Maruti’s hatchback share hasn’t been dented yet

Fears over Maruti Suzuki India losing its grip over the domestic passenger car market due to intense pressure from competition may be exaggerated, at least for now.

Despite a flurry of new launches across the hatchback segment - Honda Jazz, Tata Nano, Chevrolet Beat, Ford Figo and Volkswagen Polo since April 2009 - Maruti’s hatchback market share remains virtually unaffected.

The country’s largest car maker did see market share fall below the 50 per cent mark around April in the A2 segment though.
Seven out of 10 cars sold by Maruti fall in this segment and the decline around April this year was because of about 25 per cent fall in the sales of flagship model Alto due to new emission norms kicking in. But Maruti has gained back share now to settle at well over the 50 per cent mark.

Sachin Gupta of HSBC Securities and Capital Markets, in a recent note said Maruti has begun to regain market share whereas “market share loss has been higher for Tata Motors and Hyundai Motor India”.

But while Maruti has maintained its grip over the market, profitability has taken a beating. As per Batliwala and Karani, sustained competitive intensity is bringing about a “sustained downward shift in profitability. We believe that among listed names, Maruti is more vulnerable to commodity price increases…export profitability will also be lower due to the strengthening rupee and drop in exports to Europe”.

Meanwhile, now that new launches from competition have lessened, Maruti is lining up CNG launches and together with a bit more pricing power, things look good for the country’s largest car maker. Executive Officer (Marketing & Sales) Mayank Pareek says Maruti has been able to retain market share because it held fast to three core values: value-for-money, trust and reliability of the product and styling.

“We have always been able to provide the lowest cost of ownership in cars and now, even in the styling aspect we have matched competitors”.

According to HSBC’s analysis of Maruti WagonR, Chevy Beat and Ford Figo, the cost of spares needed for the Figo is about 25% higher and for Beat about 40% higher than the WagonR while both the cars score much lower than the WagonR in terms of residual value (resale).

Pareek said that aggressive competitive pricing of hatchbacks has not been able to shift Maruti’s focus from providing overall value-for-money. The company is yet to conclude negotiations with commodity vendors for raw material supplies this fiscal but it is possible that Maruti could go in for another round of price hikes if input costs continue to remain high. On supply constraints, Pareek said that the waiting period for the Dzire is down from six months earlier to three months; Swift Diesel is available after 8-12 weeks whereas the petrol variant comes within a month.