Are luxury cars a bit too overpriced? Perhaps yes

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Friday, April 10, 1998

Are luxury cars a bit too overpriced? Perhaps yes

M Anand

Tyres are not the only things inflated in luxury cars. A closer look at the price tags would reveal why. Consider this:

Hyundai Motor India, which plans to launch the successor to the Accent in India next year, has clearly said that the model will be priced 15 per cent cheaper than the Maruti Esteem.

Almost all versions of Daewoo's Cielo are cheaper than the comparable versions of the Esteem.

The price difference between the Metro-I version of the Opel Astra and the Esteem AX has shrunk to a few thousand rupees only.
And also consider this: Maruti's overall volumes are many times higher than all competitors. Last year Maruti sold 3.5 lakh vehicles, while the closest competitor sold less than five per cent of that amount. Maruti obviously enjoys tremendous economies of scale and leverage with its vendors and dealers.
And a look at what the other players are doing:

Hindustan Motors, which will launch the GLX version of the Mitsubishi Lancer later this year, is already toyingwith the idea of launching a cheaper, no-frills attached GL version.

General Motors India, which has always striven to cultivate a premium image for its Opel Astra, has been forced into introducing two economy variants -- the Metro-I and Metro-II.
Conclusion: pricing is an extremely important factor in the so-called Indian luxury car market. And nothing can demonstrate this better than Daewoo's move with the Cielo.

Price cuts, new product launches, relaunches, discounts, economy models, cheap finance -- amidst all the action luxury car market has seen, a clear bifurcation has emerged, with the Rs 7 lakh price point as the dividing line. Models like the Cielo and the Metro-I Opel Astra have moved to the lower-end, while other like the 1600 cc Ford Escort Zetec have moved to the upper end. Honda appears to have landed bang in the middle with a price tag of Rs 6.5-7.5 lakh for its City.

And it is this precisely this bifurcation, which holds the answer to the question: are luxury carsover-priced?

The individual performances of these two segments during the current financial year will clearly demonstrate consumer preference. If the lower sub-Rs 7 lakh segment grabs the bulk of the volumes, the upper-end models will be left high and dry. And if manufacturers react like they did this year, prices of the upper-end models too will be rolled back.And by logical extension, the prices of the lower-end models too will have to be brought down further to accomodate a reduction in the prices of the upper end models.Just one difficult year and we have already seen prices crash considerably and the consumer gaining in the process. And if the market does not improve this year either, one doesn't need a top-notch analyst to forecast what lies ahead.