New Delhi: Auto makers are resorting to aggressive pricing to race ahead in India’s increasingly competitive small car market. Price announcements are now as closely watched as the cars themselves, prompting analysts to wonder how profitable these ventures would be in the short term.
Ford launched its small car, the Figo, on Tuesday at its lowest priced version just below the psychologically important Rs3.5 lakh mark—at Rs3.49 lakh. The company said low price levels are here to stay. “We’re all learning to compete at lower price points,” said Joseph Hinrichs, president (Asia-Pacific and Africa) at Ford Motor Co. “We will make money on this product.”
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Local sourcing of parts has helped Ford keep the price low. The company said 85% of the Figo will be made of parts manufactured in India. This will also reduce maintenance costs for customers—a key barometer of competitiveness in this segment.
Ford is not alone. A number of companies in the segment of small cars—defined as cars under 4m in length with an engine capacity below 1200cc—are enticing consumers with teaser prices. Small cars make up 70% of car sales in India.
Ford’s rival General Motors Co. (GM), which launched its Beat model in January, started pricing at Rs3.34 lakh. The firm says it has received 17,000 orders in the last two months.
GM expects it to help realize its target of cornering a 10% market share by next year.
In February, German car maker Volkswagen AG’s (VW) Indian subsidiary entered the small car segment with the Polo hatchback. Pricing starts at Rs4.34 lakh and the company has received 1,500 orders.
“I don’t think they’ll make money initially. They’re all playing the market share game,” said Jatin Chawla, an analyst at IIFL Capital. Unlike Ford, GM and VW are circumspect in replying to questions about the profitability of recently launched small cars.
“That’s difficult to answer,” said Neeraj Garg, director at Volkswagen Group Sales India Pvt. Ltd. But he said the company would hold firm on these prices in the foreseeable future.
The Polo has only 50% local content. Analysts say the company could reduce its price as it adds more parts made in India. GM points out the price announced for the Beat was for a limited period and should be revised soon. “The aim is to gain market share and gradually increase prices,” said P. Balendran, vice-president of corporate affairs at GM India.
However, India’s top three car makers—MarutiSuzuki India Ltd, Hyundai Motor India Ltd and Tata Motors Ltd—are staying out of the price war. Analysts say they have high brand recall and a dealer network that the newer entrants cannot match.
The next round of small car launches is expected towards the end of the year, when Honda Motor Co. Ltd and Toyota Motor Corp. launch hatchbacks designed and engineered for the Indian market.
Honda has already said it won’t play the price game, while Toyota is tightlipped.