The Race Begins... Now

Ratan Tata kept his pricing promise by tagging the standard (non-AC) petrol Indica at Rs 2.59 lakh (in Delhi). Two hours before this announcement, in a classic attack on the Indica from both flanks, Maruti Udyog brought the price of the basic Maruti 800 down from Rs 2.09 lakh to Rs 1.85 lakh, and introduced a sub-Rs 3 lakh model of its Zen. Of course, Maruti bosses claimed that this was no panic reaction to Indica, but a fresh marketing strategy to fight the extreme downtrend the automotive market has been facing for some time. In Mumbai, Ratan Tata joked that not only had Telco fulfilled its promise of a low-priced small car, but had also helped people who were not thinking of buying an Indica, by getting Maruti to lower prices.

What seems clear, though, is that Maruti's dream run as a near-monopoly faces the strongest threat ever.

The market is down. The auto sector's growth plummeted from 25 per cent in the early 1990s to about 7 per cent in 1997-98. In the first six months of 1998-99, growth was zero, and in the last quarter (October to December), demand has dipped a whopping 18-20 per cent. Meanwhile, Maruti Udyog has raised capacity dramatically in the last few years to 350,000 cars in its two plants. Capacity will further increase by 100,000 cars when its third plant goes on-stream this February. The company was forced to cut production by 20 per cent in November and December.

Add new competition to the market slump. Hyundai, the first to take on Maruti in the small car market, priced its standard 999 cc Santro at Rs 2.99 lakh, equidistant from the 800 Deluxe and the upper-end Zen VX. Daewoo decided to stay away from the stripped-down standard economy model, pricing its Matiz at around Rs 3.5 lakh, on par with the Zen VX. Now comes the Indica.

Says Maruti Udyog managing director R.S.S.L.N. Bhaskarudu: Maruti has not cut prices in isolation. When the market is depressed, you have to move with it and adopt a strategy that will work in that situation. There was a need to stimulate the market and as the market leader, we had to do it, although the benefits will be enjoyed by all players. He feels that Maruti's new prices will be instrumental in reviving demand and expects the market to start looking up by mid-1999.

But it will be a new-look market. As of lastfortnight, the small car market stands reclassified into four distinct segments:

• The Rs 1.86 lakh to 2.5 lakh segment: the Maruti 800, the new Maruti 800 EX (which has radial tyres and a rear coil suspension as against the standard's leaf springs) and the four-gear Indica;
• The Rs 3 lakh segment with Zen LX, Santro standard, Indica four gear deluxe and Fiat Uno;
• The Rs 3.5 lakh segment with Matiz, Zen VX and Santro Deluxe;
• The Rs 4 lakh plus segment with Indica five-gear deluxe and Zen and Uno in their diesel incarnations.

Says Daewoo Motors managing director Shiv Gopal Awasthi: Actual segmentation will take place now. And with the benchmark based on value, the customer will start demanding more and more for the same price.

He, however, does not agree that future strategies will have to be hinged on price. In his view, a price-led market will be a serious handicap to product development. Says he: I cannot foresee a situation where an obsolete product will survive only because of a price advantage. You cannot be a winner by exploiting the price-sensitive approach of customers. Price is a factor, but not the deciding one and customers now pay more attention to technology, features and service rather than the price. For obsolete product, read the 14-year-old Maruti 800.

Awasthi's theory stems from the fact that despite a higher price, over 40 per cent of the first 3,000 Matiz cars have been bought by first-time car buyers.

Santro too claims to be doing well. Against a target of 20,000 cars in the current financial year, the company has received orders for 16,000. With its second round of order acceptance having opened on January 4, 1999, the company may sail through the target. In 1999-2000, Hyundai hopes to increase Santro sales threefold to 60,000 cars. Matiz quotes a similar figure for 1999-2000. Indica's bookings will open on January 17.

How big is the threat to Maruti? Nothing at all, says analyst Veeresh Malik: Nothing will drastically change in the next two to three years as no other car is geared up for full national distribution in this period, he says. He feels that the situation has changed from frenzied buying to need-based purchase where customers will rely on the proven efficiency parameters of Maruti rather than going in for new, unproven technology on Indian roads. Malik feels that Maruti's products are by far the best for Indian use as the condition of Indian fuels and roads were far below international standards. What is the use of abs braking systems, air bags or even satellite tracking in India when you don't even have the conditions to use these features?

Bhaskarudu too echoes his sentiment: We are not afraid of or threatened by anyone even if we announced our price cuts simultaneously with the Indica launch. We are merely repositioning our pricing structure in accordance with the new capacity creation in the market. We are the market leaders and will continue to be so. He feels that demand for small cars will go up 20 to 25 per cent in the next few months as a result of the price cuts. In anticipation, the company has resumed production at full capacity from January. With the government-Maruti tussle having been resolved, the company is also gearing up to launch new models, which amongst others, may include a new incarnation of the Maruti 800 later this year.

So, with the price factor deep-rooted in the Indian psyche, Maruti's goodwill and available efficiency parameters, will the new competitive threats remain just that threats to the company that has 82 per cent share of the Indian car market? Or will India's other auto giant, Telco, be the one to finally give Maruti Udyog a run for its money? Bets are being taken on both sides. And all eyes are now on how the Indica performs on actual Indian roads.