Suzuki using Maruti's muscle to grow its two-wheeler business in India

Country’s biggest car maker, Suzuki Motor Corporation is effectively using its strengths of Maruti in order to expand its two wheeler business in the world’s largest market to move towards sustained profitability. India is the biggest market for Suzuki Maruti Corporation for cars but the company is now also the largest two wheeler maker. India has already replaced China as the biggest two wheeler market since 2016. The country now accounts for almost one fourth of the company’s global two wheeler sales of around 2 million units.

Suzuki Maruti Corporation is currently exploiting synergies with Maruti Suzuki in order to grow the two wheeler market. About 10% of the company’s sales in India now come from the dealerships run by those investors who own Maruti Authorised Service Stations as well as Maruti Suzuki outlets. Eleven Maruti Suzuki dealers are also the dealers of the two wheelers manufactured by the company and 19 dealers of two wheelers also run Maruti Authorised Service Stations. In all, there are 30 touch points of Maruti which are associated with Suzuki two wheeler businesses. Suzuki Motorcycle India has 460 sales outlets across the country.

The average sales volume clocked by the 30 Suzuki Motorcycle dealers is much higher than the remaining 430 dealers. The average sale for these 30 dealers is 1,450 two wheelers a year as against the average of about 1,000 units for the remaining dealers. The Managing Director of Suzuki Motorcycle India, Satoshi Uchida mentioned that whenever the company plans to open a dealership in any location, the right of first refusal goes to the Maruti Suzuki dealers and if they do not opt for it, they go to another investor. This is an internal policy followed by the company.

Majority of the engines used by Suzuki’s two wheelers in the country are manufactured by Maruti at their Manesar plant. With common raw material suppliers, Maruti works on software development, connected vehicles and automatic driving. Currently Suzuki has invested an amount of Rs.1000 crore in the Indian two wheeler business since 2006 when it began the India operations. It aims to sell 0.5 million two wheelers in 2017 and strives to double the sales to a million by the end of 2020, when Maruti is likely to sell about two million cars. If the company can materialize sales of half million units in this year, they aim to set up another plant. Currently, the plant at Manesar has a capacity to produce up to a million units annually.

Maruti will continue to focus on reaching out to the rural areas in order to expand the motorcycle segment’s contribution which stands at one fifth of its sales while the remaining comes from the scooters. Increasing volumes since FY 17 has helped the company generate a profit at an operational level. The volume in domestic market has grown 12% to 0.35 million units. Maruti and Suzuki Motorcycle are owned by Suzuki, the ownership is 56% in Maruti Suzuki and 100% in Motorcycle. Due to the larger volume, they have common raw material sourcing contracts which have helped the two wheeler business get higher rates. The company does all its dealings with Suzuki Motorcycle at an arm’s length so that there is no impact on Maruti and its shareholders in any manner.