The Hindu Editorial-The 'great' Indian middle class 'Car-chase'
Source: THE HINDU
November 14, 1999
The big question is whether the size of the Indian market for cars is sufficient to sustain such a large number of players who have been lured by the country's huge middle class and estimates of its purchasing power. SUSHMA RAMACHANDRAN reports.
THE PASSENGER car industry is in the throes of a revolution. This is all too evident in the choked roads of India's metros like Delhi, Chennai and Bombay which display a range and variety of models far beyond anything that could have been imagined till very recently. The advent of global car majors into the market over the past five years made an impact but they were mainly targeting the mid-size and luxury segment of cars. The scenario has changed since the entry of manufacturers into the small car category, till then considered the exclusive preserve of the joint venture Maruti Udyog Limited. Simultaneously, demand in the mid-size segment picked up with new models being competitively priced and a rash of incentives thrown in for reluctant buyers. As a result, colourful cars in numerous sizes and models crowd city roads nowadays.
The revolution is not merely in terms of the range available, but also in terms of marketing. Automobile companies are facing a buyers' market and sales promotion has become big business. A prolonged slump in demand last year brought out the innovative streak in the car industry as all kinds of add-ons were offered to lure buyers. Maruti Udyog provided a gold coin to buyers while others provided home appliances or free tickets and stay at holiday destinations. Auto finance companies spent considerable amounts in tele-marketing by calling up prospective consumers and offering loans on zero interest along with virtually instant delivery of the car without paying a single paisa in advance. The final straw was a price cut announced by the market leader, Maruti Udyog in mid-1998, in a desperate attempt to prop up sagging sales. The cuts worked in the highly price- sensitive car market and sales of MUL models began to revive gradually. The revival was not confined to MUL as its competitors in the small car and mid-size category also witnessed a growth in sales subsequently. MUL was even emboldened to raise the prices of some models recently to cover the cost of meeting Euro II emission norms.
The scenario is now far more upbeat as sales reached record levels in the first six months of the current financial year. Coinciding with an upswing in overall industrial growth, demand is surging in the automotive sector with sales having touched 3 lakhs during April to September, a spurt of nearly 50 per cent compared to roughly two lakhs of cars sold over the same period last year. Interestingly, as much as 75 per cent of the higher sales are accounted for by manufacturers other than MUL. The half yearly figures for last year showed that Maruti Udyog sold as much as 173,000 cars out of the total sales of 205,087 cars, with the balance of about 28,000 being from other producers. In contrast, similar data for April-September this year shows MUL sales at about 2 lakhs with another one lakh being sold by other manufacturers. As many as 31,849 cars have been sold by the new entrant, Hyundai of Korea which has raced to second place having sold 31,849 cars since 1999-end. Telco is in the third place with 21,774 cars and Daewoo is fourth with 14,668.
In other words, MUL's sovereignty is rapidly eroding from a commanding market share of over 85 per cent last year to 66 per cent now. The whole complexion of the automobile industry is changing with the market simultaneously expanding and becoming highly competitive. The presence of a large number of players and stiff competition is not unusual for the car industry globally but is certainly a whiff of fresh air for the Indian market, suffering for long at the hands of monopoly producers. Initially, Hindustan Motors and Premier Automobiles held sway as the only manufacturers of passenger cars in the post-Independence era. The advent of MUL in the mid-Eighties created another kind of monopoly as the company was given considerable support by the Government, a partner in the venture along with Suzuki of Japan. Specific excise exemptions were given for small fuel-efficient engines to help Maruti Udyog keep prices down for the popular Maruti 800 hatchback. MUL rapidly swept the market even as other global players were not allowed to set up shop in the country.
Liberalisation in the car industry changed the name of the game and suddenly a spate of new manufacturers came on the scene in the mid- Nineties. The first off the mark was Daewoo of Korea with the Cielo model but others followed soon after, including General Motors with the Opel Astra, Ford with the Escort and Honda with the City model designed for the Asian market. These were all three-box cars in the mid-size and luxury segment. Most of the new entrants were reluctant to compete against MUL in the small car category given the fact that price-wise it would have been difficult to match the Maruti 800. Even so, Daewoo, Hyundai and Telco geared up to compete in the upgraded small car segment represented by MUL's 1000 cc Zen model. The Matiz, Santro and Indica models rolled out last year in rapid succession to threaten MUL's dominance of the small car category.
The recognition that MUL will have to take steps to prevent its leadership being challenged dawned on both the joint venture partners who have been embroiled in a prolonged dispute over control of top management positions. The Suzuki president, Mr. Osamu Suzuki, said in an interview that MUL would now have to wake up and face the competition by introducing new models as soon as possible. Similarly, the Government decided to relent from its previously rigid stance in the conflict with Suzuki to ensure the management is dynamic enough to meet competitive pressures.
The proliferation of players in the market is likely to increase as several automobile giants like Toyota, BMW and Volkswagen are waiting in the wings before making investments. Toyota of Japan will soon launch a multi-utility vehicle but is still pondering over whether to launch a passenger car. BMW has been dithering for quite some time while Volkswagen has been flirting with several Indian partners in the past but has not taken any firm decision till now. The German company had entered into a partnership with Eicher Motors but that was dissolved soon afterwards.
As for the existing players, war has virtually been declared as model after model is being unveiled to woo the capricious taste of middle and upper class buyers. Last year's slump in demand battered several manufacturers, including Daewoo of Korea and global giants like Ford and General Motors. Even so, these companies are fighting back by introducing fresh models and focussing on specific segments of the car sector. The consumer is king for now and can look forward to selecting from an even wider variety of models in the millennium.
The market leader, Maruti Udyog Limited, is selecting new models from the range available with the joint venture partner, Suzuki of Japan. The Baleno will give MUL an entry into the luxury segment and prop up its brand image, for long associated with cheap cars. The popular Japanese model, "Wagon R" will be launched early next year to give a further upmarket edge to the MUL model range. Simultaneously, the Zen, known as the Alto in Japan, will be revamped next year as will be the ubiquitous 800. Other manufacturers are also set to give MUL a run for its money. The big battle is now beginning in the mid-size range with a host of new models competing with the Esteem, now viewed as outdated despite being competitive price-wise. Hyundai has offered the Accent, aggressively priced to compete with the market leader, MUL's Esteem. The price of various Accent models begin at Rs. 5.35 lakhs for the base model. Ford has moved into the same segment by launching the Ikon with a price ranging from Rs. 4.99 lakhs to Rs. 6.47 lakhs (all prices are ex-showroom in Delhi). GM introduced the Corsa a few days back while Fiat will join the fray next year by producing a cheaper version of the Siena model. MUL has already responded to the competition by slashing its price by Rs. 30,000 for existing Maruti owners. This will bring the price in Delhi down to 4.57 lakhs for the base model. Honda is also launching what is described as the "New Honda City" on November 16 to meet the competition head on.
The hatchback group is equally crowded with Telco's Indica, Daewoo's Matiz, Hyundai's Santro and the Fiat Uno ranged against the Zen. The latter still remains the market leader with MUL's excellent country- wide service network being a major factor for buyers.The premium or "luxury" category has not yet been fully tapped as demand growth is slow. But all major manufacturers are retaining a presence in this segment with Mercedes leading the field in price terms with production of the E class from Pune. The Opel Astra model of General Motors did not do as well as expected but with GM having taken a ten per cent equity stake in Suzuki, prospects are bright for new collaborative models. Ford's Escort also fell by the wayside along with the Peugeot three box car and Daewoo's Cielo. The Korean company has moved into the upper end segment by launching the Nexus model.
Even with this range, the array here appears minuscule compared with the infinite variety of models being launched at premier motor shows like the recent Tokyo event. Billed on a par with the Geneva and Frankfurt shows, the concept cars displayed at the Tokyo Motor Show were like haute couture which needs to be toned down for pret a port wear. The avant garde concept models included the box-like Fuya Jo from Honda meant for all night cruising on city streets, described as the future of casual city driving pleasure. The PU 3 commuter from Suzuki which won an award, is a two seater to be powered either by an electric motor or gasoline, or both. Nissan AXY provided an open plan cabin where seats can be rotated and many activities can be carried out while on the move. Hybrid engines were the order of the day at the show where the focus was on the small and environmentally friendly.
The Indian market has still a long way to go before it can catch up with the global car scene. And not merely in terms of design. Technology will have to be updated in the automotive sector. Safety features and fuel emission norms also need to be upgraded in cars to match global norms.
The big question, of course, is whether the size of the Indian market for cars is sufficient to sustain such a large number of players. Most entrants have been lured by the prospect of the country's huge middle class and estimates of its purchasing power. So far most projections for sales of the mid-size segment have gone awry. But auto giants like Honda, for instance, are not looking at the short run. They anticipate gradual demand growth as the economy picks up pace and are here for the long haul. Others expecting immediate returns may face disappointment. Inevitably, the industry will face a shake-out leaving a slew of companies out in the cold. It has yet to be seen who will survive, but the coming years may see some surprises as those with considerable brand equity internationally have not done as well here as some of the lesser known players. The car industry is thus still in a dynamic phase and much will depend on the extent to which companies are able to meet the pressures of an increasingly competitive economy. |
