Suzuki-Proton Deal May Bring Benefits for Maruti

Suzuki Motor Corporation has signed a deal with Malaysian carmaker Proton for the assembly and sale of an entry-level model in its domestic market, which will likely boost exports of its Indian subsidiary Maruti Suzuki.

Under the agreement, Suzuki will supply completely knocked down (CKD) kits of cars to Proton, Malaysia's first carmaker established in 1983, which currently enjoys a 17% market share. The company sold about 116,000 vehicles in 2014.

According to an MoU signed by the companies on June 15, the first model will be a compact passenger car to be assembled by Proton at its Tanjung Malim plant from August 2016. A decision on additional models will be taken after studies by Proton and SMC.

Suzuki, which holds a little over 56% in Maruti Suzuki India, its most profitable subsidiary globally, has similar sourcing arrangements with other companies.

The company sourced the A-Star hatchback made by Maruti Suzuki at its Manesar plant for Nissan Motor, which sold the car as the Pixo in Europe. The arrangement helped Maruti Suzuki increase exports by 50,000 units a year. Maruti also ships the Ertiga multipurpose vehicle as a completely knocked down unit for assembly in Indonesia.

Sources in Maruti Suzuki said that its compact 1000cc models such as the Celerio, Wagon R and the twin Alto models could be ideal for the Malaysian market.

"We have no direct communication yet, but as in the past, there are many models which we are already exporting as CKD of Ritz and Ertiga to Indonesia that could well be extended to other models from the Indian market," a company source said. The Maruti spokesperson did not respond at an emailed query.

Automotive analysts said Suzuki's new arrangement could fill a void for Maruti that was created when the A-Star was discontinued last year. "Beyond an instant access to yet another strong export market, the development may help Suzuki Motors regain some of the volumes that the company had lost during the transition of Pixo, which was a great value addition to Maruti exports from the Manesar plant," said Amit Kaushik, associate director at IHS Automotive, an international consultancy.

Proton will assemble the cars at its plant and distribute and sell them under its own brand through its network in Malaysia. According to industry sources, co-branding " similar to India where cars are sold under the Maruti Suzuki badge " is not ruled out.

According to Suzuki's global website, most of the models would be in the 1000 cc segment and both companies would foster synergies in the field of engines, transmission and other technological developments. Suzuki has already set up its second-largest R&D centre at Rohtak in Haryana to develop technology and products.

Suzuki and DRB-HICOM currently own 40% each in Suzuki Malaysia Automobile Sdn Bhd. DRB-HICOM is a Malaysian conglomerate that assembles and distributes global brands.