Maruti really needs to start thinking beyond low cost

You can tell the intensifying competition in the car market is getting to Maruti Suzuki: according to a report, the company plans to launch about 20 new vehicles in the next five years as it seeks to hold on to its turf as India’s largest car maker. Most of these launches will be low-cost vehicles and in the small car segment, company sources said, adding that they would also include facelifts and variants of existing models.

Earlier, the company had announced that it would invest Rs 6,000 crore to build vehicle stock yards, an R&D facility and brand centres (to showcase its offerings) over the next two to three years. In addition, the car maker has said it plans to launch a global car targeting the European and Japanese markets by 2017. It said it plans to take the help of parent company, Suzuki, in rolling out this car.

More from Business

Hyundai India’s Rs 27,870 crore IPO oversubscribed by 2.28X, largely driven by institutional investors How Indian fintech startups are driving Malaysia’s UPI-like digital payments revolution

[caption id=“attachment_72244” align=“alignleft” width=“380” caption=“Maruti Suzuki India Limited plant where workers are striking in Manesar. Adnan Abidi/Reuters”]  [/caption]

It seems like the strategic planners at Maruti have been working overtime in a bid to come up with ideas for the company to regain market share. Maruti, which controls a little less than half of the car market, has been losing to rivals, both international and local, in recent times.

At first glance, it seems unlikely that the planned new models will produce any large-scale changes in the sagging fortunes of the car company. True, launching 20 or so car models sound like a grand plan, but the point to note is that most of them are likely to be in the low-cost segment.

Impact Shorts

More Shorts

Tata Harrier EV vs Mahindra XEV 9e: Design and road presence compared

As Trump weaponises tariff, Fed sees a bigger worry: Not jobs, but rising prices in America

Maruti Suzuki is already a leader in the lower-end of the small car, also known as the compact car or hatchback, segment. Indeed, for several first-time car buyers, purchasing a Maruti car remains an extremely viable option.

The problem is that the nature of competition has changed fundamentally in recent years: because of the introduction of several models in the hatchback segment, the price gap between the entry-level models, such as those offered by Maruti, and higher-end, premium hatchback models has narrowed significantly.

In fact, the premium hatchback segment has become one of the most popular – and fastest growing – segments in the car market. This segment is flooded with models from companies wooing buyers who are more concerned with looks, design and brand quality rather than plain costs.

Because the difference between entry-level models and higher-end models in the hatchback segment has come down to Rs 1 lakh or so, primarily due to intense competition, several first-time buyers are opting to buy a higher-end car instead of an entry-level car.

And that’s where Maruti is losing out. Car companies, such as Hyundai, Volkswagen and Ford, and more recently, Toyota, have been jumping in with models for this segment, and grabbing customers away from Maruti. To be fair, Maruti also recently launched an upgraded version of its very popular premium hatchback, Swift, in a bid to fend off competition, but that might not be enough given the slew of models lined up for launch by other companies in the coming months.

A recent Credit Suisse report notes that while demand from entry-level car buyers slumped due to high interest rates and high fuel costs, buyers continued to demand higher-segment cars. “We believe the next few years will see no respite in competition for Maruti as competition spreads out to the sedan segment and then to the medium and entry-level hatchback segments,” the report notes.

Indeed, companies like Hyundai are planning a debut in the entry-level car market to directly compete with Maruti.

In other words, Maruti needs to start thinking beyond entry-level and low-cost cars, and increasing the number of such models. Besides, there’s only so much you can do with a small car in terms of design. In all likelihood, most of the new models will be mildly-tinkered versions of existing models.

Moreover, there’s also the question of how the company will manage an unwieldy product portfolio of more than 30 plus vehicles. One possibility is that it might eventually phase out some older models.

All in all, it’s safe to say that things will only get tougher for Maruti, which witnessed a sharp 26 percent drop in sales in July (partly due to a worker strike and production cuts in June).

A change in strategy might be required, rather than a mere expansion in product portfolio.