Maruti Suzuki to launch A-Star in October, ramp up R&D capabilities despite dip in sales

The company said it sold 59,908 units in August compared to 65,968 units in the year-ago period, a fall of nearly 9.2 percent in sales - reflecting the single-largest decline in the past 2 and ½ years. A company official said MSIL's lineup of small cars like Wagon-R, Sen and the Alto saw their sales dip in August, though the Swift and Swift Dzire provided some comfort by finding many takers.

However, the company, which is 54.2 percent owned by Japan's Suzuki Motor Corp., said the figures are not upsetting as sales would pick up in October when the festive season begins. "The festive season has always been a good one for the industry as sales tend to go up and we expect the same to happen this year as well," said Maruti Suzuki India Ltd (MSIL) chairman R.C. Bhargava.

Despite the ongoing market slump, the company said it would launch the much-awaited A-Star on which it is banking to reverse its fortunes.

"Worldwide there seems to be no respite from increasing fuel prices. In addition, the commodity prices have also shot up manifold," Bhargava said.

However, it would not take the industry too long to bounce back, Bhargava said. "It won't take the industry long to recover and the market to stabilize. Certain external factors like rise in crude oil prices, the sub-prime crisis and inflationary pressure has hurt the auto industry just like any other industry and if the oil price stabilizes the entire affect will mitigate," he said.

Besides, in times of high inflation, the demand for small, light-weight, fuel efficient cars would grow and strengthen, Bhargava said, adding that the "trend is clearly visible in global markets and is likely to enter India as well."

According to Bhargava, the Indian government has also laid down policies that favor small cars. Keeping in mind the current market trend, he said the company would be launching its global compact car A-Star in October which would boast of the advanced K-series engine that is not only fuel efficient but also complies with Euro-V emission norms. Additionally, in 2009, the company would launch Splash.

A-Star, MSIL's chairman said, would be launched in India first and then introduced to the European and other markets. The company plans to exports over 2,00,000 units of A-Star by 2010-11.

"We are at an advantageous position because we have an expertise in designing small cars. With demand for small cars going up, we will quickly scale up our R&D capabilities to design cars that are best suited for the Indian market," Bhargava said.

Despite a handful of car makers like Toyota, Honda, Ford and GM evincing interest in the small car market, MSIL remains unshaken. "Over the last few years, many cars have come into the market and you will agree that Maruti has not failed to compete," he said.

However, the A-star would not compete with Tata Motors' Nano, which, with a price tag of $2500, is touted as the world's cheapest car. "Maruti has always been in small car segment and we have always concentrated on that category of up to 1200 cc cars. But Nano is something which is a totally different segment and we are not venturing or competing in that segment," Bhargava said.

Bhargava's remarks come close on the heels of Suzuki Motor Corp. chairman Osamu Suzuki directing his Indian counterpart unit to ramp up MSIL's R&D capabilities for small car as it intends to use the growing Indian automobile market as a small car hub.

"We target to increase the development work on the small engines (of upto 1200 cc) to 90 percent in India and the rest in Suzuki, Japan," Bhargava said, adding, "It is important that Maruti develops these engines in India with help from Japan." Presently, MSIL contributes to around 30 percent to the small engine development work.

"Quality and productivity have improved manifold in Maruti Suzuki in the last few years. Let us now channelize it to the next level, where we become the exclusive base to manufacture small cars for Europe," Maruti Suzuki managing director S. Nakanishi said.

According to I.V. Rao, chief general manager (engineering), MSIL, the company is planning to increase its number of engineers from an existing strength of around 580 to 1000 by 2010. In addition, MSIL will set up a new R&D center and a test track at par with the facility at Suzuki, Japan, Rao said.

Meanwhile, Suzuki Motor Corp would focus on developing cars that are fuel efficient and conforms with international emission norms. "The future belongs to cars that are fuel efficient and low on CO2 emission. SMC would work on developing hybrid, electrical, multi-fuel engines that help increase efficiency and enhance environment protection," Bhargava said.

According to a company statement, MSIL has set aside Rs.9000 crore as capex and would invest the same in Indian operations by 2010. This includes modernizing and expanding its car production plant and commissioning a new engine series plant in Gurgaon, and setting up a dedicated car terminal at Mundra port.

"MSIL's great strengths is that we have internal resources to finance both R&D expansion as well as capital investments. The higher interest rates and the risk of making large borrowings to finance capital costs, will not affect us," Bhargava said.

The company reported a decline in net profits of Rs.465.85 crore for the quarter ended June 30, 2008 from a profit of Rs.499.60 crore for the year-ago period (year-on-year or YoY fall of 6.75 percent).

Net sales, however, rose 20.93 percent (YoY basis) to Rs.4753.58 crore for the June quarter from Rs.3930.82 crore in the corresponding quarter a year ago.