Ultra Low-Cost Cars To Wait As Tata, Hyundai, Maruti, Ford, Gm Focus On Small Car Segment

Online, August 11, 2011 (Newswire.com) - MUMBAI/DELHI: The Tatas swear by it, the Detroit giants have for now given up on it, and the top 2 in the Indian car bazaar see a future beyond it. Don't look now, but blueprints for an ultra low-cost car (ULCC) under Rs 2 lakh - championed by the Tatas with the much-touted Nano - are under various stages of modification at the research centres of various manufacturers.

Even as it attempts to push up sales of the Nano, Tata Motors is working on Plan B: it is close to showcasing a car positioned a step above the Nano and below compact bestseller, the Indica. No 2 in India Hyundai is working on a model that will be priced below its cheapest car in the country, the Santro, but above the Nano.

And leader Maruti Suzuki has two irons in the fire -a revamped Maruti 800 that will be pitted directly against the Tatas' ULCC; and another - the first indigenous car Maruti will develop fully in India -that will occupy the space between the Nano and the Alto.

Meantime, Ford and General Motors have taken the ULCC off their drawing boards; and Renault India, which had plans to build an affordable car with Bajaj Auto and Nissan, is in no hurry to launch anything soon. The foreign majors feel they're better off concentrating on what they know better - premium compacts. For, this is a segment first-time customers are aspiring for and, in the process, bypassing the no-frills space.

There's clearly plenty of activity and jostling for space at the lower half of the auto pyramid. Manufacturers are spending sleepless nights figuring out price points, features and positioning tactics in the low-cost segment.

Their biggest dilemma: Should one attempt to make ultra low-cost cars, or should the focus be on affordable but snazzy cars that will be driven out by consumers with higher disposable incomes and burgeoning purchasing power?

"The aspirations of car buyers are moving the Indian car market upwards to bigger hatchbacks, but there will always be demand for ultra low-cost cars," says Hormazd Sorabjee, editor, Autocar India. Sorabjee adds that cost targets in building an ULCC are extremely challenging which makes this segment the most difficult to enter.

HOLY GRAIL FOR CARMAKERS

"But the bottom of the pyramid has huge volumes and very few players, which is why it's still the holy grail for carmakers," he explains. Carmakers like Maurti are taking no chances, preferring not to err on either the side of engineering frugality or consumer aspirations.

Maruti is working on revamping its one-time mainstay, the 800, to make it comply with the latest emission norms and more spacious; this model will be priced under Rs 2 lakh, and pitched headon against the Nano, whose various models are priced between Rs 1.5 lakh and Rs 2.11 lakh ex-showroom in Mumbai. (Currently the Maruti 800 is only available in tier 2 towns where emission norms are less stringent.)

But Maruti also has another small car in the works that will straddle the space between the Nano and the Alto (whose base model has a price tag of well under Rs 3 lakh).

"It is not a replacement for the Maruti 800 but a totally new car with a new shape and design," points out a senior Maruti executive on the condition of anonymity. Korean major Hyundai has similar designs; it is set to launch an 800 cc small car branded 'HA' in November in the price band of Rs 2.3-2.8 lakh. The HA will compete against the Alto and be priced below the Hyundai Santro.

The Santro has a price tag in the range of Rs 3.25 lakh to Rs 4.34 lakh. "We do not have the technology for a ULCC and we do not think it will be viable. Our new car will not compete with the Nano," says Arvind Saxena, director, sales & marketing, Hyundai Motors India.

So where does that leave the Nano, which has still to get its act together? After sales peaked at around 10,000 in April 2011, they had once again dipped to 3,260 in July. This makes Tata Motors' expectation of sales of 20,000 per month by December almost a pipedream. Officials of Tata Motors are hopeful that the Nano will pick up once interest rates and fuel prices fall; and once the distribution part of the game is figured out.

Executives working on the Nano project point out that the company is focusing on increasing the car's reach in tier-II and III markets. Some 300 exclusive Nano dealerships will be set up in the current fiscal. A diesel version with high fuel efficiency that is on the cards will also help boost sales.

"The Nano has a lot of potential and the Tatas have the first-mover advantage. They are going through a learning curve and have to focus on understanding the Nano consumer," says Sorabjee. Yet, the Tatas might well have a fallback plan in place. Industry experts point out that Tata Motors has started work on a platform that is larger than the Nano called Dolphin.

"Tata is close to showcasing a car bigger than the Nano," says an Ahmedabadbased supplier of Tata Motors. Company officials declined to comment. The global majors in India for their part have put their ULCC plans in cold storage.

The view at Ford is that since more than half of its buyers of premium hatchback Figo in July were first-time buyers, consumers may well be in a position to bypass the ULCC segment.

"We do not have any immediate plans to bring products in the ultra low-cost segment. A significant proportion of our products to come will be positioned in the volumes segment that contributes to 70% of industry sales," says Michael Boneham, MD, Ford India. Ford's Detroit neighbour feels the same way.

"We are not working on the project anymore and there are no plans to introduce any ultra low-cost car now," says Karl Slym, MD, General Motors India. In mid-July, reports surfaced that Bajaj Auto had shelved a project to develop a ULCC in India with Renault, saying it was commercially unviable.

"We have not seen the car or any prototype yet and there has been no confirmation from the Indian company on any ultra low-cost project. If in case there is any product developed and shown to us, we will only move ahead if it confirms to Renault's global standards and if the quality of the product matches our DNA," Renault India managing director Marc Nassif had recently told ET.

One little known local player, International Car & Motors Ltd (ICML), which makes multi-utility vehicles, has also bid adieu to its ULCC dream. "We shelved our plans to make a micro car as the initial feasibility reports suggested that customers do not have a fancy for low-priced cars. They want premium features; rather than price, they are fixated on quality, styling and luxury," says L D Mittal, Chairman, ICML.

It's now up to Ratan Tata to prove to the world that the ULCC still has a worthy place in the sun. For now the priority is to clear unsold Nano stocks. To that end, many leading Tata Motors dealers across the country have started offering schemes to customers over and above the ones offered by the company.

"We started offering lower monthly instalments and down payments to lure customers. We had no choice as we are losing sales and interest costs on the inventory," says a leading Mumbai-based dealer.

Tata Motors can do with some help from its dealer network but in the longer run it has to prove that Indian consumers - tens of thousands of them - want to drive an ULCC. For the moment, they are alone on that road. Visit http://vcommindia.com