The meeting between the Maruti Udyog Ltd board and Suzuki Motor Corporation to be held in Hammamatsu, Japan, on Wednesday will discuss whether Maruti will import completely knocked down (CKD) kits from the Japanese auto major to launch its new car model in the country.
This will enable Maruti to launch the new car by early-1999, after Suzuki launches its range of new models in Japan in October this year, rather than wait for 24 months to achieve a high indigenisation level for the new car.
The senior management team of Maruti comprising managing director RSSLN Bhaskarudu and joint managing director Jagdish Khattar have left for Japan to attend the board meet. The main issue on the agenda is to finalise the new model from Suzuki's range of new models to replace the Maruti 800 cc car.
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However, the bone of contention during the meeting will be who would bear the burden of subsidising the imported components of the new car since CKD imports would make the new car more expensive and affect its competitiveness.
Suzuki could sell the CKD kits cheaply to Maruti to make the car cost-competitive. Alternatively, Maruti could absorb the additional cost. However, this may affect its bottomline. The third option is for the two companies to share the subsidy burden.
Maruti's urgency to launch a new car to replace the Maruti 800 follows the moves made by other auto majors. Hyundai, Daewoo and Telco have lined up launches of their new car models in both the 800 cc and 1000 cc categories. The new models are expected to dent Maruti's car sales in these categories.
The alternative for Maruti is to indigenise the new car model before its launch. This is likely to involve a long gestation period of around 18-24 months, which may affect Maruti's dominant position in the car market.
There is very little scope for Maruti to reduce this gestation period since all the existing vendors will also have to achieve the higher levels of indigenisation level to reduce the cost of the new car. The other board members leaving for Japan are A R Halasyam, finance director; A V Singh, additional secretary, ministry of industry; Pradeep Kumar, joint secretary, ministry of industry; and K Kumar, the Suzuki nominee on the board.
The team will also constitute Suzuki representatives, including chairman Y Saito, O Suzuki, T Kobayashi and K Senga. The team is expected to return by August 29.