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Toyota Motor’s new small car adds pressure on Maruti Suzuki

Toyota Motor’s new small car adds pressure on Maruti Suzuki
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First Published: Tue, Jun 28 2011. 10 24 PM IST
Updated: Tue, Jun 28 2011. 10 24 PM IST
It may have taken some years in coming, but Toyota Motor Corp.’s decision to launch its Etios Liva compact car at an aggressive price is sure to alter the competitive dynamics in the Indian small-car market. At Rs 3.99 lakh (before taxes), it is a tad less dearer than Maruti Suzuki (India) Ltd’s Swift, the most popular car in the category.
Sure, Toyota Motor is planning to sell only 3,500 units per month for the rest of this year and won’t topple Maruti from its pole position overnight. But the world’s largest car maker enjoys tremendous brand equity in India; one only needs to look at the waiting list for its Etios sedan.
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Thus, its entry into the populous compact-car segment couldn’t have come at a worse time for the local market leader. After just about holding on to its market share in this category in the last fiscal, Maruti has seen sales shrink this fiscal, too. In April and May, the company’s volumes grew 6.23%, about half the pace of the overall passenger car market.
As it is, car makers are faced with Hobson’s choice. Car sales growth slowed to a two-year low as rising interest rates and higher fuel prices made prospective buyers defer purchases. Slowing demand has also forced car makers to offer discounts and slash prices, with inventories piling up at showrooms. This has come at the cost of squeezed margins and declining profits.
Maruti is facing heightened competition, and none more so than in the compact car segment, as more firms such as General Motors Co. and Honda Motor Co. Ltd plan to introduce new models. Note that after the 13-day strike at the Manesar factory, where Maruti produces some of its best-selling models such as Swift, Dzire and SX4, analysts have cut earnings forecasts for the company for this fiscal.
So far, Maruti has pursued a strategy of increasing sales and holding on to its market share, while operating margins have fallen for four straight quarters. But with the company slashing its sales growth target for this fiscal to 8% from 13% earlier, another round of earnings downgrades is around the corner.
While the scrip may have bounced back from its 52-week low, the expected downgrades will put further pressure on the stock for some more time.
Graphic by Yogesh Kumar/Mint
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First Published: Tue, Jun 28 2011. 10 24 PM IST