Suzuki may cut Maruti 800 prices to compete with Tata`s 1 lakh car

Suzuki Motor, facing growing threats to its 50 per cent share of India’s car market, may cut the price of its cheapest car in the country to counter Tata Motors’s proposed Rs 100,000 ($2,500) car.

“We will have to do at least that,” Shinzo Nakanishi, managing director of Suzuki’s local unit, Maruti Suzuki India, said in an interview at the company’s head office in Hamamatsu, Japan, yesterday. Suzuki’s cheapest car in India, the Maruti 800, now costs from Rs 192,124 in New Delhi showrooms, according to Maruti’s website.

Cutting prices may help Suzuki maintain dominance in its biggest market as the company faces greater competition from Tata and foreign rivals including General Motors and Hyundai Motor. Other automakers including Renault have also proposed selling ultra-cheap cars in India, the world’s second-fastest-growing major auto market.

“By cutting prices, the profit margin will drop, and it may also hurt the brand image,” said Koichi Ogawa, who helps oversee $28 billion at Daiwa SB Investments in Tokyo. “Investors care more about profitability than market share.”

Suzuki fell 2.3 per cent to 3,370 yen at the 11 am close on the Tokyo Stock Exchange. The Topix Transportation Equipment Index declined 1.4 per cent. Today is the last trading day of the year, and the exchange closed after the two-hour morning session.

Concern about instability after the assassination of former Pakistani Prime Minister Benazir Bhutto may have contributed to today’s share decline, Ogawa said. Suzuki’s Pakistani unit, Pak Suzuki Motor — the country’s largest automaker — plans to increase production capacity to 250,000 vehicles by 2009, from 120,000 now to meet rising demand.

India sales
In India, automakers are spending $6 billion to increase capacity as economic growth and rising incomes make cars affordable to more people. Vehicle sales may triple by 2015 in the country, where only seven in 1,000 people now own an automobile.

Suzuki, which started selling cars in India in 1983, is relying on growth in the country and in Europe as demand wanes at home. Sales in India of the company’s Swift, Alto and other models rose 18 per cent to 336,758 in the six- months ended September 30, surpassing Suzuki’s sales in Japan for the first time.

The country’s annual passenger-car sales more than doubled in the past five years to 1.08 million in the 12 months ended March 31, according to the Society of Indian Automobile Manufacturers. The total is likely to reach 3 million by 2015, the government estimates.

Renault, Volkswagen
Aiming to tap the growth, Renault and Volkswagen began selling cars in India in the past two years, while Honda Motor — Japan’s second-largest carmaker — plans to unveil its first hatchback model in the country to take on Suzuki.

CSM Worldwide estimates Suzuki’s share in India may drop to 24 per cent in 2013, as cheap cars increase competition. “So far, it’s been easy to maintain a 50 to 55 per cent share, because there weren’t strong competitors,” Nakanishi said yesterday. “But from now on, it won’t be the case.”

Tata Motors, the country’s largest truckmaker, will unveil its $2,500 car in New Delhi on January 10. The yet-to-be-named model would be the nation’s cheapest car and target motorcycle buyers. India is the world’s second-largest motorcycle market behind China.

Suzuki won’t sell a car as cheap as Tata’s because it will be unprofitable, Nakanishi said.

“Demand for both Tata’s car and the Maruti 800, when prices are cut, will be immense,” said Amit Kasat, an analyst at Motilal Oswal Securities in Mumbai, who recommends buying shares in both automakers. “We need to see how much the price will be reduced and how Tata’s cars will be accepted.”

Nissan, Bajaj
Renault and Nissan Motor, Japan’s third-largest automaker, are planning to build a $3,000 model with Bajaj Auto, the country’s second-largest motorcycle maker, to compete in India. Renault, based in Boulogne-Billancourt, France, owns 44 per cent of Nissan.

Spending on expanding factories in India will bring down Maruti’s net income margin, Nakanishi also said. The profit ratio will fall to “7 or 8 per cent” beginning next year, compared with 10 per cent this year, he said.

Suzuki will spend 200 billion yen ($1.75 billion) to expand capacity and to build a research facility in the northern state of Haryana, already home to Maruti’s factories. The research facility will develop cars designed for the Indian market.

The company will invest an additional 200 billion yen by 2010, to raise factory capacity to build the new A-Star car. It will boost output capacity by 300,000 units, increasing total capacity in India to 960,000 by financial year 2009.

Suzuki will start exporting the A-Star to Europe next year. The automaker is counting on the new model to boost annual European sales to 420,000 vehicles from 310,000 last business year.

Maruti Suzuki will use its cash to fully-fund the investments, said Nakanishi. Suzuki will build 1.2 million vehicles in India in financial year 2009 — 1 million for India and the rest for exports, he said.