India's car makers wage price war

India Dispatch: A slowing economy and rising fuel costs are putting companies such as Tata and Maruti Suzuki under pressure. They are being forced to offer discounts and cuts on already bargain-rate vehicles to keep sales from plunging.

Consumers are postponing car purchases as worries about the economy increase. Traffic jams such as this in Delhin don't help either. AP Photo

Mumbai // Car companies in India are being driven into a price war as they lower the prices of their cheapest models in an effort to boost demand. A slowing economy, high interest rates and steep petrol prices are weighing on flagging sales.

"The sentiment of the consumer is dampened and people are postponing their car purchases," said Yaresh Kothari, a research analyst on the car industry at Angel Broking. "We have seen most of the petrol variants seeing subdued sales, so that is where the discounts are higher."

Car sales in India fell for the second month in a row last month, down by 5.4 per cent to 157,536 compared with the same month a year earlier, according to data from the Society of Indian Automobile Manufacturers.

Waves of new launches and discounts are being introduced by car companies in time for the festive season in India this month, which is a popular period for big-ticket purchases among Indians.

Maruti Suzuki, India's largest car maker, on Tuesday launched the latest version of its entry-level small car, the Alto 800. The starting price of this model is 244,000 rupees (Dh16,646) compared to the previous Alto 800 model, which started at 249,000 rupees.

Meanwhile, Tata Motors is advertising savings of up to 40,000 rupees on its budget Nano car.

Tata Motors said this week that it sought to improve its images following disappointing sales.

The company is also eyeing the launch of a version of the Nano in the United States in three years. The Nano is the world's cheapest car, at just 140,000 rupees in India.

Tata's car sales in India declined by 9.9 per cent in the first quarter of this financial year, between April and June, while the overall Indian market grew by 5.2 per cent, Reuters reported.

"We will continue to look for segments where there is growth, and there's a likely pruning that will happen over time as we do that with our portfolio," said Karl Slym, the managing director of Tata Motors. "The foundations and the capabilities of an organisation that can do much better than what you've seen in the results are there."

Sales of the Nano have not met the company's initial expectations, with 215,000 of the cars sold since its debut in June 2009. Projections were for sales of 20,000 of the cars every month. Meanwhile, the price of diesel is substantially lower than that of petrol.An increase in petrol prices earlier this year prompted more customers to opt for cars that run on diesel.

"We are seeing better growth in cars in the diesel segment, mainly because of the price differential between petrol and diesel," said Mr Kothari. He added that there was likely to be improved demand for cars to a certain extent during the festive season.

"The festival season may not turn out as good as we have seen earlier in the year, but definitely the demand will be better in the festival season compared to the rest of the year."