Car buyers move into higher gear

Car buyers move into higher gear
DEV CHATTERJEE

Car lovers are shifting loyalties in top gear as the automobile industry is witnessing a major shift in demand with consumers ignoring the good old Maruti 800 or Omni (the A segment) to buy bigger and better technology-led cars like Santro, Matiz, Zen, Indica or even Ford Ikon and Hyndai Accent. Reasons: Contemporary engine, good looks, aggressive pricing and marketing.

As evident from the sales graph of Hyundai, Telco and Daewoo, first time car buyers are becoming bolder in demand as they look for latest and better technology under the hood instead of ‘just a four wheeler’. ‘‘The consumer’s view is maturing and he will be prepared to pay what a product is worth as new players with better models will redefine segments and open up new segments,’’ says a top Ford official. ‘‘We will see first time consumers buying more B segment cars (priced above 3 lakh) instead of buying outdated cars like Omni or Maruti 800 (A segment) which have been launched at least 16 years ago. Many are even directly going to the C segment (Ikon, Accent or Corsa),’’ he added.With this, the so-called small car segment is set to witness completely different dynamics as multinationals and Indian players fight a pitched battle for the market shares. Interestingly, this comes at a time when domestic car sales dipped four per cent to 386,527 units during April-November 2000-01 as against 402,694 units sold in the bumper year-ago period.

The maximum fall is in the so-called entry level car, ie, Maruti 800 and Omni models which have witnessed a 30 per cent fall. The demand for cars in the entry segment has dropped from 2,08,348 units recorded during April-December 1999 to 1,46,766 units in the first nine months of the fiscal, says a Society of Indian Automobile Manufacturers (SIAM) official. “Consumers taste is changing faster than a decade earlier. New products with aggressive pricing is must to bring in new consumers in the market,” says an auto analyst. Obviously, the focus is on to launch more models in the upper segments.

Says Ratan Tata, executive chairman of Telco, makers of Indica: “In order to offer more choices to consumers, Telco is planning to launch three new cars in the domestic market by 2003, including a three-box version of a premium mid-size car in pact with Peugeot.” Telco is likely to sell targeted 70,000 Indica cars this financial year with most of them being the first time consumers. Moreover, it’s eyeing the next higher segment with a Rs 5-lakh tag to woo consumers.The statistics speaks for itself. The small cars in B segment like Zen, Alto, Wagon R, Santro, Matiz, Indica and Uno saw demand falling during the first nine months of the current fiscal year but the fall is not as steep as in the A segment which saw sales falling by over 62,000 units. Demand for cars priced between Rs 3 lakh and Rs 5 lakh has increased by 9,500 units, a jump of 4.9 per cent.

Though some manufacturers like Telco Indica and Fiat Uno have seen the market for their cars shrink by over 10 per cent in the B segment, it’s the Maruti, the undisputed king in the Indian automobile industry, which has taken the maximum hit in the A segment. Maruti, however, is making up for its loss in A segment by selling more cars in the B segment. It sold 71,104 units in the B-segment mainly Zen, Wagon R and Alto in the first three quarters of the current fiscal, as compared to 60,780 units sold in the same period last fiscal, thereby registering a 17 per cent growth in the segment.

Maruti’s share in the B-segment has increased from 31.5 per cent recorded in April-December last fiscal to 35.1 per cent in the same period this financial year. Similarly, the demand for cars in the C segment especially Ford Ikon, Hyundai Accent and GM’s Corsa has increased from 37,298 units (in the first nine months of last fiscal) to 55,706 units in the first three quarters of the current financial year.

But in the C segment (priced over Rs 5 lakh), cars such as Maruti Esteem, Daewoo Nexia and Fiat Siena saw a drop in sales of 32 per cent 48 per cent and 57 per cent respectively. But the future is rosy so are the margins. “In the future, we will see more consumers buying either a Zen or an Esteem... the days of Maruti 800 are almost over as the growth is that segment is falling,” says a Maruti official. “But as long as consumers will demand even a single Maruti 800, we will produce it,” he adds.

For the auto companies, like Maruti, the margins in producing a 800 or Omni are wafer thin and they barely make money and it’s quite obvious if they push sales of their B segment cars more aggressively. “It’s due to high volumes that Maruti is producing 800 or Omni... the day volumes fall below a certain level, Maruti, or for that matter any other manufacturer, will have to withdraw the product,” says a Hyundai official.

Fiat Auto, makers of Siena and Uno, will launch its Palio car by June this year to cash in on the growing volumes. “Fiat is looking at the B and C segment as it’s the most growth-oriented segment. Once the volumes grows, we will launch Palio to meet the demands of Indian market,” outgoing managing director of Fiat Auto R Ravina said.

In the days to come, say auto analysts, global mergers and acquisitions will change the dynamics of Indian automobile industry as survival of auto companies will drive on increase in volumes. “On the business front, cost sharing and rationalisation of platforms would be the key factors driving the auto manufacturers... as volumes in the A segment is falling while the B segment shows a growth, it’s quite natural that auto companies will invest money in tapping that growing segment,” adds an Hyundai official.

Car makers are already making strategies to tap that segment. Of this, Ford Motors is one the most successful company as its Ikon models made deep inroads into the mid-sized segment. Similarly, after the success of Santro, Hyundai launched Accent which has met with good response. Both Ford and Hyundai are concentrating on volumes and high marketing spending to make a success of their models. Others are also expected to take the same road.