Big bets on the new small car - Maruti and the Alto

By C. R. L. Narasimhan

By launching its new small car, the Alto, towards the end of September, Maruti Udyog Ltd. (MUL) hopes to establish a few points for itself and by extension to the six lakh plus strong passenger car industry. The Alto's launch was widely expected for a long time. In fact almost a year ago senior company officials had talked of an imminent launch as part of a grand strategy to launch three brand new models within a span of four to five months. MUL did introduce the premium car Baleno and ``Japan's largest selling car'' Wagon R last fiscal and an estate version of the former more recently. However, Alto's advent was a closely guarded secret. When in August this year one business paper confidently predicted that the launch was around the corner, senior company spokespersons flatly denied the news. They felt that such news would have a negative impact on the sales of their existing bread and butter products, namely, the 800 and the Zen.

Those concerns naturally still exist. Will the Alto which sold 2,953 cars in just three days of September eat into the figures of Maruti 800 and the Zen? On a larger level, will the Alto lead to an abandonment of the 800 and if so when? Naturally with so much at stake for Maruti in the A segment (till recently only the 800) and the B segment (Maruti's Zen and Wagon R pitted against the Santro, Matiz and Indica), the positioning of the new car becomes all-important. In India until now, the market segmentation has been in terms of price. The Alto comes in two versions - the 796 cc LX and the 1061 cc VX, with price tags of Rs. 3 lakhs and Rs. 3.65 lakhs respectively (ex-showroom Delhi). It is easy to see that the Alto comfortably straddles the 800 deluxe version and the basic Zen and Wagon R ranges. Maruti hopes that whoever moves up from the 800 will have a choice in the Alto VX version while first time car buyers may opt for the LX version. Again, should the 800 be phased out the company may even lower the prices of the basic model of Alto to boost volumes.

These are big questions not only for Maruti but for the rest of the industry and buyers as well. The 800 has been India's first modern car. Launched 17 years ago in an era when car ownership was an unaffordable luxury and (considering the pathetic state of the then indigenously made cars) extremely onerous, the 800 was promised as a people's car. Straightaway, and not surprising at all, the car was extremely well received and came to acquire a dominant status. Well into the early 1990s, the 800 commanded a huge premium. All that might have changed for ever but two significant factors will always underscore the Maruti 800's contribution to the Indian automobile industry.

One, though it touched upon sentiment rather than car economics India's first modern car was not quite the people's car as it was promised to be. Yet many among the Indian middle class had an opportunity to own a world class car for the first time. Interestingly today in the resale market (used car) an 800 of six to seven years vintage is sold at around the prices of fancy motor-bikes.

That surely gives a new meaning to entry-level cars. Second, even though world class competition - in the form of the two Korean small cars notably - adversely affected Maruti's sales, the company remains the only producer of segment A cars. Because of the headstart it has had - historical costs of plant and machinery and all related advantages - it is unlikely anyone else can produce a car having the same price-value features as the 800. But this obvious advantage may not exist for a long time.

Surely in a competitive environment also characterised by rampant consumerism the 800 was ready for a major overhaul. In other words, car buyers were looking for another newer small car in the 800 price range. Even with the Alto, MUL may have only just filled in the void hoping that its traditional buyers will not look elsewhere. By far the bigger bet is of course financial. MUL in which the Central Government owns an equal stake with Suzuki has to not only guard against a market share erosion but also against declining profitability.

If all goes well the Alto may safeguard the market share (now MUL has 58 per cent over all segments). But everyone knows there is more money for the manufacturer in the higher priced bigger cars.

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Section  : Business
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