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Chequered flag waves at the compact in race for profits
- Big models huff and puff in the Indian auto mart

New Delhi, Sept. 17: The Chevy Spark, a dolled up version of the Daewoo’s Matiz, was supposed to hit the roads in early 2007.

General Motor’s idea to come out with a small car model to take on Maruti’s Swift and Hyundai’s Getz is a sign that virtually every car-maker feels that this is the segment to tap.

The truth is that carmakers are acutely aware that the only way they can establish their marques and models in India and clamber up the marketshare charts is by playing the volume game — which essentially means the small car.

Spurt in sales

Five years ago, the domestic car market was small with annual sales at 6.75 lakh units. Most of the sales came from minis, which accounted for a little over half-a-million vehicles.

By March 2006, car sales swelled to 1.14 million, a growth of over 69 per cent in five years, making India one of the fastest growing markets for cars in the world.

At present, 85 per cent of the passenger car market is dominated by the Rs 12,677-crore Maruti Udyog Limited, the Rs 7,351-crore Hyundai Motor India (2004-05) and the Rs 27,266-crore Tata Motors.

General Motors, Toyota Motor Corporation, Ford Motor Company and Honda Motors, which together account for over 40 per cent global car sales — have been able to corner a cumulative 11 per cent marketshare despite their decade long presence in India.

Raking in moolah

The thrust into the small cars — a category that spans across the A and B segments — has been fired by three factors: the move to lure away customers from the burgeoning two-wheeler market; the desire to take advantage of tax breaks that have been afforded to small car makers in budget 2006; and the stunted sales of the high-end models.

According to statistics available, the B segment has grown from 13 per cent of the market in 1996 to 57 per cent now.

As a result, small car manufacturers have been generating more profits than the makers of mid-size sedans and executive models, like Ford and Skoda, who have been struggling to stay out of losses.

“Carmakers have realised that India is not a big car market. The real profits lie in the mini car and the premium hatchback segment,” said an auto expert.

Small magic

Take Maruti Udyog, the country’s largest carmaker. Its operating income has climbed from Rs 7,218 crore in March 2002 to Rs 12,015 crore in March this year — a jump of 66.4 per cent in a space of four years. Its after-tax profit has surged faster at 859 per cent to Rs 1,189.10 crore from a low of Rs 123.9 crore in 2002.

That’s true for Tata Motors as well. The auto and truck manufacturer started producing passenger cars only in 1991. But the real big thrust into car making came only in 1999 with the launch of the Indica — the first India-designed car.

Since then, it has emerged as the second largest carmaker with a marketshare of 16.5 per cent. However, it is being aggressively challenged by Korean carmaker Hyundai for the second spot.

Due to stiff competition in the small car category, Tata Motors is gearing up to roll out its Rs 1 lakh car by 2008.

The company’s operating income has also risen from Rs 7,320.76 crore to Rs 20,088.63 crore but this includes revenues from truck operations as well.

The automaker, which had suffered a loss of Rs 63.39 crore in March 2002, has reported a profit of Rs 1,528 crore for the year ended March 2006.

Figures for other carmakers are difficult to obtain. But it’s fair to say that most are struggling to stay out of the red.

Big leap ahead

And that explains their big thrust into the small car segment. GM is looking to come out with the Chevy Spark in March 2007 – which, it hopes, will add some zing to its pretty staid offering.

GM had hoped to take over the ailing Daewoo India’s Surajpur plant to make the Spark but knotty problems with creditors forced them to abandon the plans.

GM, which recently increased capacity at its Halol plant (Gujarat) from 60,000 to 85,000 vehicles, has already started construction at its Talegaon facility.

According to P. Balendran, vice-president of General Motors India, the company will invest $300 million in this plant which will start production by the last quarter of 2008.

“The focus is indeed on small cars and this plant is being built specifically to cater to this segment,” he said.

Others looking to enter the B segment include Toyota, which has voiced plans to make a small car for a long time.

There has been speculation for a long time that it might deploy a model from its associate Daihatsu but those plans seem to have lost steam.

It might source a model from its plant in Thailand like it did when it launched the Qualis, which was called the Kijang in that country.

As more and more players jump on to the B-segment bandwagon, carmakers will be redefining the market and also blurring the edges between the B and the lower-end of the C segment that now houses the Ford Fiesta, the Hyundai Accent, the Maruti Esteem and GM's Aveo.

Watch this space for some big-time manoeuvres in the small car segment in the days ahead.

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