Maruti bets big on the Alto

The Maruti 800, which marked the decline of the Fiat and Ambassador, will soon give way to the newer Alto 800

Maruti Udyog (MUL) is now betting on the Alto, positioned both in the entry level A and B segments, to capture the biggest chunk of the Indian car mart.

Alto, available in the 800cc and 1000cc variants in the domestic market, has been eating into the sales of M800, the company's so called bread-and-butter model, which now sells mostly in the smaller towns and rural areas. With strong rumours that the company is considering phasing out the M800 and with easy car finance available, few customers are going in for M800, now considered a risky purchase. Also with the Alto 800cc non-Ac version coming for Rs 2.3 lakh while the M800 Ac variant available at 2.07 lakh, the price difference between the two has narrowed down considerably making the Alto the clearly-preferred choice.

Recent reports indicate that MUL is working to increase the production of the Alto in order to attain economies of scale, which will bring its price down virtually on par with that of the M800. In the past year the company has been bringing its price down consistently and positioning it as an entry-level car.

According to Jagdish Khattar, managing director, Maruti Udyog sales of Alto should further increase by January 2005 as the company is de-bottlenecking parts of the Alto assembly line. He said the Alto had huge export orders lined up awaiting shipment.

The Alto already has an indigenous content of 95 per cent and the de-bottlenecking will help to bring its price down even further. The price of the M800 cannot be brought down anymore as it had achieved complete localisation in the past 15 years.

MUL, on its part has yet to take a final decision on the M800. Initially, Khattar announced that the M800 would be phased out but retracted his statement a few days later.

Market observers say the company will flog the M800 till there are buyers for it. In recent times MUL has been targeting the M800 at bike owners first with the Rs2,599 EMI scheme and lately even offering to waive the down payment with the tagline, 'Bring in your bike and drive out with a Maruti'

Analysts say the crux of MUL's strategy is to push the M800 while it sells and meanwhile work on the Alto. Once MUL succeeds in decongesting the Alto assembly line, and increase its production to achieve greater economies of scale, it will be able to bring its price down on par with M800. It will then replace the M800 with Alto's 800 cc variant in the small towns and semi urban centers.

The 1,000cc variant on the other hand will be the price warrior in the urban centers against other B segment cars.

MUL is thus banking on increasing production of the Alto for its price strategy. MUL's productivity drive initiated in 2002 has enabled it to cut prices across models since the beginning of the year including the Alto.

In January to June this year as Hyundai faced production constraints Maruti Alto, driven by the 800cc variant, sold the highest among compact cars at 53,582 units followed by the Santro at 49,359 units. Tata Indica was fourth, at 48,738 units while the Wagon R sold 33,363 units almost neck to neck with the old war horse, Maruti Zen (33,377) during the first half of the year.

The focus on the Alto clearly indicates the importance of the compact car or B segment. In fiscal 2003-04, 3.7 lakh units of compact cars were sold in the domestic market, a growth of 23 per cent over the previous year. The B segment comprised more than half of the total number of the passenger cars sold and about 40 percent of the entire passenger vehicles industry.

The growth of the B segment has been on the back of easy financing schemes as the difference in EMIs on A segment (read M800) and B segment cars (Alto, Zen Wagon R and Santro) is virtually nil making the latter more attractive to buy.