Undeterred by slowdown, Maruti Suzuki to add capacity at Manesar

The country's largest car maker, Maruti Suzuki India Ltd (MSIL), which had stopped production for a day at its Gurgaon unit earlier this month to prevent inventory pile-up, will go ahead with its plans to commission a third assembly line at its Manesar facility in September this year.

Once on-stream, MSIL would be able to roll out an additional 250,000 vehicles over the existing capacity of around 1.5 million units an annum.

The decision to add capacity comes at a time when most auto majors have been resorting to production cuts, to align inventory with falling demand in the domestic market.

MSIL itself has stocks of four-five weeks, which it expects to correct to normal levels of around three weeks by the end of this month.

"Plant C at Manesar will be commissioned later this year. We do have excess production for petrol cars. But the Manesar unit mostly produces diesel vehicles. With the diesel engine plant also scheduled to become operational around the same time, we will manufacture more diesel cars in line with market demand," said R C Bhargava, chairman.

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The company, expecting to close the current financial year with sales of 400,000 diesel vehicles, has firmed up plans to increase the production of diesel-powered cars by 16 per cent in FY14.

"We expect to sell around 465,000 diesel vehicles. There continues to remain a waiting list for our popular diesel models such as Swift, DZire and Ertiga," Bhargava added.

MSIL's decision to commence operations at its new diesel engine manufacturing facility and its third assembly at Manesar comes at a time when passenger car sales in the domestic industry hit a 12-year low, declining 25.7 per cent to 158,513 units in February.

Industry sources indicated even sales of diesel vehicles, which had grown at a fast clip since petrol prices were deregulated in June 2010, dropped five per cent last month.

The company, however, managed to buck the trend and posted an increase of 22 per cent in sales of diesel vehicles in the same period.

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Mayank Pareek, chief operating officer (sales and marketing), MSIL, said: "According to our agreement with Fiat, we started sourcing diesel engines from the company from around February last year. The growth rate may seem to have moderated, but it has come on a high base. We continue to have a combined order backlog of 83,000 for the Swift, DZire and Ertiga. The bookings are mostly for diesel variants."

The company, which is investing Rs 1,700 crore (Rs 17 billion) to increase diesel engine manufacturing capacity by 75 per cent over the next two years, is expecting diesel vehicles to contribute 43 per cent to overall volumes by 2015.

While half of the planned capacity of 300,000 diesel engines at the new manufacturing facility will be commissioned in 2013, an added 150,000 units production capacity will go onstream in 2015. Diesel vehicles currently account for 38 per cent of overall sales of the car maker.