Sunday, 21 August 2011

Maruti and Hyundai developing low-priced entry-level cars

For the first time in the past two decades - amid a flurry of new players, slew of launches and zooming sales - India's Motown is thinking seriously about bottom-of-the-pyramid cars. 

Maruti Suzuki, India's largest car company, is launching a sub Rs 2.5 lakh car in the next 18 months. This is the first time Maruti is looking at launching an entry-level car since the debut of Maruti 800 in the 1980s. 

Hyundai Motors, India's second-largest car company, too is developing a car called H800 that will debut on Indian roads soon. This is the first time the Korean auto major is looking at setting a new floor price for its cars. Currently, Hyundai's entry-level car is Santro available at a little over Rs 3 lakh. "The opportunity is enormous. This is the largest segment [by volume] in India's car industry today and in times to come," says Arvind Saxena, director, sales & marketing, Hyundai Motors India. 
The Big Potential 

This optimism is partly inspired by India's macroeconomic growth story. India's gross domestic product (GDP) is expected to quadruple from $1.7 trillion (2010-11) to $5.6 trillion (2019-20). During this period, India's working population will go up by 20% to comprise 55% of the total population - which will mean more income earners and fewer dependants in Indian households. 

And this growth will not be so much about the rich getting richer as much as about poorer Indians graduating to the middle class, says Mayank Pareek, executive director (marketing), Maruti Suzuki. It is expected that the number of households in the income category Rs 2.8-7 lakh will grow from about 2 crore in 2010 to 5.5 crore in 2015. "The thumb rule is that a household is ready to buy a car when its annual income is equal to the cost of the car," says Jagdish Khattar, former managing director of Maruti Suzuki and founder of Carnation Auto, an auto solutions firm. This means in the next 5-10 years, a large number of Indian households will cross the income threshold when cars will become affordable to them.
Maruti's as well as Hyundai's new offerings hope to piggyback on this boom. Looking into the Crystal Ball What will be the new cars be about? While Hyundai is developing it in South Korea in close coordination with its research and development (R&D) team in Hyderabad, Maruti's car is being developed from scratch at its Indian R&D centre. Says IV Rao, MEO (R&D), Maruti Suzuki: "The new model is being conceived and developed in India. Any car in this segment must focus on fuel economy, performance and reliability."

Both the companies are tight-lipped about revealing their car specs but here's a good guesstimate from veterans in the auto industry. The cars will have sub 800-cc engine offering basic comfort. Both cars are likely to have petrol engine as there is no plan right now to bring in the diesel variant. Hyundai's H800 will have the new "fluidic" architecture, the new design philosophy followed by the Korean company now. 
The sticker price - expected to start at under Rs 2.5 lakh - will of course be very important. But it is the cost of ownership - fuel efficiency, cost of spare parts, servicing, etc - that will get top attention from the companies. Since a large number of potential customers will come from the hinterland and rural India, dealership network and service station availability in these areas will be a big factor. So expect both companies to push for the same. While Nano and its frugal engineering may have showcased the possibilities, the new models will pursue the conventional hatchback constructs (Nano is a rear-engined car) to build the new offerings. Both Maruti and Hyundai would push for scale, better coordination and cost cutting with the vendors to bring down the prices. 

Both the cars would be manufactured in India and would largely focus on the Indian market and not exports initially. 

Protecting Turf 

Maruti and Hyundai - the two Indian biggies besides Tata Motors - are the predictable aspirants for this segment. They have attained a certain size and scale in terms of production, dealer and aftersales service network in the country. Both MNCs bet early on India. Maruti today provides almost half of Suzuki Motors' profit. Hyundai Motors made India its small car hub as early as 2008 and exported close to 2.5 lakh cars in 2010. 

Both are now working hard to protect their turfs as global auto biggies - from GM to Toyota to Volkswagen (VW) to Ford - gear up for an offensive in the Indian market. While the sedan segment is seeing a lot of action, the biggest impact is being felt in the fast-growing premium compact segment - Swift, i20 - where the competition has intensified. VW and Ford are doing well with their Polo and Figo models. Toyota just launched Liva and Honda is readying its Brio. 

Source : Economic Times


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