Suzuki, Indian government resolve differences
Reuters / September 22, 2004
NEW DELHI -- The Indian government unveiled on Wednesday a deal resolving differences over Suzuki Motor Corp's plans to set up a second car joint venture in India instead of expanding its existing unit, Maruti Udyog Ltd.
News last week of the Japanese firm's proposal had hit shares in Maruti, the country's dominant carmaker, amid investor concern the new company would shift demand away from Maruti, in which the government owns nearly 20 percent and Suzuki 54.2 percent.
India's Heavy Industries Minister Santosh Mohan Dev told a news conference his ministry's discussions with Suzuki had produced a happy ending, after saying a day earlier the plan violated existing contract terms with Maruti.
"It has been decided they will have one (new) company where they will produce vehicles and that will be under the flagship of Maruti ... Maruti will have a majority, but things will be formalised tomorrow in the board meeting," Dev said.
Suzuki had said the new 250,000 unit per year production line would be jointly owned with Maruti but had not provided details of ownership structure.
Investors feared Maruti's inability to expand capacity would hurt growth since it was already producing near its peak and a possible minority interest in the new car assembling venture would limit benefits from car market growth.
Heavy Industry secretary Adarsh Kishore, who held discussions with Suzuki, told reporters he was satisfied that government's and shareholders' interest in Maruti had been protected and that Maruti would play a "majority role" in the new venture.
"Suzuki Motor Corp. agrees with the government that such (new) capacity creation has to be in a manner which enhances value of Maruti, redeems faith of public investors in the company," the government and Suzuki said in a joint statement.
Suzuki, Japan's fourth-largest carmaker by stock value and one-fifth owned by General Motors, would use the second company to make high-end, bigger cars for local and foreign markets, the statement said.
It will share vendors, and the marketing and servicing network, r&d infrastructure of Maruti.
Suzuki will also set up a new diesel engine manufacturing facility in India, with equity participation of Maruti, to be used locally and for exports, and also explore possibilities of setting up a new gearbox production facility in the country.
Maruti, which began making cars in 1983 and is a household name, has a 51.4 percent share of India's booming market with its small, low-price cars. It is producing at near peak capacity of 500,000 units per year.
Formerly a 50:50 joint venture between Suzuki and the Indian government, it became a Suzuki subsidiary in May 2002 after the government gave up its rights to a share issue as part of a two-step privatisation plan.
The government, which had a bitter row with Suzuki in 1997 over the appointment of directors, offloaded 25 percent of the firms's stake to the public in an IPO in June 2003.
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