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Passenger cars: Bright outlook

May 15, 2002

While most of the segments in the auto sector have been affected as a result of slowdown in the economy, the Indian passenger car and two-wheeler categories have been buzzing with activity in the last two years. The success of Hyundai, a smart comeback by Tata Engineering (Telco) and a rejuvenated Fiat have been fired the consumer's imagination. We take a look at the performance of the passenger car segment during the fiscal and the future growth prospects. Passenger car volumes increased by 5% in FY02 to 608,130 units. While the market leader, Maruti Suzuki, witnessed a marginal drop in unit sales during the year, Hyundai has continues to consolidate its market share in the car segment. After the scorching success of 'Santro' and 'Accent', the company lauched its premium car 'Sonata'. The improved versions of Santro, Accent along with the encouraging response for Sonata have ensured a marginal rise in its market share in the current year. The year was also marked by the smart comeback of Telco's 'Indica V2'. Telco posted a 47% rise to 65,331 unit sales in FY02. Consequently, its market share has touched 11% as compared to 8% in FY01. Though the improved version of 'Indica' has come a long way since its launch, its early days yet to comment on its reliability in the long run.

Maruti leads the lotů
(Nos) FY01 Market share (%) FY02 Market share(%) Change (%)*
Maruti 344,463 58.6% 342,927 56.4% -0.4%
Telco 44,552 7.6% 65,331 10.7% 46.6%
Hyundai 86,719 14.8% 90,677 14.9% 4.6%
Passenger Cars 587,669 100.0% 608,130 100.0% 3.5%
*FY02 over FY01

It has been a rough ride for Maruti in the last three years. After the entry of multinationals, the company's market share and profitablity have seen severe pressure. Labour unrest and a relatively aged product portfolio have been the key causes for concern. But in FY02, Maruti introduced a number of models like 'Versa', improved version of 'Esteem' and 'Alto'. Most of the newly introduced models have not performed upto expectations and the company was forced to resort into re-launching some of them (the latest being 'Alto Spin'). But if one were to look at the passenger car industry, the number of new model launches in the premium end have clearly outpaced the rest. Mercedes, Ford, Hyundai, Fiat, Opel, Honda and Mitsubishi have been successful in their respective segments by smartly upgrading the erstwhile 'Maruti Esteem' customers.

Coming to the future outlook of the industry, with India coming under WTO norms, most of the multinationals are keenly evaluating the possibility of new model launches through semi-knocked down (SKD) forms. With customs duty as high as 180% for imports, launching new models through this form seems to be a viable proposition. Again, most of the proposed new model launches are targeted at Segment B and above customers (i.e. the Esteem range) with Toyota being the only one that seems to be interested in the small car category. We expect the industry to grow by 5%-6% in line with the GDP growth in the coming year.

Maruti might still sustain as one of the most formidable players in the future, especially post the change in management control. Given its strong distribution network and after sales service centres spread across India, it is well placed from a long-term perspective. Both Suzuki and General Motors could bring in their expertise to the management, which seems to be struggling to cope with competition.

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