Maruti faces capacity crunch as sales surge

The country's largest car producer -- Maruti Suzuki -- is caught in a cleft. There is growing demand for its cars, but it does not have sufficient production capacity to feed this demand. To top that, this capacity constraint is not likely to be lifted before 2012.

The company, which sold over one million cars in the last financial year, expects sales to go up by around 10 percent. In simple terms, this means that its engineers have to produce over 1,00,000 more cars, in a plant, which is already working at much over 100 per cent capacity utilisation.

The man steering the fortunes of the company, chairman R C Bhargava, admits the problem. "We are certainly not in the comfort zone. We are working at well above 100 per cent capacity. Our engineers are stretching the production capacity through various innovations, as new capacity will be available only by 2012," he says.

Bhargava says while the engineers have ensured they would be able to meet this financial year's sales target, 2011-12 could be a challenging year.

Maruti's engineers are trying to get out of the problem by putting in manual lines until the new capacity gets added.

Mayank Pareek, executive officer (marketing and sales), of Maruti Suzuki, says: "We are in the process of renovating, rationalising and debottlenecking our Gurgaon plant to put it to optimal use.

We hope to cover whatever added demand there is from this exercise."

Maruti's two plants in Gurgaon and Manesar together have an installed capacity of 800,000 cars but the engineers have been able to produce over a million units this year. As a result the capacity utilisation in the plant is already at 125 percent. The company is of course expanding the capacity in the Manesar plant by another 2,50,000, but this capacity will only come by 2012. However the same plants now have to produce over 1.1 million cars for this financial year.

What is adding to the worry are the long queues for some of its car models. For instance the hot selling Dzire has a waiting list of around three to four months; the Swift is not available to consumers before two months and the newly launched Eeco, which has caught the fancy of consumers, has a waiting list of three to four months.

Bhargava says, "We had not planned or anticipated such a high growth for this model."

Maruti is also keen to push exports and add more international markets that could lessen its dependence on the European nations. In addition, Maruti has a signed a pact with Nissan to supply 35,000 A-star's (rebadged as Nissan Pixo) during the current year. This, according to experts, could mean lesser number available in the domestic market.

However, a Mumbai-based analyst says that due to increased competition in the local market from players like General Motors, Nissan and Ford, all of whom already have or will have launched a new model in the small car market, Maruti sales will come under pressure.