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Car mart vrooms on discount circuit

By Suveen K Sinha in New Delhi
September 27, 2005 09:08 IST

Some time ago, on a business visit to Paris, the CEO of an Indian car maker got to know that his company's arch rival had announced steep limited-period discounts on its best-selling model.

That was 10.30 in the morning, India time. By one in the afternoon, Indian news channels' tickers were screaming of comparable discounts on the competing model announced by the man in Paris.

In the end, the relative sales of the two models were largely unchanged but the two companies together had bled nearly Rs 80 crore (Rs 800 million). Such tales no longer raise eyebrows in automotive circles. Car companies are beginning to realise that what really clinches a deal is just a good deal. The appropriate market response to discounts and incentives is more discounts and incentives. A car's features and the strength of its brand are counting for less and less.

If Hyundai offers a discount on the Santro, Maruti cannot afford to merely extol the virtues of the Wagon R. It has to give comparable discounts, which it is giving.

What is more, these are not stealth discounts, which companies often gave but never admitted. These are declared, well-advertised discounts. These are not part of stock clearances, like the Opel Corsa, which is now available for the price of smaller cars like the Swift and the Getz. Even comparatively new models are being sold on discount.

The consumer, fattened on a steady diet of discounts and incentives -- cash discounts, free accessories, free insurance, free trips -- is refusing to buy without them. According to one industry bigwig, if there is no discount, consumers react as if they are being cheated. With the passenger car sales growth slowing down -- a mere 2.96 per cent in the first four months of this financial year; a 10.6 per cent decline in July -- the companies cannot take chances.

The volume must stay high to keep the factories running at viable capacities. "The auto industry is just a bunch of guys with excess capacity and low imagination," says market strategy consultant Rama Bijapurkar.

Every car is going on declared discount. The Mercedes models, Maruti Udyog's Swift and the Honda City are the only exceptions that come to mind.

Even the Indica, whose USP is diesel economy, is available on discounts to counter the incentives on petrol cars. The most curious case is of the Maruti 800, the Omni and the Alto. They do not have a rival. Yet, Maruti has to offer discounts on them to attract buyers.

"If we withdraw the discounts for three-four weeks, the customers will come back. But we cannot. We cannot afford a dip in sales," says a top executive of a leading car company. And with the leaders not taking chances, the followers ought to follow.

"It is true that brands are getting 'commoditised', especially in the volume segments. Much of that blame rests with the leading manufacturers themselves which, for the want of producing appealing products, have to lean on incentives to push sales, thereby diluting the strength of their brands," says Tata Motors senior vice-president (manufacturing and commercial -- passenger cars) Rajiv Dube.

Concedes Maruti managing director Jagdish Khattar. "Discounts have become the opium for the consumers. Those whose minds are not made up about which car to buy, just go shopping," says he.

In the midst of all this, questions crop up about the authenticity of sticker prices, which don't apply in most cases. "It is ironical that the industry keeps talking about the pressure of rising input costs and, along side, increases the discounts," says one from the industry.

And how long can this go on? Khattar, in a recent closed-door meeting with dealers, is believed to have said, "We are all compelled to spend energy and resources matching the competitor's latest move, rather than use time and patience to win a customer.... This approach is not sustainable. It is easy in the short-term, fatal over time."
Suveen K Sinha in New Delhi
Source: source