For Big 3, the small-car scramble is a fight of 8

At least 8 new players are ready to feast on India’s small car market.

Each of them is targeting a 5-10% market share in the next 2-3 years.

While that is an arithmetical possibility, the problem is the old order — comprising the top three of Maruti, Hyundai and Tata — has around 90% of the market.

So, the scramble that’s unfolding now in small cars is unlikely to upend the positions of the Top 3 any time soon, say analysts.
Instead, the streetfight may actually intensify between the rest of the pack — Honda, Toyota, Nissan, Fiat, GM, Ford, Skoda and Volkswagen.

“The leaders’ share is unlikely to change drastically, at least in the next 6-8 months, despite the new brands coming in.  That’s because the advent of new brands is causing the small car market itself to expand,” said an analyst with a foreign brokerage, not wishing to be named.

This is quite similar to what is happening in the 100 cc motorcycles segment, where the No 2 player, Bajaj Auto, is increasing its spoils, but the pie itself is enlarging, so No 1 Hero Honda’s losses are not in a 1:1 proportion, where the sale of each Bajaj bike hurts Honda.

Mahantesh Sabarad, senior analyst at equity broking firm Fortune said the Top 3, which had a combined market share of around 92% until two years ago, will at worst lose 10-12% of their share to the new players and settle down around 80% in the next two years.

This leaves just 20% of the market for the 8 new entrants.
“So at least 2-3 players will have a gameplan where they would be content with fractional market shares. In the case of Skoda Fabia, the product has hardly managed to get the volumes and so is the case with Honda Jazz,” Sabarad said.

The new players could also get it wrong on pricing/ product/ positioning/ distribution, he said.

At Maruti, officials say they are preoccupied with issues of manufacturing and supply chain at this point, not so much with marketing and sales.

“It is really quite simple. If the market continues to grow at 15-20% as projected, then we don’t see ourselves losing any market share. But, if this fiscal, car sales grow 25-30% — which is evident from the sales trend in the June quarter — then we have no option but to cede share because of supply constraints. There is no problem in selling cars, we are selling all we make. The problem is of adequate capacities,” said a top official at Maruti, requesting anonymity.

Maruti is adding capacities to be able to make 12 lakh cars this year.

Another analyst said what we know as the ‘A2’ segment of cars — where all hatchbacks have traditionally been bunched together — is now getting sub-segmented.

“Now, it is no longer just A2. It is either A2+ (plus) or A2- (minus). Cars such as Nano, Alto, Santro, Spark are slowly positioning themselves in the latter category. Some such as the i10, Figo, Micra are midway, positioned between these two sub-categories, whereas the Jazz and Swift fall in the A2+ segment,” he said.    

The upcoming small cars from Toyota and Honda are also expected to target the A2+ segment.

“This is the beginning of the end of what we know as the pure A2 segment,” the analyst said.

The A2- segment is where cars are priced around Rs 3 lakh but loaded with features that have typically not been associated with that price bracket.

Take the Nisssan Micra, which has features such as push-button
start, electric foldable mirrors etc, even when priced at Rs 4-5.3
lakh. Such features are usually seen in more expensive cars.

The Honda Jazz is the most feature-rich compact available in India today, but is still categorised in the A2 segment.

Abhijeet Pandit, vice-president (sales & marketing) for Nissan India, says his marketing strategy is not to take on the biggies.

“We have positioned the Micra as an urban simplifier and because we are a new brand, the marketing strategy is a combination of product advertising and interactive marketing… over the next three years we are looking at 5% share of the market
with Micra and other cars in our portfolio,” Pandit told DNA.

Just in case these complications aren’t enough, Fiat India, which tasted success with the launch of Grande Punto in petrol and diesel variants last year, has identified yet another niche within compact cars — the “performance diesel” segment.

It has now launched what it calls the most powerful diesel car within its segment, the 90ps Grande Punto.

That’s a head-up on what lies in future: more sub-segmentation or fragmentation as each player tries to win a niche.