Suzuki and Maruti in OEM supply deal

Suzuki's new car plant in India will supply Maruti on a contract basis.

Maruti Plant

Welding line at Maruti's Manesar Image: Maruti

Japanese car and motorcycle manufacturer, Suzuki, plans to go-ahead with a ¥50bn ($486m) spend on the delayed 100,000-unit car plant in Gujarat, having postponed its plans following a reported slowdown in the local market.

Cars manufactured in the new plant will be sold exclusively to Maruti Suzuki India Limited, commonly known as Maruti, in which the parent company owns a 56% stake.

The deal is on an OEM contract basis, with Maruti buying the vehicles at a price which will include production costs plus enough cash to cover further capital expenditure requirements.

Concerns that Maruti's margins will be affected by sourcing the vehicles through the Suzuki plant have adversely affected finance markets. However, according to Maruti, the deal will allow it to avoid the risks associated with capital investment in the site and will be able to focus more on product development and marketing.