Future of car market . . Car makers see future in R6-8 L segment

Almost 8 models to be rolled out in price bracket as compact hatches lose lustre

With an ideal blend that targets affordability and also caters to the rising aspirations, the R6-8-lakh price segment is now the goldmine for almost every domestic car maker seeking growth in a sluggish market. Over eight new car models are being developed for this price bracket, straddling across the sedan and the UV segments, the first three of which —Honda Amaze, Ford EcoSport and Chevrolet Enjoy — will roll out in the next three to four months itself.
IHS Automotive India MD Deepesh Rathore said that customers today come to the market with a budget and only a rough idea of a target segment, so a lot of switches can happen between a sedan and an SUV depending on the deal offered. Cars priced in the R6-8 lakh bracket promise a lot of value in terms of features and space that were previously only available in higher segments. They also come with the added snob value of a 'premium' tag. “The R6-8 lakh bracket is important because a lot of people have tried A and B segment compact cars and hatchbacks and now want to move up. With increasing finance options, this price range is now within the reach of those who had been driving small cars – which itself is a big feeder market since small cars represent 60-70% of the car market,” he said.
The first two in the list, the Honda Amaze entry

sedan and Ford EcoSport compact SUV, target entirely different market segments but both are critical to the success of their respective companies, which have been in the red for the past few years and now need a success story.

Honda, which has long been lambasted for not having a diesel engine in India even as diesel car demand went up to almost 60% of new car sales, will mark the entry of its first diesel offering in India with the Amaze.
Apart from turning profitable (accumulated losses stand at Rs 259 crore today), Honda aims to make the Amaze its top-selling brand in the country and has already freed up capacity in preparation by stopping production of the Civic and Jazz models at its 1.2 lakh units a year Greater Noida plant. The Amaze will look to bring Honda back to its glory days few years back when petrol cars were in fashion and almost all its models, the City, Civic and Accord, were segment leaders.
The story is similar for Ford. The US-based car maker, which is doubling its India investments to around $2 billion with a second plant in Gujarat (first is near Chennai), currently has accumulated losses of Rs 1,344 crore and its last success story was the Figo hatchback launch in early 2010. After the new Fiesta failed to garner strong volumes, hopes are pinned on the EcoSport and rising demand for compact SUVs in India. Apart from loading the car with cutting-edge technology, Ford has already decided to use India as a base for exports to market like Europe, which will help it get the high domestic volumes required to keep prices low and competitive at home. To leave no room for any errors, Ford’s global head of marketing James Farley has also come into India specifically for the pre-launch campaign – Ford has decided to give the keys of the EcoSport to 100 prospective customer two months before the launch for their feedback.

“The EcoSport is entering a hot segment which till last year did not exist before Renault’s Duster came into the picture, the success now purely depends on pricing. The Amaze also focusses on another hot segment where the Dzire is among the top-sellers,” an industry analyst said.
Other cars to follow in the same price band include the Chevrolet Enjoy MPV (April/May launch), Nissan’s compact SUV (end-2013), Renault’s Lodgy (2015) and other small SUVs from Maruti Suzuki and Fiat. The newcomers, however, will have their task cut out as the competition today is huge in the lucrative price segment which grew about 23% in April-February FY13 to about 7.88 lakh units – the rough price segment straddles from super compact sedans to mid-size sedans and also includes compact and small utility vehicles. Among sedans, the Dzire is the leader in the lower end (monthly sales of over 15,000 units), while on the higher end of the price bracket its the Hyundai Verna (monthly sales over 5,000 units). Among SUVs in the price bracket,the Mahindra Bolero and Renault Duster are top-sellers, along with Maruti's Ertiga small MPV.

Faced with a sluggish car market for most of the year, the Rs 6-8 lakh segment also represents a huge opportunity for car makers looking for fast profits. With limited resources, analysts say that the fast-growing segment would make more sense for a car maker because margins are higher than in compact cars and one can play on scales. “If you use a small car platform and make a sedan from it, you use common parts. That helps in getting benefits of scale, so yet you can price the sedan at a certain premium and enjoy the higher margin. The segment is a good sweet spot in terms of margins and volumes,” Rathore said.