales in these markets.

On discounts this festival season, managing officer (sales & marketing) Mayank Pareek said there was a decline of 18% compared with last year because of strong overall demand.

Average discount per vehicle during the September quarter stood at Rs8,500 against Rs8,200 in the preceding quarter.

Sales during the festival season till now were up 20-25% year-on-year.

On the company’s plan to open stockyards and display centres, he said “Our first stockyard would be ready in Bangalore later this fiscal and the first few display centres would come up at our regional offices next fiscal.”

When asked about export realisation decline in the first six months compared with an year-ago period, company officials said that due to consistent search for new markets, Europe’s weightage in Maruti exports had decline to 40%.

Exports in the first half stood at Rs2,122 crore (Rs2,265 crore). The non-European markets where Maruti sells cars include Australia, New Zealand, Indonesia, Malaysia and Brunei.

Company officials said export margins have eroded a whopping 10% in the last six months.

Maruti had planned capex of Rs2,800 crore for this fiscal and company officials said this target was being met.

Capital expenditure for the second-quarter alone was Rs500 crore.

On royalty payments to Suzuki, officials said though quarter-on-quarter increase was only 0.2%, Rs221 crore of the Rs249 crore of ‘other expenses’ were due to increased royalty payments during the quarter.

So will royalty payments come down in the next three-five years, when Maruti begins to develop products from scratch in India?

Officials said in the first phase of Indian R&D, the company plans to use platforms from Suzuki and only put on a new body shell made in India.

Just as the Dzire is built on the Swift platform, cars could be built on Japanese platforms. “So royalty payments should hover around 5.1% or a bit higher for the next 3-5 years.”