Suzuki to Maruti: Cut costs at plants

Suzuki Motor Corp has asked Maruti Suzuki India to cut down discretionary expenses and plug in resource wastage at its plants in Gurgaon and Manesar to keep costs in control. The advisory from Suzuki, which is the 56% owner of Maruti, comes at a time when vehicle sales have plummeted to a two-decade low and Maruti has had to let go of some 3,000 of its contractual workers as it has pruned its production.

Sources aware of the development said that Suzuki advised Maruti on these lines last month when a group of 25 personnel of the latter, including 18 permanent workers, visited Japan. Such management-worker team visits from Maruti to Suzuki’s Japanese locations keep happening at regular interval as part of training and exchange of ideas.

Sources said the workers and other members were briefed on how to control the non-essential expenditures and utilise resources to the fullest during the manufacturing process. Workers were also told to save electricity and water which will help in minor savings.

During an interaction with the Indian team, Suzuki Motor Corp chairman Osama Suzuki also asked them to suggest changes in design of the vehicles without compromising on the quality, which could help in reducing the manufacturing costs. “The chairman said the suggested changes will be sent to the design team and will be implemented once approved by them,” sources told FE.

Maruti Suzuki did not offer any comments on the story. In line with the industry, Maruti’s sales have been subdued since July last year and it is saddled with huge inventories both at the dealer level and its stockyards.

An 18% drop in volumes and higher expenses had dragged down Maruti Suzuki’s Q1FY20 net profit by 27.32% y-o-y to Rs1,435.5 crore, the fourth straight quarterly fall, while revenue fell 12.19% y-o-y. Analysts expect Maruti’s revenue to further decline in the Q2FY20 quarter as volumes in July and August fell over 30% and the company had to give highest ever discounts to boost sales and clear inventory.

In August, domestic sales of Maruti, which sells one in two cars in the country, plummeted 36% y-o-y, the tenth consecutive month of decline. To curtail excess inventory, Maruti had to cut production by 34% y-o-y in August, the seventh consecutive month in which it trimmed output and the third time it sent stocks less than 1 lakh units to its dealerships since July 2017. Overall, passenger vehicle volumes plunged 32% y-o-y in August to 196,524 units, worst since the Society of Indian Automobile Manufacturers began compiling monthly sales data in 1997-98.