rediff.com: Maruti may not well despite price cuts

The 5-10 per cent cut in car prices announced by India's largest manufacturer, Maruti Udyog Limited, on Saturday may not be enough to reverse a declining market share, analysts said on Monday. Maruti, an equal venture between the Indian government and Japan's Suzuki Motor Corp, once held an overwhelming 80 per cent of the market, but is now down to around 52 per cent.

"We do not see this winning back market share (for Maruti), or kickstarting the car market," an automobile analyst at a leading foreign institutional investor, who asked not to be identified, said on Monday.

The analyst said the change in market shares in the car market was driven largely by new models and the price reduction would, at best, help in arresting its declining market share.

The price was on Maruti's largest selling 800 cc model, its mini van Omni and the Wagon R.

They reversed recent increases in car prices following changes in engine technology after the tightening of emission norms and a change in the structure of local taxes in India.

The reduction in the price of Maruti's 800 model, however, could create pressure on another car maker, Tata Engineering and Locomotive Company, or TELCO, to reduce prices.

TELCO launched India's first indigenously-built car, the Indica, last year and challenged the market by offering a 1,400 cc car roughly 25 percent cheaper than the models on offer.

"TELCO sold 5,193 cars in May 2000 and 5,211 in April, lower than the 7,500-odd that it must sell a month to reach its target of 90,000 units in 2000-20001," the analyst said.

Maruti held 62.4 per cent of the market in fiscal 1999-2000 (April-March) but this slipped to 52.6 per cent by May 2000. The gainers included Daewoo Motors, Hyundai and TELCO, which have launched new models during the last two years and priced slightly higher than Maruti's 800 model, which once held a near monopoly as a cheap and fuel-efficient model.

The 800 model is now considered by many to be jaded but its price is still a big draw.

"It is crucial for Maruti to retain a sufficiently large price differential between its 800 model and the new models of these companies," R C Bhargava, Maruti's former managing director said. "Without it, there will be a switch away from its models," he said.

Maruti managing director Jagdish Khattar, announcing the price cuts, said on Saturday that he expected the price reductions to "kickstart the market from its current uncertainty", much like it had at cut in its 800 cc model prices did in 1999.

Indian car sales grew 55.8 percent in fiscal 1999-2000 (April-March), and Maruti's own 24 per cent.

But since then its sales have slowed. Its May sales of 27,533 units were 18.3 per cent lower than May 1999 while total car sales grew 18.4 per cent.

Market analysts say Maruti's price cuts are often offset by attractive financing schemes offered by its rivals.

Analysts expect car sales growth in 2000-01 to grow at a more moderate 10-11 per cent, coming as it does after a year of very high growth.

"From here on we expect Maruti's sales to grow at the rate the market grows," the analyst said.

Maruti was also in the news last week as a possible candidate for divestment of government stakes, but there was no immediate approval for such a plan.

The Indian government and Suzuki were locked two years ago in a public spat over expansion, with the Japanese partner keen to bolster the company's finances -- and its own hold -- over the company.

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'Maruti may not well despite price cuts'