Maruti Suzuki, the car maker with the highest domestic sales, is expected to pay a higher royalty fee to its Japanese parent, Suzuki Motor Corporation, for the financial year ending March 2010.
After selling 792,167 vehicles in 2008–09, the company’s royalty outgo was Rs 672 crore, a 34 per cent growth over the previous financial year. As a percentage to net sales, royalty fees were 3.3 per cent, expected to rise to 3.6 per cent for the current financial year.
Royalty fees are a price paid for using proprietary material such as design and technology of a car which has been developed and owned by another company. In Maruti’s case the royalty fee paid per vehicle is about 5 per cent of its net price. The royalty is paid for the first 11 years of a model’s life in the domestic market. Which means it no longer pays royalty fees on the M-800, which has run for an admirable 25 years and continues to do so, and the Omni.
A company official said he expects the royalty fee to rise mainly on account of the increase in contribution from newer royalty paying models like the A-Star and the Ritz to the total sales mix.
“The royalty fee of our models is calculated on three basic premises. Which are the basic selling price of the vehicle, import content of a model, and standard bought outs (common car parts like tyres and batteries which are locally sourced and hence attract no royalty fee). By calculating each of these aspects, which are in different proportions for each model, net royalty fee even for an older model like the Alto comes to around 5 per cent.” The other component the official highlighted was on the value of the Japanese yen against the Indian rupee. Should the yen appreciate against the rupee, the greater is the royalty outgo.
The third factor controlling royalty fee outgo for Maruti Suzuki are the imported contents in its cars. New models like the Ritz have an import content of around 15 per cent, which the company is trying to reduce thorough localisation.