Jagdish Khattar. Y.S. Kim. Ratan Tata. S.G. Awasthi. The four men are peers. Each has staked huge sums of money on the same industry

Each has unequivocally established himself as one of the winners in the first round of the car wars. Between them, they control almost 80% of the Rs 30,500-crore Indian automobile market.

 Talk to them individually and you will find that all four have strikingly similar visions and share many common concerns. And each man has only nice things to say about the other three. But never, ever, make the mistake of calling them friends.

 The battle royale in the Indian car market has entered the next phase. As the dust and excitement of the dozens of new models introduced in the past one year settles down, the winners have pulled way ahead of the also-rans. One old assumption has been vindicated - that over 80% of the Indian car market is still confined to the small, sub-Rs 4 lakh models. And that mid-size and bigger models can only provide the icing on the cake, not the cake itself to any manufacturer.

But apart from that one assumption, every other assumption made about the Indian car market has been shattered over the past one year. And each of the car titans have been taught some fairly uncomfortable lessons by the Indian car buyers.

Khattar of Maruti found out that price is no longer the most important factor in winning car battles. Daewoo's Awasthi admits candidly that he learnt precisely the opposite lesson - that price does matter. Kim of Hyundai found out the hard way that you could get your pricing and value equation just right -and still land up with egg on your face if you tried to cut corners in the technology game. Ratan Tata learnt that providing an internationally-designed car with a great value proposition didn't get you far if you couldn't provide global quality standards.

Quite apart from these specific lessons that each man learnt, there were several surprises that the car market threw up. First, world-class technology and quality were considered a given now. Second, the Indian buyer had begun to expect model and engine upgrades as frequently as his US or European counterparts. Both the Indica and the Matiz had to upgrade their engines in less than one year after launch, the Honda City had to bring in both a new body and a more powerful engine, and Hyundai had to start offering a new variant with the power steering option barely a year after it hit the market.

And finally, while the manufacturers could continue to refer to it as the 'Indian small car segment', the buyer characteristics were anything but homogeneous. There were distinct groups with distinct preferences. And the days of one model becoming the undisputed heavyweight champion were over for good. 

From now on, the battle is expected to get more vicious. In 1999-2000, the car market bounced back from the recession by showing a 55.83% growth! But now, no one expects the market to grow by more than 10-15% per annum. The really big volume gains will come from wresting market share away from rivals rather than because the market itself is growing exponentially.

As the four square up for the next round, let's visit each of them to see what they are counting on to come out trumps.

Maruti: The Empire Could Strike Back
Maruti still hasn't quite got over it. Over the last one and a half years, every assumption it has made has proved wrong. Every strategy it has rolled out has backfired. And despite the fact that it has the biggest range of products, the cheapest car in the market, the largest marketing and service network and better cost structures than anyone else, it is steadily losing market share - down from 82.62% in 1997-98 to 52% today.

A small part of Maruti's problems today can be traced back to the spat its two parents - the Indian government and Suzuki Motor Corporation of Japan - had in 1997-98. But even though they patched up in 1998, Maruti hasn't been able to get its act together. The big problem: even the first-time car buyer is conclusively choosing technology over price as the most important parameter while picking up the car. And Maruti is suffering a major image problem on the technology front. Its cars - the Maruti 800 (launched in 1987), the Zen (1995) and the Esteem (1993) - are increasingly being seen as too dated to match up to the current models that the rivals have launched. Says Honda Siel Cars India's general manager, marketing, A.M. Gupta: "Sixty per cent of first-car buyers now buy from the Santro-Indica-Matiz stable and not the basic Maruti 800."

The sales numbers emphasise that point starkly. In the period April-July, 2000, while 21,824 Zens were sold, upstart Santro's sales were higher at 21,865 though the former is priced more competitively. And the Indica (18,166) and Matiz (18,035) were following closely behind. In the mid-size segment, Maruti fared even worse than last year. Its Esteem (4,977) trailed behind Ford's Ikon (6,719) and even the Hyundai Accent (5,518), though it was at least a lakh cheaper than either of its rivals. In June this year, the Esteem reached its nadir - selling only 695 cars, which was lower than even the Mitsubishi Lancer (750), though the latter cost over Rs 3 lakh more than the Esteem.

Worse, in June this year, the Maruti 800 sold barely 5,296 cars compared to the 11,000 plus per month that it had been selling for the past couple of years. Only a drastic slashing of prices (cutting sticker price by Rs 20,000) helped Maruti push back the 800's sales to normal levels the next month.

Early this year, Maruti worked out a bold new strategy to regain the initiative (see 'Traffic Jam', BW 27 December). First, it decided to introduce the Wagon R, to take the battle to the Hyundai Santro. It also introduced the mid-size Baleno to burnish its technology and premium image. And it introduced dozens of new variants to have a model offering at every Rs 20,000 price point. The calculation was that the overwhelming choice offered by Maruti would bring rivals down to their knees. So, in came variants like the barebone Zen LX, the Zen Diesel and even the gimmicky Zen Classic. In the 800 range came the Maruti 800 Ex (with better suspension than the standard version but no air-conditioning) while the Omni high-roof version was re-launched in five- and eight-seater variants. This was soon followed by Euro I and Euro II variants that had at one point in time raised Maruti's product offerings to 43 - in a market that had only 127 variants overall! So far, the variants strategy hasn't worked. 

And the company still hasn't quite figured out how to combat the falling volumes of its bread-and-butter model, the Maruti 800, without relying on price cuts. Because Maruti still depends too heavily on the 800 (in 1999-2000, 67.29% of all cars sold by Maruti were 800s). Selling large volumes of the basic 800 at wafer-thin margins helps it get the bulk of its profits, so it cannot afford any sales drops in this segment. ...Continued