NEWSLINKS
Y2K BIZ FEATURES
INDIA & THE W.T.O.
NEW GOVERNMENT
SPECIALS
INTERVIEWS
COMMENTARY
CREDIT POLICY
BUDGET 1999-2000
USEFUL INFO
ARCHIVES
SEARCH REDIFF

Maruti aiming for long-term growth

The recent decision by India's largest car-maker Maruti Udyog Limited (MUL) to combat sluggish sales by cutting prices is a quick fix move that holds little prospects of generating long-term growth, analysts say.

"Maruti will be able to win back some share. However, the effect of the price cut is likely to be watered down over a period of time," said Sangeeta Purushottam, head of research at S G Securities.

She said Maruti desperately needed to launch new low cost small cars as the Maruti 800 was suffering from brand fatigue after an unchallenged reign of more than 15 years on Indian roads.

Many jaded consumers were opting for shiny new small cars -- launched by competitors Hyundai Motors, Daewoo Motors and India's Telco in the last year -- despite the Maruti 800 continuing to be the cheapest Indian small car, she said.

Maruti introduced new environment-friendly versions of its 800 model earlier this year, but analysts said they had failed to make an impact as they were introduced too late and looked much the same as the old versions.

The price cuts announced Saturday by Maruti of its 800cc variants ranged from Rs 10,000 to Rs 20,000 ($230 to $460).

"Since the Maruti 800 accounts for 49 per cent of MUL's total sales, I expect this will lift the sales volumes," said Taher Badshah, automobile analyst at Motilal Oswal Securities.

In May, Maruti had seen a drop in sales of nearly 20 percent to 27,533 units compared to 33,680 in the same month last year. Sales in April had also dipped to 30,016 units from 31,351 over the same time period.

At one time, the Indian car giant commanded an 80 per cent share of the domestic car market. But the sudden explosion in competing models has diluted this to slightly over 60 per cent.

"Indian people are now looking for choice. The new models of other companies needed a certain time period for acceptance, which has happened now," said Taher Badshah, an automobile analyst at Motilal Oswal Securities.

The flurry of launches saw the small car market in India growing by more than 50 per cent in the year ending March 2000, while Maruti sales grew by about 30 per cent -- leading to a loss of market share.

Analysts forecast the rival models would eat up more of Maruti's market share over the long term as the Maruti 800's cost of production was bound to increase as a result of technology upgrades.

The launch of an upmarket small car, the Wagon R, has also so far failed to spark significant sales volumes.

Maruti officials say the sales drop in the last two months has been fuelled by an increase in sales tax by various state governments which has translated to a price rise of Rs 10,000 to Rs 12,000 per car.

"In the recent past, a combination of cost and tax induced increases in prices and an uncertain sales tax regime had adversely impacted the market. To revive the market, Maruti is repositioning the entry level price point for a limited period," the company said in a statement.

It said the price reductions would only be for three months, but analysts expect it to continue unless there is a significant sales boost.

Badshah said other carmakers may also be forced to match Maruti's moves which could again blunt its price edge.