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Raghuvir Srinivasan

Mr Jagdish Khattar (right), MD, and Mr H. Nagao, JMD, of Maruti.

Manufacturing alliances between automakers are common but when one happens between competitors in an emerging market with big growth potential, it is certainly significant.

The global understanding between Suzuki and Nissan to expand their collaboration will see Nissan models rolling out of Maruti's plant in the country.

The deal is a big one for both players. For Nissan, the deal will crash the company's timeframe for entry into the Indian mass car market; as setting up an integrated plant will take at least two years.

For Maruti, the deal will mean an expansion in production volumes, which will help in quicker amortisation of fixed costs in the new plant now under construction. This will give Maruti greater leeway in pricing its products as fixed costs will be absorbed over a larger base. By keeping the marketing part out of the arrangement, Maruti has ensured that Nissan will not gain an undue competitive advantage; setting up a marketing network is time-consuming and needs significant investments.

Small surprise, then, that the Maruti stock shot up by 13 per cent on Friday, when the deal was announced.

More Stories on : Alliances & Joint Ventures | Stocks | The Big Deal | Cars | Maruti Udyog Ltd

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