NEW DELHI - The launch of Telco's all-new Indica has triggered what observers here say is a long-overdue price war in India's small-car segment.
Hours before Telco, short for Tata Engineering and Locomotive Co., launched the Indica on Dec. 30, Indian auto giant Maruti Udyog Ltd. slashed prices on its three popular models, the Maruti 800, the Omni van and the diesel-powered Zen.
Maruti, which controls some 80 percent of the Indian car market, also announced the launch of a cheaper version of the Zen compact.
'We just got Maruti to reduce prices for you,' quipped Telco Chairman Ratan Tata at the Indica launch. The Indica, India's first home-grown car, was developed by Telco at an estimated cost of $1 billion, specifically to challenge Maruti's monopoly.
Telco priced the base gasoline-powered Indica at the equivalent of $6,160 suggested retail in New Delhi. The base diesel version, the DL, was priced at $6,780, the DLE at $7,020, and the DLX at $9,280.
Only hours before Telco announced its prices, Maruti cut the price of the Maruti 800 with standard shift to $4,400 from $4,990. A DX version, with air conditioning and radial tires, was reduced to $5,590 from $5,860.
The 800, which is based on the Suzuki Alto, accounts for nearly 50 percent of all Indian car sales.
Other makers fell into line.
India Auto Ltd., the joint venture of Fiat Auto S.p.A. and Premier Automobiles, slashed the price of the Uno diesel model by 34 percent, to $7,500. It also said it will introduce a lower-priced range of Uno 'Trend' models, in gasoline and diesel versions.
The price war that has now reached small cars began a year ago in the mid-segment, when Daewoo Motors India slashed the price of its Cielo by about 21 percent to counter moribund sales in the segment and to take on the just-arrived City model from Honda.
Daewoo was followed by Fiat and others, including Mahindra Ford, which dropped the price of the Escort by 12 percent. But General Motors India Ltd., which produces the Opel Astra here, introduced a new budget model rather than cut prices.
Some stiff price competition was long called for, remarked economist S.R. Mohnot, executive chairman of the Center for Economic and Industrial Research.
He said the Indian car market historically has been fairly monopolistic. Until the mid-1980s, the market was controlled by Hindustan Motors and Premier Automobiles, which produced 1950s-era cars under license. This was followed by the emergence of a Maruti monopoly, which is now being challenged, he said.
For its part, Maruti denies that its new prices are predatory.
'The car market needs stimulation and growth, and someone has to take the initiative,' said R.S.S.L.N. Bhaskarudu, Maruti's managing director.
'We have built up huge capacity and we would like to make full use of that. The passenger-car industry is passing through a very critical period, with negative growth in all segments in 1998, so we decided to stimulate growth. That's precisely the reason behind our bold step,' he said.
Shripad Bhat, assistant director of the Association of Indian Automobile Manufacturers, said the present recession will not last long. He said sales should grow 15 percent to 20 percent in the fiscal year ending March 2000.
'The price war is a temporary phenomenon, but it will lead to strong competition among the carmakers. This is going to benefit the consumer,' Bhat said. 'The time has come for a service war to provide better service to car owners. The future of a company will depend on that.'