Business - Nano vendors in for trouble

NEW DELHI: The highly-competitive rates being offered by component makers for the Nano project are making other car manufacturers angry. Leading the counter-attack is market leader Maruti Suzuki. Upset by the lower rates being offered by common vendors to the Tata Nano, Maruti Suzuki is reportedly flexing its muscles with the component community. According to auto industry sources, Maruti Suzuki is pushing for better rates from those of its vendors which are supplying to the Nano project. Many of these vendors were actually incubated by Maruti. The company is upset that it is being overcharged. Sources add that some other volume players have taken the cue from Maruti and are demanding rate revision from the Nano brigade.


When contacted, a Maruti Suzuki spokesman said: “We regularly work with suppliers to enhance quality and features in all our cars. We have been sharing details of such value analysis and value engineering (VA-VE) programmes with media, customers and investors for many years. These are not specific to any model or competitor.”
Sources say that Maruti Suzuki conducted an “investigation” to check whether any of the common vendors were supplying to the Nano project at cheaper rates. “When the Nano was unveiled, obviously the Maruti brass had decided to find out if its vendors were doing the Tatas a favour,” said a senior industry source.


Company officials say that the investigation threw up three reasons for the lower rates — bigger volumes, different design/technology and partnership with the Tatas. Following which, the “pressure on vendors settled down because the Nano debut is now very close and it’s no longer just a question of supplier cost.”

But component companies, for their part, say that Maruti has upped the ante. A Delhi-based parts supplier says: “Yes, they (Maruti Suzuki) are identifying suppliers, which have quoted lower prices to other OEMs. With growing competition, carmarkers are looking to cut cost and are asking suppliers, in turn, to meet fresh cost targets. With innovation and value engineering, we are trying to meet their targets.”
And Maruti isn’t the only one asking for these terms. “After the Nano, other OEMs have also asked for a stricter price regime,” said another Delhi-based component maker. “Most of these demands are coming from carmakers with huge volumes. They are demanding special concessions in prices on the back of huge supplies. We do follow the value analysis value engineering (VAVE) concept, which leads to innovation and long-term cost benefits. We are facing increased pressure after the showcasing of Nano’s low-cost concept and some of these are being followed in the new cars currently under development,” he explained.

Moreover, the dynamics of the component industry are now changing, giving Maruti more elbow room to exert pressure on local vendors. The company’s success is prompting more Japanese vendors to set up shop in India rather than transfer technology to the local partner/collaborator. Already, a couple of Japanese vendor units are coming up in Manesar, including Maruti Suzuki’s JV with Futaba Industrial for which Mark Exhaust has given a no-objection certificate. Futaba, which manufactures exhausts, among other parts, also has a partnership with Jai Bharat Maruti, a Maruti JV company.

“With the entry of its Japanese vendors, the company feels it has more elbow room with its local vendors. Therefore, the company is pushing for better rates, improved quality and bigger scale from them,” says the industry source. “The idea is that those who can match up will stay and those who can be dispensed with will be dispensed with.” The Maruti Suzuki spokesman, however, maintained that it is part of the global component rush for an Indian footprint. “Thanks to high sales volumes, India shows good business potential in the automobile industry,” he said. “Hence, global auto component manufacturers seek to enhance their presence in India.”