Maruti Suzuki to export upcoming hatchback to Japan

Mumbai: Maruti Suzuki India Ltd will export a premium compact car, which it expects to launch this year, to Japan, competing with Ford Motor Co. to become the first car maker to sell a made-in-India automobile in a first-world market.

The plans to export the car, code-named YRA, were revealed by two people familiar with the matter, speaking on condition of anonymity. A spokesperson for Maruti said in an email that the company would not comment on future plans.

The two people quoted above further said the move reflects Suzuki’s confidence in design and engineering capabilities of its Indian subsidiary.

In 2013, Suzuki made India headquarters of its export operations to South and South-East Asia, Africa and Latin America.

Global car makers, including Hyundai Motor Co., Nissan Motor Co. Ltd, Volkswagen AG, and Ford, have been shipping made-in-India cars for several years now. Traditional export destinations for these have been Latin America, Africa, South Asia and a few markets in Europe.

No Japanese, Korean, European or US car maker has shipped models made in India to its home markets.

That makes the YRA a tipping point.

“With India selling more cars than Japan, and Suzuki and Maruti being one and the same, I am not surprised if there’s a plan like this in the works,” said an analyst at a consulting firm, who requested anonymity.

Ford India Pvt. Ltd’s compact sports utility vehicle (SUV) EcoSport may be shipped to the US for sale, The Economic Times reported in June, citing multiple people familiar with the process. Ford has begun work on a face-lifted version of the SUV for the North American markets, said the report. “We don’t comment on speculation,” said a Ford India spokesperson.

Over the years, with the increased involvement of the parent company in India operations, and transfer of proprietary technologies for critical parts, such as gear and engines, the engineering capabilities of Maruti Suzuki have evolved.

Maruti accounted for 15.5% of Suzuki Motor Co.’s consolidated revenue in year ended 31 March.

The Japanese company owns a 56.2% stake in Maruti Suzuki.

It is also a sign of evolution of the Indian market itself where there is clearly a trend of what marketers call premiumization, even at the entry-level end of the car market.

Mahantesh Sabarad, deputy vice-president of research at SBI Capital Securities, said the plan reflects the high-quality manufacturing—not only at the Indian subsidiary, but also at its vendors.

Maruti plans to produce close to 80,000 units of the YRA model in the first year of its launch. Of this, 60% will be exported. Close to 5,000 units are likely to be shipped to Japan, said one of the two people cited earlier. The idea is to first gauge the acceptability of a made-in-India model in a mature market like Japan, and subsequently export more, this person added.

Indeed, “acceptability of the models by the Japanese customers will be the key,” said Rakesh Batra, head of auto practice at the consulting firm EY.

Given this, the model will likely be loaded with high-end features, some unheard of in the compact car segment in the Indian market.

In India, Maruti plans to position the YRA as a premium hatchback above Swift, pitting it against Honda Car India Ltd’s Jazz and Hyundai’s i20.

Through its Indian subsidiary, Suzuki Motor plans to introduce 10 new models in India and aims to control 50% of the local passenger car market by 2020.

The Japanese auto maker expects the Indian passenger car market to reach four million units by 2020, up from 1.8 million units in 2013-14.

Suzuki has identified India as an export hub. It is coming up with a plant in Gujarat, which will commence production in 2017 with an annual production capacity of 250,000 vehicles.

Exports of cars, utility vehicles, commercial vehicles and two-wheelers have grown every year since 2000. In the financial year that ended 31 March, Indian factories exported a record 3.5 million vehicles, 15% more than what they managed a year ago. This compares with domestic sales of just above 2.6 million units during the same period—up 5% from a year ago.

Exports have helped automobile companies mitigate risks from the cyclical demand in home and overseas markets.

The tepid demand in the local market in the past three years saw a renewed focus on exports by automobile firms, particularly those that saw a sharp decline in domestic volumes. Car sales in India contracted by 7% and 5% in 2012-13 and 2013-14 before rising 5% in 2014-15.