GM-Fiat split may hit Maruti engine plan

Maruti Udyog's diesel engine plant project is likely to be hit with General Motors (GM) terminating its buyout agreement with Fiat.

In September 2004, Maruti said it plans to set up a diesel engine plant through Suzuki Metal India, in which Suzuki Motor holds 51 per cent and Maruti Udyog holds 49 per cent, using Fiat's technology. Suzuki Motor, General Motors' global partner, is the licensee of the diesel engine from Fiat Auto and Adam Opel.

But with GM terminating its master agreement with Fiat and returning its 10 per cent equity interest in Fiat Auto Holdings to Fiat, the Italian company may decide not to share its diesel engine technology with Suzuki. For all practical purposes, GM was the common thread holding the two companies together.

This could be a big hurdle for Maruti Udyog and Suzuki's engine plant. The plant was supposed to become operational in 2006-07. Maruti officials refused to comment on the issue.

Though international media reports suggest that GM and Fiat jointly own some intellectual property in engine technology and GM will continue to co-own separate diesel engine technology, there is no clarity on whether the licence agreement with Suzuki will stay intact.

The capacity of the diesel engine plant was likely to be 300,000 or more units per year and the total investment was likely be around Rs 1,000 crore, according to the September 2004 company release.

More than 50 per cent of the engines produced at the plant were to be exported to Suzuki's subsidiaries and joint venture companies in Asia and EU.

Maruti, which does not make diesel engines, has been sourcing them in small numbers from Puegeot. Having its own diesel engine could provide a big boost to Maruti and open it up to a fast growing segment dominated by Tata Motors, Ford and Hyundai.