Maruti Suzuki may cut partsmakers unable to pay for expansion

Article by Christian Andrei, on August 30, 2010

Amid the drop in auto production in India due to a parts shortage, Maruti Suzuki India Ltd. said that partsmakers that can´t pay for expansion could be cut. In an Aug. 23 interview, Chairman R.C. Bhargava said that in the absence of strong balance sheets and resources, partsmakers won´t be able to expand at the same rate as Maruti.

Bhargava revealed that suppliers have told to strengthen their balance sheets or run the risk of being dropped. Vehicle production has been adversely affected by the shortage of parts such as tires, bumpers, and batteries.

In fact, carmakers (including Suzuki Motor Corp. unit and Hyundai Motor Co.) have introduced waiting lists in India. Expansion has been difficult for makers of local components because of debt levels that are twice as high as Asian suppliers levels.

Vaishali Jajoo, an analyst with Mumbai-based Angel Broking, said that when one or two suppliers can´t deliver parts on time, it affects the entire supply chain.

Jajoo pointed out the urgency for Maruti to resolve this issue with suppliers. Maruti's stock has plunged by 21% in 2010, compared with a 4.6% gain in the benchmark Bombay Stock Exchange's Sensitive Index, or Sensex.

Topics: maruti, suzuki

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