Consumers at the mass end of pocket power are the new heroes of India’s brand baskets. Practically every brand is offering something at the mass end of the product spectrum. And car makers aren’t lagging behind. Most car makers have something lined up in the sub-Rs 10 lakh segment, either in new brands or variants.
Between March 2010 and early 2012, at least 30 new cars or variants of existing brands were scheduled to be launched. The sub-Rs 10 lakh car segment is full of choices. The different segments that offer cars under Rs 10 lakh — compact, sedan and saloon — are in expansion mode, with almost all car makers rolling out models with options suiting every pocket and style.
Car makers seem to be right on time. In April-September 2010, the sub-Rs 10 lakh car market grew more than 33.4 per cent, according to Society of Indian Automotive Manufacturers (SIAM). The hatchback segment — comprising SIAM’s mini and compact segments — grew about 32 per cent. It’s a perfect opportunity for newcomers who want to drive costs down by increased localisation, cost decline programmes, efficient customer acquisition, strengthening the brand and differentiate by offering unmatched customer experience.
“The middle class is growing and there is a lot of demand for both A and B segments. For hatchbacks, 30 per cent are first-time buyers; for sedans, 25 per cent are first-time buyers. We are looking at entering the B-segment with the Etios sedan and, later, a hatchback on the same platform,” said Sandeep Singh, deputy MD (marketing), Toyota Kirloskar Motors. “The competition is hot. Of the dozen players, at least three will do well.” Etios is expected to be launched in the Rs 4.5-7.5 lakh range.
Toyota’s small car is scheduled to drive in by December. Honda is looking at an early 2011 launch for its small car, followed by Hyundai’s small car in mid-2011. Chevrolet is looking at rolling out Sail — expected to give Maruti Suzuki’s Dzire and Tata Motors’ Manza competition. Mahindra & Mahindra is looking at a mini Xylo next year and a refreshed Logan this year.
With so many launches under the Rs 10 lakh hood, is there a risk of overcrowding? For market leaders such as Maruti, it means more competition. For consumers, it means more choice.
“The Indian market is exceptionally overcrowded, though it is dominated by the small car segment; all manufacturers want a share in it. The volumes are highly concentrated with the top manufacturers but this may change with a couple of other manufacturers becoming significantly larger. With a model available at every Rs. 30,000-50,000 interval, operating at a given price point is already table stakes, unless the badge value is so strong to allow a manufacturer to operate at a premium,” said K Kumar, leader, manufacturing, Deloitte India.
He added that since capacities will get created in steps, it will also become a parameter to be dealt with. “The new entrants will have the additional challenge of competing with peers who operate with reasonably depreciated plants at higher volumes and therefore have greater pricing flexibility.”
Honda Siel Cars India, whose Jazz sales were not very exciting during April-September, is betting on its small car launch. “Our model range is small. Early next year, we are looking at small car under the Rs 5 lakh price tag. The hatchback segment accounts for 80 per cent of car sales in India and there are a lot of launches happening in this segment. We have plans for it,” said Jnaneswar Sen, VP (marketing), Honda Siel Cars India. The company is also looking at diesel variants for all its cars but that will take some time, said Sen.
Could the entry of so many new cars and the phased increase in production capacity put stress on carmakers with ailments such as overcapacity and holding on to lower prices because of intense competition? “Certainly not! With the economy looking good, the market is growing and everybody has space to operate provided car makers delight customers with attractive products and services at competitive prices,” said Karl Slym, CEO, GM India.
Volkswagen India, which has two mass volume cars — the VW Polo and the recently launched VW Vento —under the sub-Rs 10 lakh segment, is positive about capturing a sizeable market share. “Vehicle penetration in India is low at 10-12 cars per 1,000 people, even in comparison with nearby countries, such as Sri Lanka, Thailand and Malaysia. With increasing purchasing power, car penetration will improve significantly to be on par with East Asian tiger economies. There is potential for all newcomers to thrive,” said Neeraj Garg, member of board & director (passenger cars), Volkswagen Group Sales India.
There is a distinct sense of shift in the centre of gravity of the hatchback market. Within the segment, two distinct sub-segments have emerged: the sub-Rs 4 lakh cars and the Rs 4 lakh-plus cars. The low-priced sub-segment still has a bigger share of the market, but the higher one has almost caught up and is growing faster.
“There is definitely more choice for consumers. Chances are, many will skip the usual progression or the upgrade from a smaller to a bigger car and straightaway pick from the lot. For instance, at least 30 per cent of Figo customers were first-time car buyers,” said Michael Boneham, president and MD, Ford Motor India. Now, Ford plans to bring in eight new models in five years. Boneham hinted that with 70 per cent of car sales in the Rs 3.5-Rs 5.5 lakh range, it is a target the company may keep its eyes trained on for a long time.