Hyundai's Eon escalates price war, will buyers bite the bait?

Maruti Alto: Meet your fiercest rival yet - the Eon.

The smallest - and cheapest - car from Hyundai Motors’ stable is all set to fire up the entry-level segment of the small car market next month when it debuts with an aggressive starting price tag: Rs 2.5 lakh. It will pose the first real challenge to the 7-year dominance of the Alto, the best-selling car in the country.

The Eon, boasting of a 3-cylinder 814-cc petrol engine, will be wider and taller than the Alto. Bookings will start this Saturday, according to one report.

[caption id=“attachment_96670” align=“alignleft” width=“380” caption=“The Eon debuts with an aggressive starting price tag of Rs 2.5 lakh. Pic courtesy: bhautikjoshi/Flickr”]  [/caption]

There’s no doubt that car buyers are currently spoilt for choice in the compact car segment, which is getting increasingly crowded with a spate of recent launches at ever-lower prices. Earlier this week, Japanese car maker Honda unveiled the Brio, a compact car for the mass market with a starting price of Rs 3.95 lakh (ex-showroom Delhi) - a very competitive price, given that only Tata’s Nano and Ford’s Figo are priced below that level.

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Both cars will go head-to-head against Maruti, India’s largest car maker, which has been slammed by relentless labour unrest since late August that has cost it an estimated Rs 450 crore in losses and disrupted output by up to 18,000 cars. The Eon is set to hit the Alto, while the Brio will take direct aim at the upgraded Swift.

Bringing down car prices seems to a theme for car makers catering to the compact car segment as they struggle to lure buyers, hit by rising fuel and interest rates, back into the showrooms. Car sales have crashed in recent months and companies are pulling out all the stops in their attempt to boost sales.

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The recent bout of price war was triggered by Toyota, when it launched the eagerly-awaited Etios Liva at Rs 3.99 lakh (ex-showroom, base model) in June. That was followed by Maruti, which launched an upgraded version of the Swift for Rs 4.22 lakh. It triggered an immediate response from Honda, which slashed the price of Jazz, a premium hatchback, by a hefty Rs 1.6 lakh.

The Jazz was considered overpriced at its original Rs 7 lakh tag, so buyers opted for cheaper options like the Hyundai i20 and Volkswagen Polo, according to experts. Earlier, Honda had also slashed the prices of its City model by Rs 66,000.

Of course, it remains to be seen whether wary consumers eventually jump at these festive-season offers. The cost of owning a car has increased significantly - by 12-20 percent - because of rising fuel and interest costs. Up to 70 percent of buyers fund their car purchases with loans, according to industry experts.

In a bid to ease the pressure of interest rates, some car makers have even resorted to providing cheaper finance to win over customers.Hyundai, for instance, started offering its own loans of up to Rs 3 lakh to buyers of the Santro and i10 at 5.99 percent for three years.Not to be outdone, Volkswagen has also jumped in to provide finance at 6.99 percent if you buy the Vento petrol-engine sedan.

Chevrolet, meanwhile, decided to offer free maintenance for three years - or 45,000 km, whichever comes first - if buyers paid a fixed upfront amount at the time of buying the car.

Yet, a recent report from Crisil forecast overall car sales to decline to 0-3 percent against the earlier forecast of 8-10 percent.

Given the sluggish consumer demand, it’s a safe bet to say the Eon will not be the last of the price warriors in the car market.