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Maruti price-hikes take market by surprise

Veeresh Malik in New Delhi

Maruti Udyog Limited has raised the prices of five models today.

Maruti-800 standard will cost Rs 10,000 more (ex-factory), Maruti-800 Ex Rs 6,531 more, Maruti-800 DX Rs 7,062, Maruti-Zen LX Rs 8,000, Maruti-Zen VX Rs 4,001.

At the same time, MUL has also decreased the price of the Zen diesel by Rs 3,920.

Industry analysts say the price-hikes are bound to attract attention of other car-makers in the country.

MUL officials were unable to provide any comments as to why the price-hikes were effected.

In one sense, the price-hikes are inexplicable. For they come at a time when minor cash discounts are being offered on the Zen VX and some versions of the Maruti-800. But these are mostly by way of inter-dealer competition and inducements to satisfy already committed customers.

However, dealer reports suggest that with the increase in prices come higher discounts too!

For instance, the Esteem now comes with cash discounts ranging from Rs 40,000 to Rs 45,000. Discount on the Omni is Rs 7,000. The recently launched Maruti Classic is not exactly setting the highways on fire. So, in effect, the price hikes have been on models which could be called "popular".

But is that the only reason why these prices have been hiked now?

September is traditionally a month for high sales on account of "depreciation". This September, in spite of record buying in July and August, high sales are likely to continue. The first fornight has seen a lemming-like rush towards the small hatchback segment that makes up 92 per cent of all car sales in India. It is anticipated that sales this month would cross the 60,000 mark.

It was in December 1998 that Maruti slashed the prices in a sensational way, hours before Telco announced the prices of its Indica. Nine months is a long time in the auto industry; so, in this context, today's price-hike is an overdue technical correction.

This is a price-hike which the market can and will bear without much ado. One school of thought has it that a small price increase will jerk the market into frenzied buying in anticipation of a larger increase in the near future.

The price-hike could bring joy to a certain type of buyer. The new car market in India is to a large extent controlled by "investors" who have traditionally 'played' Maruti cars, especially the smaller ones. For them, cars are a commodity that has to be bought and hoarded.

Small car manufacturers are currently selling all they produce, and it is obvious that all of them can effect modest increases in prices without impacting sales very heavily. At the same time, the investor-buyer, who comes into his own in times of scarcity, starts 'playing the market' for all it is worth, to generate extra margins brought on by price increases like the one effected today.

Rumour is that the high sales in July and August 1999, especially of Maruti cars, were, to some extent, generated by 'wholesale buyers' of small cars. When all of these did not actually sell to retail buyers, a small increase in price was essential to 'jerk' the stored cars forward. Registration data is unavailable in India and the term "sale" is often defined by manufacturers to mean "despatched from factory".

A dealer in New Delhi says that today's price-hike may be a way to "soften" the impact of the planned September-end launch of multi-point fuel injection model of the Zen.

Today's raise is likely to spur sales. Analysts say other small car manufacturers may now be emboldened to follow suit.

But it is easier said than done. Hyundai has economies of scale in the production of the Santro. The company has to price the planned Hyundai LC at a price sufficiently distant from that of the Santro to prevent overlapping. In such a situation, Hyundai, already eager to beat the Zen in the monthly numbers game, may be expected to spring a surprise too.

The larger cars, meanwhile, slug it out amongst themselves amidst falling sales.

In the next few months, Maruti may, just may, cease to be the "market-maker" it has been all these years. The Zen is likely to be overtaken by the Santro. The mid-sized Esteem is facing severe competition from several companies.

''Today's price increase could be a tactic to increase discounts or a means to nudge the competition into increasing their prices," says one analyst. Apparently, Maruti stands to gain if other car-makers follow suit. How? "If others also raise prices, then MUL will strike back with the MPFI Zen at nominal or very low increase."

With opinions flying about in the marketplace, everything seems within the realm of speculation.

The writer is a Delhi-based motoring correspondent. His email address is veeresh@vsnl.com

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