Maruti Suzuki urges vendors to reduce imported parts as rupee slides

Maruti Suzuki has asked its key vendors to push their foreign suppliers to set up manufacturing facilities in India so that it can drive localization and reduce the overall import content in its cars by around 8 per cent in the coming years.

The combined import content for the car maker and its vendors (who also import sub-components) averages between 15-16 per cent. With the rupee depreciating against the dollar, the cost of imported parts will rise, affecting the production cost.

While it’s true that the average localization of Maruti Suzuki cars is as high as 96-97 per cent, vendors who supply the components also have a certain imported content. As a result, the combined import content of the company, together with the vendors, stands at around 15-16 per cent.

Of this figure, imported electronics account for about 8 per cent. However, it is not viable for these suppliers to set up shop based on volumes from just one manufacturer. Sustaining these electronic component manufacturers, who have made large investments, requires huge volumes which can only come from other vehicle players joining in, and across other industries.

“The country already manufactures over four million cars and the volume should go up to 5-6 million per annum in a few years. So foreign component manufacturers are assured of enough volumes to set up manufacturing in India. We have had a meeting with our key vendors and have asked them to push their component suppliers to come to India,” said R C Bhargava, chairman, Maruti Suzuki.

Bhargava adds that about 7-8 per cent of the components which it and its vendors import can be made in India and that this will make a difference, given the rupee depreciation. However, he said that localising electronics will need a push from the government as part of its Make in India mission.

Unlike many of its competitors, Maruti Suzuki created a massive localisation plan some years ago. It has been reaping the benefits, namely keeping costs down. It is this project which helped the company to build volumes as well as manufacture cheaper cars while its rivals continued to have a larger import content that made their cars more expensive. With the rupee’s recent depreciation, the contrast has become even starker.