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September 19, 1997


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'Suzuki is fearful of losing its exports orders'

George Iype in New Delhi

Maruti Udyog Limited, India's biggest car manufacturer, is in the throes of a crisis.

The Government of India and Japan's Suzuki Motor Corporation are battling it out in court for control of the company.

At the centre of the controversy is R S S L N Bhaskarudu's appointment as Maruti's new managing director.

Suzuki says Bhaskarudu's appointment by the government contravenes key clauses of the 1982 shareholder's agreement which states that the MD will be appointed through "mutual consultation and discussion."

But the Union industry ministry says the 1982 agreement has been superseded by a new joint venture agreement in 1992 which empowers the partners to appoint their nominees as the MD for alternative five-year terms. The Japanese car major appointed its nominee R C Bhargava as managing director in 1992.

"Suzuki feels insecure because the MD's post is the most powerful one in Maruti and Bhargava is no longer there," an official working with Industry Minister Murasoli Maran told Rediff On The NeT.

"Suzuki," he alleged, "is desperate because it fears it could lose most of its export orders for car parts to Maruti if Bhaskarudu takes over."

Though Maruti does not disclose the profitability of individual car models, Suzuki is said to be making a lot of money exporting car components to its Indian joint venture.

In 1995-96, imported raw materials and components for various car models accounted for 35.4 per cent of the total consumption at Maruti Udyog, amounting to Rs 12 billion, according to Maruti's 1995-96 annual report. Most of these orders were either with Suzuki or other Suzuki-associated major car component makers in Japan.

But Suzuki's point of contention is that the 1992 agreement also provides for "mutual consultation and discussion in the appointment of the managing director." For instance, Suzuki officials in Maruti point out that in 1992, when Suzuki Motor Corporation Chairman Osama Suzuki appointed Bhargava as MD, he made it a point to consult the Government of India and get its consent.

Suzuki contends that in a practical business situation, no joint venture can function if the two partners do not agree on the appointment of a key manager like the MD.

The run-up to the showdown, in fact, began in 1995 when Congress leader K Karunakaran was Union industry minister.

Karunakaran had proposed that the new Maruti project be set up in his home state of Kerala, but Suzuki rejected the minister's proposal. An incensed Karunakaran prevented Bhargava and Suzuki from going ahead with a public issue for Maruti Udyog.

Karunakaran -- who thought the public issue was a ploy by Suzuki to take away management control from the government -- also believed that Suzuki was trying to force the government to sell its stake to the public.

Despite the current struggle to control Maruti, government sources insist the quarrel will not lead to a split.

Industry ministry officials said an early compromise is likely because Suzuki does not want to pull out of the joint venture. India is expected to be a leading market for cars in the next century and Maruti's profits have increased dramatically over the last three years.

The increased profits, industry ministry officials said, are one reason why a compromise will be worked out quickly, unlike the earlier tussle on the equity issue. The officials also believe the conflict will be resolved shortly because Maruti's Rs 15 billion expansion plan has to be approved soon.

Some time ago, industry ministry officials had asserted that other automobile companies were willing to take Suzuki's place if the Japanese pulled out of Maruti. But the question of finding a new partner arises only if Suzuki sells its stake, and there has been no indication about that as yet.

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