Auto Industry

Zooming in India not China

Shake-up of Suzuki’s joint ventures looks imminent, say media

Suzuki w

Suzuki: hoping to extend its range of products in China

For any car company, getting a commercial foothold in India and China has obvious lure. But for Japanese automaker Suzuki the two markets have delivered a different experience. In India, Suzuki is enjoying success with its local partner. In China, the news hasn’t been so good…

The contrasts are stark. Maruti Suzuki, which is 54.2% owned by the Japanese firm, increased its share of India’s passenger car market to more than 40% in the second quarter of the calendar year. Last year, the firm maintained its top position, selling 861,000 cars, reports Indian Express. There are about six million Maruti Suzuki cars on Indian roads, the first having been sold in 1983.

In China – a market buying almost nine times as many cars as India – Suzuki has been the least successful of the Japanese firms, lagging Nissan, Toyota and Honda (Mazda has also found it tough).

The problems started after partnering with two different domestic firms in the 1990s: Chang’an Group from Chongqing and Changhe Auto from Jiangxi. Splitting production and spreading resources across the two didn’t work out as planned and Suzuki was distracted by the rivalry between its local partners. The Japanese firm offered a solution: merge the JVs. But the Chinese parties were against this, wanting to keep hold of 51% of their respective ventures.

In 2009 Suzuki must have thought it had got its wish. That year Chang’an was designated as part of the local carmaking elite (alongside SAIC, FAW and Dongfeng; see WiC97). To consolidate its position in the new hierarchy, Changhe was spun-off from its parent, the aviation giant AVIC, and taken over by Chang’an.

Rumours spread that Suzuki’s Chang’an JV would now be able to absorb the Changhe one.

But as the terms of the new deal began to emerge, workers at Changhe learned that Suzuki production was to move to other Chang’an plants.

Resistance grew, delaying the final negotiations and the ill-feeling endured post-takeover. Last year 2,000 Changhe employees took to the city streets, clashing with paramilitary police, reports the Jingdezhen Daily. The provincial authorities were so nervous about the protests that they promised the car plant would remain open, even if the local government had to buy it.

For Suzuki this created something of a dilemma. According to the Economic Observer, the Changhe JV had lost money for several years and the Japanese had stepped back from managerial involvement. But now the open warfare between new owner Chang’an and the Changhe executives was taking its toll too (Changhe’s sales dropped from 200,000 cars in 2010 to 113,000 units last year).

But the Economic Observer says that the central government is now rethinking its merger strategy.

The other firm that was interested in Changhe in 2009 was BAIC, the Beijing-based producer ranked fifth by sales among local carmakers. According to the policy of the time, Chang’an’s interests trumped BAIC’s as it was part of the big four deemed as ‘national champions’. But NetEase reports that in the wake of Chang’an’s problems with Changhe, BAIC is now back in the frame as a bidder for Changhe.

In a decision that is expected to be formalised soon, BAIC looks to have gained top-level permission to take over Changhe’s two facilities in Jiangxi province, including the Suzuki JV. As part of the new plan, Chang’an will keep Changhe’s car plant in Anhui province.

Auto analyst Xia Shu told the Economic Observer that BAIC will bring much-needed capital to Changhe as well as a more cooperative management style (Beijing Auto has a reputation for working more smoothly with its subsidiaries, such as Foton). The move could also help BAIC overtake Chang’an as the fourth largest domestic carmaker (last year it produced 1.7 million vehicles and acquiring Changhe Suzuki would add capacity for 200,000 more; Chang’an – which made 1.95 million cars in 2012 – will lose production volume if the deal goes through).

“After it gets the new capacity from Changhe, the battle between BAIC and Chang’an for fourth place will be more intense,” says the newspaper.

Beyond the bragging rights, another reason that BAIC is interested in Changhe is that its Jiujiang factory can produce 150,000 engines a year based on Suzuki technology. Analysts think BAIC will use the engines at its nearby plant in Zhuzhou where it makes small cars.

For Suzuki’s management in Japan, the new arrangements are still rather messy. It won’t be easy working with two partners who are competing as domestic rivals. And Suzuki will still have two JV partners, with the additional costs and frictions such a structure can bring.

Executives at Changhe Suzuki have made no official comment on the rumoured BAIC deal. But WiC suspects they must be feeling a bit more upbeat, having announced plans last month to release nine new models.

As for Suzuki, unnamed sources told NetEase that it is taking a wait-and-see approach. But at least one analyst thinks the new arrangement could help it to grow its Chinese sales.

“Suzuki previously had no choice but to tilt towards Chang’an Suzuki,” Xia Shu says. “Once BAIC becomes the largest shareholder of Changhe Suzuki, the JV is likely to see a turnaround.”

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