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COMPETITION What's Next? ...Almost a dozen new models, ranging from the peppy Ford focus to the stately Honda Accord. By Suveen K.Sinha Somewhere in the dusty interiors of Gujarat, a 4x4 feline is being put through its paces. Aptly named Panther, the dandy multi-purpose vehicle (MPV) is one of the Isuzu marques that General Motors (which owns a fifth of Suzuki) will unleash on the Indian roads next year. But the 2.5-litre Panther is just one of the many cars slated to wow Indian consumers over the next year or so. Across car plants in India-be it of Maruti Suzuki, Hyundai, Ford, Toyota, Telco, Honda, Fiat, or Daewoo- secretive plans are being drawn up, tuned and then fine tuned, to come up with the next big winner. And that signals, as General Motors India's marketing head, Rajeev Chaba, likes to call it, the Stage II of Auto India Inc. A time for new models. A time for expansion. The first stage-establishing operations, the brand, dealer, and service network, and a field team-is over. And round two has just seen car makers pull through narrow and bumpy markets. "The total car market this fiscal will be no more than 4.8-4.9 lakh units, a decline of 7 per cent over the last year," says Daewoo Motors India CEO, Young-Chang Kim. Ominous, viewed in the light of the industry's installed capacity of 12.5 lakh cars-a-year capacity. Manufacturers have already begun fighting the blues with gold coins (Maruti), add-ons (Ford), and discounts (Hyundai and Fiat). Long-term survival, then, will depend on the car company's ability to rack up volumes and use that to lower its sourcing and manufacturing costs. Ahead of that, the search is on for the right kind of model, pricing, and positioning for Stage II. Nothing's official for sure, but BT takes an informed guess at what's up next. The Offerings
The Break-Even Barrier
While the timing of these models' launch will be determined to a large extent by how the government treats the post-Quantitative Restrictions era beyond April 2001, there's no denying that it's a logical step. Most manufacturers have sunk in $200-350 million in India and cannot justify operations with only one model or two. GM's Chaba is categorical: ''A one-model strategy just won't work in the long-term.'' Especially if they have to achieve the threshold volume required to break even. ''To be profitable, a manufacturer needs to sell at least 2-2.5 lakh units a year. And at least one model must notch up 1 lakh or more, in order to give economies of scale to vendors and get a low price for components,'' adds Maruti CEO Jagdish Khattar. Khattar's estimate is based on a rather simple calculation. Assuming the investment of a manufacturer to be Rs 2,000 crore, interest cost to be Rs 240 crore a year, and depreciation to be Rs 200 crore a year over 10 years, the fixed cost per car comes to Rs 2.2 lakh on volumes of 20,000 units a year. If the sale price is Rs 5.5 lakh, the accrual after factoring in excise works out to about Rs 3.7 lakh. Now, if the manufacturer were to break even at this volume, the material cost on each unit would have to be Rs 1.5 lakh, which is ridiculously low. However, not unexpectedly, manufacturers with smaller volumes estimate the threshold to be much lower. Chaba puts it at 50,000-60,000 a year, while Kim's figure is 60,000-65,000 for a manufacturer with medium-size investments ($250-350 million). It's all about volumes, silly. And secrecy. That's why we may get to see many cars beyond the list given here. Ford India Vice-President (Marketing) John Fink, keeps emphasising the need to get into smaller cars, primarily the B segment, commonly referred to as the Zen segment. Ditto for gm India. ''We would like to move both ways, above as well as below the Corsa (lower mid-size) and the Astra (mid-size),'' says gm's Chaba. That's hardly surprising, as 80 per cent of the passenger car market lies in the A (Maruti 800) and B segments, priced around or below Rs 3.5 lakh. The Shake-Out Begins Till now, only one player-Peugeot-has packed up its bags. The winners of Stage II will, willy-nilly, set-off a shakeout in the Indian car market. Maruti continues to retain well over 50 per cent share of the market, while Hyundai and Ford have cornered a largish chunk of the remaining share. This leaves nine players fighting for a piece of the pie. Needless to say, it's a very small pie. ''There will be only three or four major players. A couple will remain as niche players. But at least two will have to think of their future,'' says Khattar. Kim agrees: ''Two or maybe three will lose stability here.'' Ironically, Daewoo is widely looked upon as a prime candidate to lose its individuality, thanks to its South Korean parent's fate in the hands of creditors and takeover talks that are on with the General Motors-Fiat combine. The consolidation might be expedited if Maruti's Khattar keeps his promise of making life even more difficult for rivals by boosting the A segment sales through a typically simple ploy. ''If the gap between the prices of the A and B segments (Rs 50,000-70,000 now) widens, there will be more sales in the A segment. Maruti's interest lies in widening this gap,'' he says. Since Maruti is at the top-end of the A segment with Maruti 800 DX, as well as the bottom end of the B segment with Alto lx, his words are not to be taken lightly. Other players, of course, are hoping that the mid-size market-which has grown by 70 per cent to 54,000 units in the eight months to November 2000-will continue to surge. ''The lower mid-size segment can continue to grow at 40-50 per cent,'' says Chaba. Kim, on the other hand, expresses the hope that the market will expand to 5.6 lakh units in the next financial year: ''International oil prices are already settling down. If agriculture is better next year and the monetary policy more favourable...'' It's sure going to be an interesting Stage II. |
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