Sheet metal shortage cuts Maruti Eeco output

Production of Maruti Suzuki’s eco-friendly Eeco van (it has a CNG variant) and Wagon R have been affected, in recent months, by a shortage of sheet metal parts as the suppliers concerned face a host of problems. While Maruti has been able to get the Wagon R output on track, the Eeco continues to be in short supply.

Dealers say deliveries of the Eeco petrol and CNG models for June and July 2012 have been affected, resulting in a two-month waiting period at some dealerships. In addition, a shortage of CNG kits has added to supply glitches. Dealers expect supplies to be normalised in early August.

Constraints on supplies for the Eeco are because a key supplier – Argentum Motors, in Greater Noida – is allegedly caught in a legal tangle, and the courts have called for a shutdown of its Surajpur, Uttar Pradesh, manufacturing facility in May, say sources in the know.

In response to an e-mail query to Maruti Suzuki to ascertain the status of sheet metal components supplies, a spokesperson replied that the company faced no supply constraints and would take appropriate steps to regularise production volumes.

Sources say Maruti used to make the chassis members for the Wagon R and Eeco in-house, but due to capacity constraints, shifted a 1,200-tonne press and two dies for making chassis members for these models to Argentum.

Three's company

Argentum traces its beginnings to a trio of promoters, former Hyundai India chief BVR Subbu, Spice Jet director Ajay Singh and a Mumbai-based entrepreneur AshishDeora who bought the defunct South Korean carmaker Daewoo’s plant at Surajpur in 2007 for Rs 765 crore.

Four of the 16 Daewoo plants globally were acquired by General Motors after it went bust in 1999 but the Indian plant was left out. Following stoppage of production in 2002 and a lock-out a year later, the facility was put up on sale to repay debts of Rs 1,000 crore to financial institutions. Subsequently, Argentum bid for the plant after the lenders sold the assets.

Argentum began its innings with a bang, revamping the Surajpur facility to produce sheet metal components used in powertrain, machining and body parts. The company’s ambitions were to evolve into a contract manufacturer for automakers and at a later date, kick off manufacturing in its own brandname. However, along the way differences cropped up between the promoters, and one promoter, BVR Subbu, who was the face of the fledgling outfit, quit.

Things then went downhill and the company’s order book dried up. The economic downturn and credit squeeze compounded matters which came to a head with the courts ordering closure of the Surajpur plant in May 2012. As per the court order, no equipment or material can be taken out of the plant or brought in.

The court stipulation ordering closure of the Argentum premises caught Maruti Suzuki off-guard and it found itself walking a tightrope on the issue of taking out its 1,200-tonne press and dies for producing sheet metal parts from inside the Argentum factory to another vendor.

With stoppage of production staring it in the face, Maruti called a vendors meet at Bangkok in May to resolve the issue. Eighty of its top suppliers attended. Within a few days, an alternate die and manufacturing press was procured from Suzuki’s Indonesian plant for the Wagon R and airlifted to India. Maruti had explored the possibility of off-loading the die and press at one of its vendors for further production but was faced with capacity constraints at the supplier’s end. Finally, the 1,200-tonne press was offloaded at its Gurgaon plant and production of chassis members commenced for the Wagon R. The second die for the Eeco is believed to be under development in the Gurgaon facility’s toolroom.

Sources in the know say that Maruti typically, when faced with a production issue, gives preference to producing its more popular cars. The Eeco is a low-cost model and offers lower margins whereas the Wagon R earns Maruti much higher margins and hence its preference over the Eeco. Daily production schedules of the two models at Gurgaon are 450 to 550 units for the Wagon R and just 250 units of the Eeco.

With the 1,200-tonne press, requirements of about 400 to 450 units of the Wagon R have been met. On the other hand, Eeco’s production bottleneck has not been sorted out yet. This problem has been further compounded by the bi-annual block holiday of eight to nine days that Maruti follows in end-June to prevent inventories from building up. Industry sources estimate that Maruti faces a five percent production loss due to the Eeco and the same holds for Eeco suppliers. While the Eeco posted sales of 4,771 units in January, that figure fell to 1,983 units in May and just 616 in June.

SHOBHA MATHUR