Maruti Suzuki to terminate its contract manufacturing agreement with Suzuki Motor Gujarat

Maruti Suzuki announced that it would terminate its contract production arrangement with Suzuki Motor Gujarat (SMG) and execution of its option to buy SMG's shares from parent Suzuki Motor Corp.

According to a regulatory filing, Maruti Suzuki India Ltd (MSIL) would need to boost its manufacturing capacity to almost 4 million cars per year by 2030-31, nearly doubling from present levels, due to the expansion of the Indian auto market and export potential. This might occur in numerous areas, some of which are known and some of which are under investigation.

RC Bhargava, Chairman, Maruti Suzuki said, "In 2014, we had made a very unique proposal to our shareholders that our Gujarat manufacturing facility will be set up by Suzuki Japan, and they'd set up a 100 percent owned subsidiary to make cars for MSIL". The contract manufacturing agreement (CMA) was signed in 2015 and has worked well for the last 8 years.

However, the overall condition in the automobile industry and the country has altered significantly since then.This is related to the expansion of the Indian automotive market, the country, and the number of vehicle technologies.MSIL currently has a capacity of 2 million units, with a goal of 4 million units by 2030. Because we are studying several different alternative solutions to reduce our carbon impact, model numbers have climbed significantly. The contract manufacturing model has been determined to be ineffective.We must devise a restructuring that will last for the next decade.

SMG manages a fourth of MSIL's output, which might complicate the management structure in the future. Both SMC and MSIL believe that combining manufacturing and production-related activities under a single firm makes sense.

The agreement is terminated with the mutual permission of both parties. The CMA provides for the purchase of 100% stock in SMG from Suzuki. A second board meeting will be held to determine how and in what form the stock will be purchased.

The end outcome will have no effect on the company's output or profitability. However, it will make MSIL's operations more streamlined and well-managed. Later, the manner of acquisition will be determined.

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