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Battle hots up in small car, mid-car segments - Views on News from Equitymaster
 
 
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  • Sep 8, 1999

    Battle hots up in small car, mid-car segments

    According to news reports, small car majors TELCO and Daewoo Motors have firmed up plans to hike their production levels considerably. As if on cue, mid-car majors Honda and Ford have outlined large-scale investment plans to battle it out in the sluggish mid-car segment.

    First the small car segment. TELCO plans to go for a second shift to increase production of the Indica. By FY2000, it expects to achieve production level of 60,000 units (single shift), by when it will have cleared its order backlog. Daewoo has also outlined plans to step up production by introducing double shifts. Currently, the company manufactures 3,500 units a month. While TELCO's move to hike production levels is in response to increasing domestic demand, Daewoo's move has been influenced by rise in domestic as well export demand.

    Daewoo plans to come with a new model of the Matiz aimed at the higher segment. TELCO also plans to introduce a variant of the Indica.


    Passenger Car market share as on July 1999

    There is a heated battle in the small car segment for market share. Competitors are slugging it out on price as well as quality. While Maruti has been caught napping on both these counts, companies like TELCO (Indica), Hyundai (Santro) and Daewoo have been quick to seize the opportunities that have come their way.

    Not wanting to be left behind, auto majors in the mid-car segment, too, have firmed up investment plans, to underline their commitment to India.

    Ford India is banking heavily on its Ikon model to improve its cash-flow position, which has been negative since the company's inception. The company has already invested US$ 800 m (Rs 34 bn) in its Indian operations, which include a new plant to produce the Ikon. The latter is slated for a commercial launch in November. Ford India, plans to price the Ikon at Rs 500,000-570,000, which is just below the premium segment, which includes Ford's existing Escort model, Mitsubishi Lancer, Opel Astra and Honda City.

    Honda Siel has also outlined ambitious plans in the mid-car segment. It targets sale of 11,000 units in FY2000, as against 9,631 units in FY99. It has sold only 3,814 cars in the first five months of FY2000, and 11,000 cars looks like a tall order at the moment. The company expects to break even at 16,000 cars.

    Honda plans to invest Rs 8.5 bn in its Indian operations over the next five years. In a move to improve the viability of its operations, it plans to import cars not manufactured in India. The new-look Honda City will be launched in the country in a year's time.

    Although competition is a good thing for the mid-car segment, demand is conspicuous by its absence. Manufacturers will have to look at offering their products in the niche, sub-premium segment (below Rs 550,000), as the premium segment seems saturated, with too many players offering too many models.

    Currently, the mid-car segment has too many companies competing for what is a very small, fragmented market. With companies like Ford, Fiat, Honda, Toyota, scaling up investment plans, there could well be a shakeout in this segment, with some companies being forced to scale down operations or withdraw completely.

     

     

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