Ertiga sticker-shock for Maruti’s rivals

As sucker punches go, this is the one that rivals feared the most: a segment-opening vehicle with fantastic utility value at a killer price point.

On Thursday, Maruti Suzuki left automakers of various hue in cold sweat by pricing the Ertiga such that an array of vehicles — some its own — have come under its crosshairs.

It announced an introductory price of Rs5.89 lakh for the base model seven-seater, saying petrol variants will come for up to Rs7.30 lakh, while diesels will cost between Rs7.30 lakh and Rs8.45 lakh, ex-showroom Delhi.

“It’s an absolute killer price. It will cause havoc. All cars and MPVs (multi-purpose vehicles) in and around that price segment will feel the heat from the Ertiga,” said Hormazd Sorabjee, editor of Autocar India. “It will hit everything from Maruti’s own DZire and other sub-10 lakh saloons to the Xylo and even Innova,” said Sorabjee, who has chronicled India’s automobile story for the last 25 years.

VG Ramakrishnan, director with Frost & Sullivan, said the Ertiga will cater to people who find the Xylo too big and the Innova too expensive.

“In 2010, when the market moved from Euro III to Euro IV in 13 major cities, the Chevrolet Tavera, which was the only vehicle in this price segment, stopped selling, leaving a gap where vehicles like Ertiga come in,” he said.

Maruti says it does not want to target the taxi segment, but may have already done so.

“The Ertiga will be very tempting for fleet operators too,” said Ramakrishnan.

Carmakers have oft tried to position their offerings as family-oriented.  “But the point is, around 65% of families in India are nuclear.  The Ertiga could see more interest in the semi-urban or rural regions where families are bigger,” said Ramakrishnan.
Maruti aims to sell 4,000-5,000 Ertigas a month.

Expect the carmaker to blast past that mark, said an analyst with a local brokerage.

But the flip side to the aggressive pricing is, will the carmaker make big money from it?
On an average, Maruti’s margins are 8-10% per vehicle, he said. Maruti’s Ebitda or operating profit margins had slipped in the third quarter due to yen appreciation.

“With the Ertiga, too, given the size of the vehicle and the pricing, margins would be around 8-9%. So it must be banking on volumes to get the profit growth number it wants,” the analyst said.
India’s utility vehicle segment has been growing at 15%. Analysts said the Ertiga will take that number to a higher inflection point.

This will have twin benefits for Maruti, said Abdul Majeed, partner and auto practice leader at PricewaterhouseCoopers.
“With the launch of Ertiga, while on the one hand Maruti Suzuki is set to benefit from the growth in MUV segment on the other hand it is weaning off total dependency in the small car segment,” he said.

Based on the Swift platform, Maruti spent around Rs430 crore to develop the Ertiga over the last four years.