Maruti may be over relying on Subros

Maruti may be over relying on Subros

By PANKAJ VOHRA & SHAILENDRA TYAGI | NEW DELHI | 4 June, 2016
Maruti Suzuki chairman RC Bhargava addresses a press conference in New Delhi, in December 2015
Production at Maruti’s Gurgaon, Manesar plants was suspended on 30 May, a day after a fire broke out at Subros —virtually the sole supplier of air conditioning units to the firm.
Maruti Suzuki, the leading car manufacturer in India, appears to be in trouble for the first time. Hit by a fire at Subros factory in Manesar, virtually the sole supplier of air conditioning units to the firm, the company has halted its production. Maruti manufactures around 1.5 million family cars annually and the fallout of the fire could be that its sales are likely to be affected in the coming weeks, thereby impacting its customers, dealers, vendors and the accessory market and service stations.
In an attempt to play down the ramifications of the Subros blaze, Maruti has pre-poned its bi-annual maintenance closure by a fortnight, which is now scheduled from 6 to 11 June. However, the fire has exposed shortcomings in the company’s policy for vendors. For every item fitted in the car barring the air-conditioning units, Maruti Suzuki has multiple vendors. But, if sources are to be believed, Subros, owned in partnership with the Suri family (relatives of Hotelier late Lalit Suri) is the sole vendor for supplying air conditioning units. The result is that the top bosses of the company are faced with a peculiar situation where they have had to suspend production of vehicles at the Gurgaon and Manesar plants since they cannot supply cars to dealers without air conditioners.
Senior officials of the company speaking on condition of anonymity have been at great pains to discount any adverse impact on the sales and reputation of the firm and maintain that Subros was not the only vendor and there were two others as well. However, no one has been able to give the details of the number of units which the “other vendors’’ supply to Maruti Suzuki as it is well known that Subros accounts for nearly 15 lakh units every year. Knowledgeable sources said that if the car manufacturing gets hit, it is bound to have a chain reaction amongst those involved with the assembly line of vehicles. For instance, small vendors who supply items like rear view mirrors or beadings etc will have to also halt their production which in turn means that they will be affecting the livelihood of their employees. Secondly, the dealers who make upto Rs 10,000 per car on accessories on an average will also be bearing the brunt. In addition, virtually every Maruti approved service station makes a good sum on providing the first two or three free services of vehicles. They too would be impacted as there would be no vehicles to service for some time. There are unsubstantiated allegations that the over reliance on Subros was on account of vested interests among some senior functionaries which officials of the company deny categorically.
Subros has lately assured that it would try to meet the demand at Maruti through its unit at Noida which also apparently supplies air conditioning units to other car manufacturers. How they would be able to do this in view of their prior commitments to other manufacturers is something which is still not clear. Strangely, a Maruti dealer as per company rules cannot be a dealer for any other car manufacturer. So, how can a leading vendor of air conditioning units be accorded the permission to supply air conditioning units to other manufacturers which reflects a contrary policy?
Meanwhile, some analysts feel that a single vendor situation was not uncommon among car manufacturers in Europe and Maruti Suzuki being a global player was perhaps following internationally accepted practices.  “This is how the global car business happens anywhere in the world where you work with a very small number of suppliers,” says Deepesh Rathore, director, Emerging Markets Automotive Advisors. He explains that since a specialised technology is used to make air-conditioning units, car makers globally (especially in Europe and Japan) work with a single vendor.  Maruti claims to work with multiple vendors that supply air-conditioning units to it. Besides Subros, Denso Corporation and Sanden are other global suppliers for Maruti. It is these suppliers that might help salvage the situation which, if extended beyond the scheduled 10 days of production halt, can pose a big problem for Maruti. It could also impact the sales of its popular models in months ahead. The risk of over reliability on a single vendor is usually mitigated by ensuring supplies from other units that a vendor normally operates in the country. Subros does have multiple production units elsewhere in India but how quickly can those be (re) aligned to Maruti’s needs is a question. The production at Maruti’s Gurgaon and Manesar plants was suspended on 30 May, a day after a major fire broke out at M/S Subros Limited which is partly (13%) owned by the Suzuki motor corporation, Maruti’s parent company. Denso, also has 13% stakes in Subros Limited. The same fire has also forced Maruti to pre-pone its bi-annual maintenance closure by a fortnight and now scheduled from 6 to 11 June.  “This will enable the closure period to be utilised for arranging supply of components, both from M/s Subros Limited as well as from other sources, and result in higher production volumes after the closure” says Maruti. By that time it might have already suffered a production loss of over 45,000 cars. 

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