An exit from China will allow Suzuki Motor Co. to free up resources and focus more attention on Maruti Suzuki in India, its most lucrative market
Suzuki Motor Corp. may be exiting China and that is good news for India.
Unlike Indian consumers’ abiding love affair with Suzuki cars, sales of the company’s vehicles in China have plunged after a promising start. Quitting China will allow the Japanese carmaker to free up resources and focus more attention on India, its most lucrative market.
Nikkei Business on Thursday reported that Suzuki and its Chinese partner, Chongqing Changan Automobile Co., will disband their joint venture, with Suzuki selling its stake to the local manufacturer.
Shares of Suzuki dropped 4.8% in Tokyo on Thursday, the most since 9 August. But, unit Maruti Suzuki India Ltd rose 1.3% on BSE, a reflection of what investors think will be the fallout of the move.
The process of dissolving the partnership will start with approval from Chinese authorities and could be completed by the year-end, with Changan continuing to make Suzuki-brand vehicles under licence, according to the Nikkei report.
Bloomberg cited Suzuki spokesman Satoshi Kasukawa as saying that the company’s stance hasn’t changed and it continues to discuss with Changan about future growth of the partnership.
Suzuki’s move to exit China, if true, means it will no longer be present in the world’s top two markets as the auto maker exited the US in 2012. With a minuscule presence in Europe and in its home market, the company is facing a prolonged slowdown and cutthroat competition from Daihatsu in the mini-car segment.
Effectively then, India remains its only white knight and one that is in supreme health.
Maruti Suzuki shares have been on an upward curve and have risen by nine times since July 2012, when a labour strike crippled production at its plant in Manesar, Haryana, and mob violence led to the death of one of its managers.
Suzuki controls 51% of India’s car market through Maruti Suzuki, which means it literally sells every second car in the country. Net profit at Maruti Suzuki has doubled in the last three years and it clocks about ₹ 2,000 crore in net profit on a quarterly basis. Its brand recall is at an all-time high. The unit now contributes more than 50% of Suzuki’s consolidated profit from about 30% six years ago.
The change in the growth trajectory may have been triggered by a series of developments including the labour violence in India and Suzuki pulling out of big markets, but what does exiting China mean for the company’s Indian business?
“The objective of automotive business is not what it used to be 10 years ago, which is to make money. It has now moved towards survival,” said Deepesh Rathore, the London-based co-founder of Emerging Markets Automotive Advisors, referring to newer technologies such as autonomous cars and electric vehicles. “Those who do not have deep pockets to spend on technology will look to protect their turf,” Rathore said. “In other words, they will consolidate.”
Suzuki has a cash reserve of around $8.33 billion and Maruti Suzuki sits on a cash pile of around $4 billion. Maruti Suzuki didn’t respond to an email seeking comment till press time.
Consolidation has seeped into the global automotive industry. Toyota has bought Daihatsu while Nissan has acquired Mitsubishi. General Motors Co. has pulled out of some key markets, including India and is putting all its money in North America and China. Volkswagen, which is emerging from the “dieselgate”, has promised to move towards a complete electric brand.
Ford Motor Co., under Jim Hackett, is undergoing another turnaround in less than two decades, the first of which was effected by former chief executive Alan Mulally.
The dynamics of global auto industry has indeed changed from the time Suzuki exited the US market. The move was seen as Suzuki being dejected at its own performance after having failed to capitalize on the demand for fuel-efficient cars that surfaced among big and bulky SUV-loving Americans after the economic meltdown of 2008.
Suzuki, too, has cobbled up a few tie-ups and the most significant of them is the one with Toyota Motor Corp.
Toyota and Suzuki have agreed to sell each other’s cars in India, where Maruti Suzuki outsells Toyota models 11-to-1. While Suzuki will supply its best-selling models such as compact car Baleno and small sport-utility vehicle Vitara Brezza to Toyota, Suzuki will source Toyota’s Corolla sedan and sell it through the dealership network of Maruti Suzuki.
Suzuki and Toyota’s partnership goes beyond cross-badging of vehicles as they look to establish an implementation framework for a business partnership in areas such as green vehicles, safety and information technologies and mutual supply of products and components.
Another analyst with a leading brokerage firm in Mumbai sees this transformation as Suzuki prominently moving towards becoming a third-party manufacturer and developing a business model around it. “This aspect always remained with Suzuki, if you remember its deal with Nissan,” the analyst said, requesting anonymity.
Nissan Motor Co. and Suzuki had a partnership, in which Suzuki provided Nissan minicars, mainly for the Japanese market, to be sold under the Nissan brand. Nissan supplied pickup trucks for Suzuki to sell in North America.
“Contract partnership (Suzuki Gujarat) with Maruti and now with Toyota only justifies that impression, and makes one believe that it is now a better part of Suzuki’s strategy.”
Exiting China may well shape up a different Suzuki that one has known in the past.