Launch flurry + slowdown = price war looms in Motown

A price war seems imminent in passenger cars, with a raft of launches due in the next few weeks amid a deepening slowdown in Motown.

There are three major launches in the next fortnight: Toyota’s first hatchback in India called Liva, Ford’s new Fiesta sedan and the Chevy Beat diesel variant.

Pramod Kumar and Himanshu Sharma, analysts with broking house JM Financial, believe this puts Maruti Suzuki on notice.

Two of the three launches are in the hatchback segment, the dominion of India’s No. 1 carmaker. And the Beat diesel will come with a 24 kmpl fuel efficiency, positioning itself as perhaps the cheapest in the segment excepting Tata Indica.

Vikas Khemani and Nischal Maheshwari of brokerage Edelweiss Securities concur.

Apart from macro headwinds, they said in a note, Maruti would find it tough to clock healthy volumes against a robust pipeline of launches this fiscal.

“Though the price of Liva is not yet known, according to Toyota, it would be competitive, offering good value for money. In our view, it should match Maruti Swift in price (Rs4.1 lakh ex-showroom Delhi),” Khemani and Maheshwari said.

“GM may price the diesel version of the Beat very aggressively to revive the brand and in the process, make the car the benchmark entry-level diesel. We expect pricing to start at Rs4.2 lakh, ex-showroom Delhi,” said Kumar and Sharma in their note to clients.

Whichever way you look, automakers said, the headwinds are getting stronger.

Growth in car sales is already tapering and year-on-year growth has fallen from 30% in January to just 7% in May, points out Neeraj Garg, director (member of board) of Volkswagen Passenger Cars Division.

“Indications are June will be even lower than May. The sentiment is subdued and the fuel price increase is unlikely to improve matters,” Garg said.

To boot, launches have also helped new entrants garner substantial sales volumes — the reason why analysts say the signal has turned amber for Maruti.

The last four hatchback launches — Ford Figo, Volkswagen Polo, Chevy Beat (petrol) and Nissan Micra — have quickly cornered 18% of segment volumes, Kumar and Sharma said, which indicates many customers easily shift away from well-entrenched brands.

The new Ford Fiesta, which promises to liven up the sedans segment with a rash of new features, is expected to offer a class-busting mileage of over 23 kmpl for the diesel version.

Mahantesh Sabarad, senior vice president - equity research, at Fortune Broking said aggressive pricing will certainly hurt dominant players like Maruti and Hyundai.

“Normally aggressive pricing is seen when a market grows. Manufacturers are hoping to gain some momentum with price aggression in a time of demand correction,” Sabarad said.

Such aggressive pricing helped Hyundai achieve great success with its stylish Verna Fluidic, which has notched up over 12,000 bookings in a matter of months.

Not surprisingly, sedan king Honda had to respond as sales fell. What did it do? Slash prices.

All this has meant margin pressure is becoming the buzzword among automakers.

“There is huge pressure because companies are adopting different aggressive strategies to increase their pie,” said an analyst with a domestic brokerage, who did not want to be named.

“Both Toyota and Honda are entering a completely new segment with Liva and Brio. They’d surely want a big splash and pricing is crucial to that. Rising competition in hatchbacks dented Maruti’s market share 2% in the last fiscal. The trend could accelerate,” the analyst said.

But Gaurav Dua, head of research at broking house Sharekhan, said that’s easier said than done. “Maruti will try like hell to maintain its spoils given the brand loyalty and also the low cost of ownership of its products,” he said.

It’s one helluva fight breaking out on Auto St.