Budget pushes C-segment cars in a tight corner

Mumbai: A bumpy stretch awaits the C-segment cars in year 2008-09.

The C-segment cars comprise cars in the price range of Rs5.5 lakh to Rs8.5 lakh, include popular mid-size cars such as Suzuki's SX4, the Honda City, the Ford Fiesta and the Ikon, the Mahindra Renault Logan, Hyundai's Accent and Verna, etc.

The budget has dealt out a tough hand to these cars, as it has doubled the gap in the differential excise duty between smaller and larger cars. The C-segment now attracts a 24-per cent duty, double of the 12 per cent levied on the smaller cars.

Before the differential excise duty came into effect in 2006, owners would typically graduate from their smaller cars to the C-segment. The real threat to the C-segment now comes from the B-plus segment, made up of cars such as the Suzuki Swift, the Fait Palio, and the Hyundai Getz. These are now, arguably, the best option for customers wanting to graduate from their traditional A and B-segment cars such as the Maruti 800, Alto, Santro, Indica, and even the Zen Estilo and or i-10.

Quirks of the duty structure ensure that the petrol-driven Swift does not qualify for the 12 per cent duty, as its 1.3-litre engine is just beyond the cap of 1.2-litre engines for a "small" car. However, the diesel Swift is a small car by that definition, as its engine capacity of 1.3 litres is lower than the stipulated 1.5 litres for small diesel cars. The next predictable move by Maruti Suzuki, could be a 1.2-litre powered Swift, along the line of Hyundai's move to a 1.1-litre powered Getz, which was earlier a 1.3-litre engine vehicle.

Tata's new compact sedan, the Indigo C S, too falls into the "small" car segment, as by definition, cars that are up to four metres long, are small.

Cars that are closest to the B-plus segment, such as the Logan, could feel the most turbulence. Customers would barely blink before moving to a diesel Swift, or equivalent, compromising on a little bit of boot space, while saving a ton of money. Cars further up the value chain, such as the well established Honda City, and the less than a year old Suzuki SX4, could have it a little better, thanks to a more up market brand perception, and better perceived value for the price.

Options for C-segment cars are somewhat limited, to possible price cuts to stay competitive, or to come up with cheaper stripped-down versions. However, both options could adversely impact the value of their brands, which may have them thinking out-of-the-box like the Tatas, and launch compact versions of their sedans, measuring at sub-four metres.

Another side effect of Chidambaram's 2008-09 Budget speech would be the even faster dieselisation of the country's small car population. Fiat can look to sell its 1.3 diesel engine even before it sources components for it, given the surge in demand of small diesel cars that is virtually guaranteed. The engine already powers Suzuki's Swift, and its own Palio, and is scheduled to feature under the hood of the new Indica as well sometime later in the year.

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