Maruti Suzuki will halve its diesel engine supplies from Fiat because of slowing sales demand in India and because it plans to make the engines in its own local factory.
Maruti signed a three-year agreement to source 1.3-litre diesel engines from Fiat India’s Ranjangaon plant in 2011. The engines are used on models such as Swift, Dzire and Ritz.
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In 2011-12, Maruti sourced about 100,000 engines from Fiat although this has since reduced and orders this year are likely to be 40-45% less, Kenichi Ayukawa, managing director and CEO at Maruti Suzuki told the Economic Times.
He added: “We will continue to keep our relationship with Fiat with regard to supply of engines. However, we will watch the market situation for the demand and future sourcing of diesel engines.”
According to industry estimates, the share of diesel vehicles in overall passenger vehicle sales in India has dropped to 53% in the July to September quarter from 63% a year earlier, thanks to the narrowing fuel price gap.
Currently petrol costs about 32% more than diesel, down from a peak 47% premium in March. Maruti already has a licensing deal to produce Fiat’s 1.3 multijet diesel engines at its Manesar facility which has an annual capacity of 300,000 engines.
Maruti Suzuki’s supply chain chief Suman Maitra said there is no fixed minimum order in its sourcing deal with Fiat. “Our agreement depends on the domestic market conditions and the demand for our diesel variants. We had no annual fixed engine units to be sourced from their Pune plant.”
Demand for diesel cars has fallen in a domestic car market that declined 5% in the first seven months of the fiscal year. Earlier this year, Maruti shut the third shift at its diesel engine plant at Manesar due to falling demand. The company has also shelved the planned expansion of its diesel engine factory at Gurgaon with diesel fuel slowly losing its price advantage over petrol.
