Maruti changes focus

After having lost market share to Tata Motor's Indica and Hyundai's Santro in the compact segment, Maruti is determined to protect its share of the profitable mid-size segment, writes Mohini Bhatnagar

Maruti Udyog Ltd, after declaring excellent results for the nine months ended December 2003, is now going for a price war against rivals to further increase market share. The focus of the company has shifted from its small cars to mid-size cars — Esteem, Baleno and Versa. Significantly, it's an attack on virtually every mid-size car in the market.

The Esteem's main rival is the Indigo from Tata Motors, which in a short span of a year since its launch has outsold every other car in its segment including Ikon, Opel Corsa, Esteem and Hyndai Accent. To prevent further losing Esteem's market-share to the Indigo, MUL recently slashed prices of the Esteem Diesel model by Rs 38,000. Now the base model of Esteem Diesel (without power steering) comes for Rs 4.83 lakh (all prices are ex-showroom Delhi) against Rs 5.22 lakh earlier, while the loaded version will come for Rs 5.09 lakh, down from Rs 5.48 lakh. The company says the price revision of the model was made possible by the recent cut in customs duty.

Not only this, the company has reduced prices of Baleno Lxi to around Rs 5.6 lakh (ex-showroom Delhi) and the two existing variants of 'Baleno' - 'VXi' and 'Altura' by Rs 25,702 and Rs 25,000 respectively. The 'VXi' will now sport a price tag of Rs 6.29 lakh while the 'Altura' has been priced at Rs 6.78 lakh.

The new cut price Baleno retains the same 1,590 cc engine with 94 brake horse power (BHP) and has features like anti-submarine seats, tilt steering, central locking and electrically adjustable outside rear view mirrors. The double attack is intended to target the Honda City at one end and the Tata Indigo, Ford Ikon Flair and Hyundai Accent at the other.

At its prevailing price the Esteem diesel is just a little more expensive than the Tata Indigo diesel (Rs 5.02 lakh) while the Baleno Lxi is cheaper than the Hyundai Accent GVS (Rs 5.69 lakh) and the 1.6 Ikon Zxi (Rs 6.06 lakh) though the Ikon Flair is still cheaper at Rs 4.95 lakh. Also the Baleno Vxi is more expensive than the Accent GLS (Rs 6.22 lakh) and the Toyota Qualis (Rs 6.27 lakh) but it is positioned aggressively against the Accent Viva (Rs 6.46 lakh) and the Honda City (Rs 6.47 lakh).

Maruti has even been able to rejuvenate sales of the Versa (a complete non-starter since its launch) to 3,589 units almost double over the year ago numbers by slashing its price to Rs 4 lakh.

In the past one year sales of mid-size cars have been growing faster than those of small cars. Overall, the car industry closed fiscal 2002-03 with a 6 per cent growth at 5,47,918 units as against 5,17,440 units in the previous year. In a reversal of the earlier trend, the share of the small car segment in the passenger car market has remained static, while the mid-size segment registered a 10 per cent growth, according to industry figures.

According to analysts this is because profit margins are the highest in the mid-size segment while small cars provide wafer thin margins and work out profitable on high volumes.

Analysts say that small car or entry level car owners instead of graduating to the next segment are directly going for mid-size cars. Last year, according to industry estimates, sales of Maruti 800 dropped by one per cent to 1, 43, 342 units in 2003 from 1, 44,811 units the previous year.

Significantly, even the share of the compact car segment, which grew by 6.1 per cent at 2, 99,525 units as against 2, 82,321 units in 2001-02, remained flat at 54.7 per cent in the passenger car mart. Analysts say that this shows a substitution effect, as compact or B-segment cars are now becoming entry level vehicles.

In this segment MUL is no longer doing well and has lost out to the Indica and Santro. Zen's sales have dropped 4.4 per cent at 62,857 units in fiscal 2002-03 as against 65,736 units the previous year. The Maruti Wagon R, performed better with sales growing by 27 per cent to 31,975 units in fiscal 2002-03, increasing its share in the B segment by 1.8 per cent to 10.7 per cent.

The C-segment, otherwise known as the mid-sized segment, saw sales growth of 10.1 per cent, from 84,134 units to 92,638 units. The overall share of the C-segment in the industry volumes increased from 16.3 per cent to 16.9 per cent.

MUL, the country's largest carmaker 54.2 per cent of which is owned by Japan's Suzuki Motor, still has a dominating 50 per cent market share in the small and compact-sized segment spearheaded by the Maruti 800, Zen and Wagon R.

In the mid-size segment the company has a 12 per cent market share.

Ironically Japanese car giant, Suzuki, with majority control in Maruti Udyog, has embarked on strategy to elevate MUL in the global map as the group's sole supplier of small cars to Europe. It is also said to be helping MUL develop a new car for the Indian market. It has also made a commitment to develop MUL as a fully equipped entity to develop new products by 2007 on its own.