Maruti Suzuki, India's largest car company, is launching a sub Rs 2. Lakh car in the next 18 months. This is the Iirst time Maruti is looking at launching an entry-level car since the debut oI Maruti 800 in the 1980s. India's gross domestic product (GDP) is expected to quadruple Irom $1. Trillion (2010-11) to $5. Trillion (2019-20)
Maruti Suzuki, India's largest car company, is launching a sub Rs 2. Lakh car in the next 18 months. This is the Iirst time Maruti is looking at launching an entry-level car since the debut oI Maruti 800 in the 1980s. India's gross domestic product (GDP) is expected to quadruple Irom $1. Trillion (2010-11) to $5. Trillion (2019-20)
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online from Scribd
Maruti Suzuki, India's largest car company, is launching a sub Rs 2. Lakh car in the next 18 months. This is the Iirst time Maruti is looking at launching an entry-level car since the debut oI Maruti 800 in the 1980s. India's gross domestic product (GDP) is expected to quadruple Irom $1. Trillion (2010-11) to $5. Trillion (2019-20)
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online from Scribd
Maruti and Hyundai developing low-priced entry-level cars
For the Iirst time in the past two decades - amid a Ilurry oI new players, slew oI launches and zooming sales - India's Motown is thinking seriously about bottom-oI-the-pyramid cars.
Maruti Suzuki, India's largest car company is launching a sub Rs 2.5 lakh car in the next 18 months. This is the Iirst time Maruti is looking at launching an entry-level car since the debut oI Maruti 800 in the 1980s.
Hyundai Motors, India's second-largest car company, too is developing a car called H800 that will debut on Indian roads soon. This is the Iirst time the Korean auto major is looking at setting a new Iloor price Ior its cars. Currently, Hyundai's entry-level car is Santro available at a little over Rs 3 lakh. "The opportunity is enormous. This is the largest segment |by volume| in India's car industry today and in times to come," says Arvind Saxena, director, sales & marketing, Hyundai Motors India.
The Big Potential
This optimism is partly inspired by India's macro-economic growth story. India's gross domestic product (GDP) is expected to quadruple Irom $1.7 trillion (2010-11) to $5.6 trillion (2019-20). During this period, India's working population will go up by 20 to comprise 55 oI the total population - which will mean more income earners and Iewer dependants in Indian households.
And this growth will not be so much about the rich getting richer as much as about poorer Indians graduating to the middle class, says Mayank Pareek, executive director (marketing), Maruti Suzuki. It is expected that the number oI households in the income category Rs 2.8-7 lakh will grow Irom about 2 crore in 2010 to 5.5 crore in 2015. "The thumb rule is that a household is ready to buy a car when its annual income is equal to the cost oI the car," says Jagdish Khattar, Iormer managing director oI Maruti Suzuki and Iounder oI Carnation Auto, an auto solutions Iirm. This means in the next 5-10 years, a large number oI Indian households will cross the income threshold when cars will become aIIordable to them.
Maruti's as well as Hyundai's new oIIerings hope to piggyback on this boom. Looking into the Crystal Ball What will be the new cars be about? While Hyundai is developing it in South Korea in close coordination with its research and development (R&D) team in Hyderabad, Maruti's car is being developed Irom scratch at its Indian R&D centre. Says IV Rao, MEO (R&D), Maruti Suzuki: "The new model is being conceived and developed in India. Any car in this segment must Iocus on Iuel economy, perIormance and reliability."
Both the companies are tight-lipped about revealing their car specs but here's a good guesstimate Irom veterans in the auto industry. The cars will have sub 800-cc engine oIIering basic comIort. Both cars are likely to have petrol engine as there is no plan right now to bring in the diesel variant. Hyundai's H800 will have the new "Iluidic" architecture, the new design philosophy Iollowed by the Korean company now.
The sticker price - expected to start at under Rs 2.5 lakh - will oI course be very important. But it is the cost oI ownership - Iuel eIIiciency, cost oI spare parts, servicing, etc - that will get top attention Irom the companies. Since a large number oI potential customers will come Irom the hinterland and rural India, dealership network and service station availability in these areas will be a big Iactor. So expect both companies to push Ior the same. While Nano and its Irugal engineering may have showcased the possibilities, the new models will pursue the conventional hatchback constructs (Nano is a rear-engined car) to build the new oIIerings. Both Maruti and Hyundai would push Ior scale, better coordination and cost cutting with the vendors to bring down the prices. Both the cars would be manuIactured in India and would largely Iocus on the Indian market and not exports initially.
Protecting Turf
Maruti and Hyundai - the two Indian biggies besides Tata Motors - are the predictable aspirants Ior this segment. They have attained a certain size and scale in terms oI production, dealer and aItersales service network in the country. Both MNCs bet early on India. Maruti today provides almost halI oI Suzuki Motors' proIit. Hyundai Motors made India its small car hub as early as 2008 and exported close to 2.5 lakh cars in 2010.
Both are now working hard to protect their turIs as global auto biggies - Irom GM to Toyota to Volkswagen (VW) to Ford - gear up Ior an oIIensive in the Indian market. While the sedan segment is seeing a lot oI action, the biggest impact is being Ielt in the Iast-growing premium compact segment - SwiIt, i20 - where the competition has intensiIied. VW and Ford are doing well with their Polo and Figo models. Toyota just launched Liva and Honda is readying its Brio.
The only segment where Hyundai and Maruti could rule supreme, without much competition, is the entry-level segment simply because none oI the above MNCs have the product, network or the stamina to go Ior a low-margin play in India. "Managing production costs in this category is critical. You need scale. Suppliers are willing to reduce costs iI you have the scale like Maruti's," says Ammar Master, manager, JD Power Asia PaciIic, an automobile research Iirm. Today, 40 oI Maruti's customers are Iirst time buyers and a new aggressively priced entry-level car strengthens its portIolio.
GM had earlier announced plans to get into this segment but two months back declared that it was opting out. "The ability to make money in this segment is very limited," says Vikas Sehgal, MD and global head (automotive), Rothschild, an investment bank.
ew Global Dynamics
To be Iair, this segment was never about demand. Demand and market both existed at the bottom-oI-the-pyramid Ior the car industry in India. Maruti 800 - available at under Rs 2 lakh - was the best selling car Ior a long time having sold 2.5 million units since its launch in 1983. But amid all-round auto boom, this segment remained ignored Ior long. Auto majors neither had the desire nor the courage to go there. The Tata Nano was the only exception. There was a reason why. "No car manuIacturer had cars in that segment it had to be developed Irom scratch," says Hyundai's Saxena.
Partly, developments within India helped. Around 2008, incentivised by the Indian government, both auto MNCs Maruti and Hyundai pushed to make India their global small car hub and set up R&D Iacilities. That laid the Ioundation Ior the development oI low-priced entry-Level car in India. It typically takes 4-5 years Ior a new car to be developed Irom scratch.
Partly, it has also got to do with the shiIts in the global dynamics. Global auto markets so Iar have been driven by the needs oI the developed world - big, Ieature-rich cars at much higher price points. But the market has been shiIting Irom the West to the East with China now emerging as the biggest car market in the world and by 2020, India is Iorecast to become the world's third largest passenger vehicle market at 11 million plus.
Over the past Iive decades, Japanese auto companies did bring in some signiIicant changes, including their thrust on Iuel eIIiciency to compete with the Americans in the auto industry. Suzuki, Daihatsu, Mitsubishi and Subaru have dominated the mini-vehicle segment. But the rise oI emerging markets and customers at the bottom oI the pyramid are now pushing the case Ior Irugal engineering and low-cost Iuel-eIIicient cars. "This segment will be increasingly interesting as global automakers chase growth in emerging economies," says Michael Dunne, president, Dunne & Co, an investment advisory Iirm specialising in Asian car markets. Traditionally, the leading carmakers have scoIIed at making low-margin small cars. "But now they are Iinding ways to reduce costs and make a little bit oI money on ultra small cars with tiny engines," says Dunne.
The age oI Brazil Russia India and China (BRIC) will create its own genre oI auto companies. Dunne sees Chinese Iirms like Changan and Wuling and Indian Iirms like Tata and Bajaj to be best placed to challenge the Japanese and Koreans in this game.
The low-priced low-margin car has relevance Ior many countries in AIrica and Latin America. Scale being very important, expect most MNCs to eye this market while launching cars in this segment. However, closer home Maruti and Hyundai must worry about an unlikely competitor.
&sed Car Market
Sub Rs 2.5 lakh cars will compete directly with the used car market. Pegged at 2.5 million cars, this market is likely to grow at 20-25 Ior the next Iive years. The pool oI used cars in the country keeps ticking - around 9 million cars were sold in India in the last Iive years - as Indians change their cars more Irequently than in the past. In most mature markets, used car is almost double or treble the new car market. But in India, this ratio is 1:1 today. But this ratio is likely to change. As a result oI all this, both variety and volume in the used car market is set to rise even as prices dip - making it even more attractive Ior the Iirst-time car buyers.
This will get a Iurther boost with the entry oI big organised corporate players like Maruti's True Value, Mahindra First Choice and Carnation. Unorganised so Iar, many potential customers have shied away Irom buying a used car due to lack oI inIormation. Organised players will help bring some transparency and standardisation to the industry.
But two things will give the edge to the new entry-level cars vis-a-vis the used cars. One, the availability oI auto loans is better and slightly cheaper Ior new cars as against the old cars. Two, Ior many Iirst-time car buyers, pride oI owning a new car and its cost oI ownership will be very important. And on all these counts, the new entry-level cars will be Iar more attractive.
Either way, this will be good news Ior the upwardly mobile Indians seeking physical mobility. ---------------------------------------------------------------------------------------------------------------- ---------------------------------- Discussion Questions:
1. Describe all categories in small passenger car market? 2. How and why their growth pattern creates an opportunity Ior new product? 3. How used car markets aIIect the category?