Investors Urge Suzuki to Halt Plan for New Factory in India

A group of minority investors in Maruti Suzuki India Ltd. wants the company's Japanese parent, Suzuki Motor Corp., to abandon plans to erect an independent auto assembly plant in Gujarat.

The fund managers describe the scheme as a "blatantly wrong and value eroding" step that will eventually transform Maruti Suzuki into a shell company, Bloomberg News reports. Maruti is India's largest carmaker.

Suzuki announced in January that it will open the 50 billion-yen ($485 million) factory in 2017 with initial capacity to make 100,000 cars per year. The facility will operate as a wholly owned subsidiary called Suzuki Motor Gujarat Pvt. Ltd. and supply its entire output to Maruti.

The investors arguing that setting up the SMG subsidiary to make some of Maruti's cars rather than building them in a Maruti-owned factory will hurt earnings. Suzuki insists otherwise, saying the Gujarat and Maruti production cost structure will be identical. The company also says SMG won't generate losses or accumulate a cash surplus.

Maruti Chairman R.C. Bhargava said in January that selling cars made by a Suzuki-owned facility will generate a higher return on capital for Maruti than if Maruti makes the vehicles itself.

Suzuki has said the unusual arrangement will keep its new product plans moving briskly, while helping Maruti conserve cash and expand its dealer operations.