Read the caselet carefully and answer the following questions:
1. Can the ubiquitous Maruti 800, which has virtually become a generic brand in India and signifies the dream of many a not so well-to-do Indian, be written off? Justify.
2. The future seems to have many challenges in store for Maruti 8 00. What are the threats and Maruti 800? Explain.
It has survived end-of-the-road predictions for the last eight years. It can flit across the roads almost as dexterously as a bike. It goes easy on your pocket to run and maintain too. It is now showing a decline after having held the baton as the largest selling car for several years. While rivals have always been ranting that the end is near for the fuel-sipping 800, if the car's manufacturer is to be believed, the car is not going anywhere in a hurry. Quite on the contrary, Maruti Udyog Ltd is actively pushing the car in smaller towns and among indecisive motorcycle owners who can be coaxed into graduating to four wheels and who represent a 3.7 million a year market. Maruti’s offerings comprise models cheaper than Rs 250,000 and it accounts for a quarter of new car sales.
Maruti had an 83 percent share in 1998, when it was competing against only two local firms selling cars based in 1950s designs. This share considerably lessened by 2004. Maruti now faces rivalry from companies such as Hyundai Motor, Fiat, ford Motor Co., and Tata Engineering and locomotive Co. after the government liberalized the sector in 1993.
While competition from the larger ‘B segment’ cars and the company's strategy of positioning its other model, the Alto, as an alternative to Maruti 800 may have dented the small car's sales in recent months, Jagdish Khattar, Managing Director , Maruti Udyog, believes that the 800 is still the answer to the first-time car buyer's needs. And that is more true in smaller towns because in the larger metro markets, easier finance schemes have shifted customer preference towards larger cars.
Maruti is not in a position to bring down its costs. The company is pushing sales in smaller centers and rural markets with tie-ups with banks. The company already has a finance scheme tailored for farmers, which provides for six-monthly installments to coincide with crop cycles. “I believe in Dr C. K. Prahalad’s concept of finding value at the bottom of the pyramid. There is still a very large segment of our population which cannot afford a car,” says Khattar.
Maruti Udyog had already announced a ‘2599’ scheme, where the customer can take home the 800 at an EMI of Rs 2,599 per month. It recently launched its ‘Do ka Chaar’ offer for existing two-wheeler owners who can use their motorcycle as the down payment to take home a Maruti 800. Similarly, the company has launched a scheme, ‘Teacher Plus,’ with State Bank of India. The scheme entailed offering a lower rate of interest for teachers under the scheme. Khattar says that the idea behind the Teacher Plus scheme is rather simple. “Teaching is the profession that accounts for the highest number of couples working in the same organization. Their combined income is about Rs 30,000 per month. We find that in smaller places, a customer with Rs 30,000 monthly income has better spending power than one in a metro earning double that amount.” Khattar says.
Buoyed by the scheme’s success, Khattar jocularly promises similar schemes for the media and lawyers. But on the ground, the company has identified several large public sector companies and the Railways as the next target for tailor - made finance schemes. The reasoning, again, is that many of these customers would opt for the 800.
Post price reductions, which Maruti says came about due to localization and higher efficiencies, the price difference between the top-end Maruti 80 0 and the base version of Alto has narrowed down to Rs 35,000. As most cars are financed, in EMI terms the price difference comes to under Rs 700 per month. But Khattar denies that the Alto is being positioned as a substitute for the Maruti 800. “By bringi ng down the prices of Alto, we are only trying to give an alternative to the customer who may not want to buy an 800 for some reason. We are concentrating equally on both models and it is not as if one is meant to cannibalize the sales of the other,” he says.
It cannot be denied, however, that the sales volume of Maruti 800 that stood at about 13,000 last year has reduced to
about 10,000 cars per month this year and continues to slide. Alto, on the other hand, has more than tripled from about 3,000 units to close to 10,000 units a month by the end of 2004.
While Maruti is confident that the numbers for even the 800 will start rising again, auto analysts say that the country’s largest carmaker will face an uphill task pushing the car in the medium term. One of the factors, auto sector watchers say, is that the second-hand car market in the country is becoming more mature. Across the world, the used car market is twice the size of new cars. In India, the ratio is 1:1, i.e., the size of both the markets is nearly the same. In India, the second-hand car market has seen sluggish growth due to several impediments imposed by the Government. But it is obvious that the second-hand market is set to grow and Maruti has itself positioned the company as the largest seller of used vehicles under the TrueValue brand. As of now, the company has just touched the tip of the iceberg and is unable to match the supplies with the high demand. But as the market gets more organized, it could affect the sales of the Maruti 800.
Another auto sector analyst was more critical of Maruti's strategy. “They have very little regard for their existing customers and have come to be known as a company that constantly slashes prices. While the Tata's car is still on the drawing board, the market expects it to debut at about Rs 1.3 lakh. The Tatas are yet to even define the basic specs of their proposed car. But it can be safely predicted that by the time the car actually comes into the market, Maruti would be in a position to launch a stripped -down version of the 800. Their investment in the die plant has been recovered some 20 times over. They can really play around with prices when the need arises,” he said..