Suzuki Motor Corporation plans to suspend a planned doubling of vehicle manufacturing capacity in Gujarat, reflecting continuing uncertainty in India’s automobile market.
The parent of Maruti Suzuki India, the country’s largest carmaker, will restrict the capacity to 750,000 vehicles a year instead of increasing it to 1.5 million vehicles a year as planned, said three people directly aware of the development.
Lack of availability of skilled manpower as well as inadequate infrastructure in Gujarat also influenced Suzuki’s decision, the people said on condition of anonymity. The Gujarat plant is owned by Suzuki Motor Gujarat, a unit of Suzuki Motor, and is the first direct investment by the Japanese company in India.
Suzuki initially planned to make 1.5 million vehicles a year in Gujarat, in two separate plants of 750,000 units each. The first factory opened in 2016-17, with two assembly lines of 250,000 units each. The third and final assembly line of 250,000 vehicles is slated for completion later this fiscal.
“The infrastructure around the place where Suzuki built its plant has not developed and getting skilled labour is also a challenge in that part of the country. Also, the overall cost of operations is much higher since Suzuki doesn’t have its entire vendor base there,” said the first person cited earlier.
A spokesperson for Maruti declined to comment on queries emailed on Monday.
Passenger vehicle sales in India have been weak for about a year because of factors such as volatile fuel prices, high loan rates and a slowing economy. Maruti’s local sales fell 19 percent in the June quarter, worsening from a 6.1 percent rise in 2018-19 and a 14.5 percent increase in 2017-18.
Puneet Gupta, Associate Director of IHS Markit, said, “Maruti has become cautious regarding its future investments, specially seeing the disruptions erupting in automotive world.”
“Expansion plans will go slow for all automotive manufacturers as long-term road map is missing from policymakers in India. This may be with regards to policies related to electric vehicles or regulations, which are yet to be introduced,” he said, referring to new norms on vehicle mileage and emissions.
Meanwhile, the issues in Gujarat may also lead Suzuki to choose a location in south India to build a new plant to prepare for a potential surge in demand in the future, said the second person cited earlier.
Maruti has a factory each in Gurugram and Manesar in Haryana, with a total capacity of about 1.5 million vehicles a year.
The second person said Suzuki could in the interim also access the factory of Toyota Motor Corp on the outskirts of Bengaluru to make Suzuki models at a time when domestic demand may not grow substantially in the next few years.
Suzuki and Toyota currently have a pact to sell each other’s vehicles in India, wherein Toyota will sell Suzuki’s Vitara Brezza and Baleno under its own badge, while Suzuki will sell the Corolla sedan.
While the Baleno hatchback is made in Gujarat, the Vitara Brezza compact sport utility vehicle under a Toyota badge will be made in Bengaluru, along with the Suzuki-branded Corolla sedan.
Suzuki has also invested in setting up a lithium-ion battery manufacturing plant in Gujarat, along with Toyota’s subsidiary Denso Corp. and Toshiba Corp.
Suzuki’s plans for Gujarat may, however, impact those Tier I suppliers who built production bases there based on the company’s original manufacturing plan of 1.5 million vehicles.
However, almost half of Maruti’s Tier I vendors are still not present in Gujarat and supply from other facilities.
The second person cited earlier said Suzuki’s move will help suppliers, who were looking to make investments in Gujarat as they don’t have to make new investments at a time when demand is expected to remain under pressure in the near term.
“Maruti has communicated its decision to most suppliers though there has not been any official announcement as such,” the second person said. “This also shows decision-making system in the company and how they manage the financial health of the vendor partners. The cost of manufacturing in Gujarat compared to Manesar and Gurgaon is higher.”