Lack of vendor capacity seen as hurdle for Maruti Suzuki
NEW DELHI: Maruti Suzuki India Ltd’s vendors need to collectively invest ₹1.5-2 lakh crore in the decade starting 2020, to keep pace with investments the car maker’s parent company, Suzuki Motor Corp., would make in India.
Suzuki’s investments would be geared towards achieving its target of selling five million cars in the country by 2030.
A group of tier-i vendors, formed last month to deliberate on the topic of “corporate excellence”, made a presentation to the management of Maruti Suzuki regarding the projected cash flow from parts suppliers.
This comes against the backdrop of Maruti Suzuki’s management expressing concern about the ability of the vendors to match the company’s growth trajectory, two people aware of the development said on condition of anonymity.
During its vendor meet in Abu Dhabi last month, the top management of the company had aired concerns about whether the vendors would be able to expand their respective capacities and make new investments in line with the company’s own investment in the next decade.
The group of vendors said they needed to increase their investments substantially to ₹1.5-2 lakh crore.
To maintain its dominance, Suzuki Motor Corp. will invest $1.5 million in fiscal 2019 to develop future products for the Indian market, which include an entire range of hybrid vehicles and gasoline engines.
As reported earlier, Suzuki has also planned massive capacity expansion for its Indian subsidiary.
According to the first person mentioned above, most of the vendors beyond tier-i do not have the appetite to make huge investments due to reasons such as high cost of capital and weak balance sheets.
“A lot of vendors of Maruti Suzuki are not in a financially sound position, hence they may not be able to make huge investments required to stay on course with Maruti’s ambitions,” the first person said. “The lack of vendor investment in Gujarat is also an example.”