Small car segment unlikely to face a price war - Views on News from Equitymaster

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Small car segment unlikely to face a price war

Jun 29, 2000

The recent decision by Maruti Udyog Ltd to reduce the prices of its models is unlikely to result in a price war in the small car passenger segment. The company is using this strategy to push up volumes as is has been consistently loosing its market share in this segment. Maruti Udyog's market share has fallen from 80% in FY99 to 62.2% in FY2000 and its sales reported a decline in April'2000. The sales of Indica, Santro and Matiz have done very well in the past year and they have eaten into Maruti Udyog's market share. The main reason for this has been that the market witnessed the launch of many new brands in the small car passenger segment over the past year, resulting in competition in this segment. This also resulted in new life to this segment as companies like Telco, Hyundai and Daewoo launched their small cars with new features, style, comfort and provided variety to the Indian consumer.

  Passenger car sales
  FY2000 % growth YoY
Maruti Udyog 397,586 12.8
Hyundai Motor 75,895 NA
TELCO 55,776 1,078.7
DCM Daewoo 40,217 297.4

The new entrants have managed to establish themselves very well, resulting in the market leader Maruti to use price cuts as a strategy to garner up its falling market share. However the other companies are unlikely to follow suit as their models have established themselves very well and also offer added features to their customers, hence they do not feel the need to provide further incentives and price cuts. They are unlikely to be threatened by the recent price cuts by Maruti. However this strategy could result in expanding the small car passenger market as customers who were earlier unable to afford a four wheeler could now consider a shift from the two wheeler market to this segment.

The weakening of the rupee in recent times could actually result in companies like Hyundai and Daewoo to increase prices of their passenger cars as the cost of imported components has gone up. Hence they are unlikely to reduce the prices of their vehicles in the near future, due to this factor also.

On the whole the passenger car segment has been buoyant over the past year, the reasons being lower interest rates, availability of attractive car finance schemes, improvement in the economic scenario and pick up in the second hand car market due to professional advice available in this segment now.

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