“We will have to do at least that,” Maruti Suzuki India Limited Managing Director Shinzo Nakanishi, said in an interview at the company’s head office in Hamamatsu, Japan. Suzuki’s cheapest car in India, the Maruti 800, now costs from Rs 1.92 lakh in New Delhi showrooms, according to Maruti’s Web site.

Cutting prices may help Suzuki maintain dominance in its biggest market as the company faces greater competition from Tata and foreign rivals including General Motors Corp. and Hyundai Motor Co. Other automakers including Renault SA have also proposed selling ultra-cheap cars in India, the world's second- fastest-growing major auto market.

Drop in margin
“By cutting prices, the profit margin will drop, and it may also hurt the brand image,” said Mr Koichi Ogawa, who helps oversee $28 billion at Daiwa SB Investments Ltd in Tokyo. “Investors care more about profitability than market share.” In India, automakers are spending $6 billion to increase capacity as economic growth and rising incomes make cars affordable to more people. Vehicle sales may triple by 2015 in the country, where only seven in 1,000 people now own an automobile.

Suzuki, which started selling cars in India in 1983, is relying on growth in the country and in Europe as demand wanes at home. Sales in India of the company’s Swift, Alto and other models rose 18 per cent to 336,758 in the six months ended September 30, surpassing Suzuki’s sales in Japan for the first time.

“So far, it’s been easy to maintain a 50 to 55 per cent share, because there weren’t strong competitors,” Mr Nakanishi said. “But from now on, it won’t be the case.” Tata Motors, India’s largest truckmaker, will unveil its $2,500 car in New Delhi on January 10. The yet-to-be-named model would be nation’s cheapest car and target motorcycle buyers. India is the world’s second-largest motorcycle market behind China.

Renault and Nissan Motor Co., Japan's third-largest automaker, are planning to build a $3,000 model with Bajaj Auto Ltd., India’s second-largest motorcycle maker, to compete in India. Renault, based in Boulogne-Billancourt, France, owns 44 per cent of Nissan. Suzuki won’t sell a car as cheap as Tata’s because it will be unprofitable, Mr Nakanishi said.

Spending on expanding factories in India will bring down Maruti’s net income margin, Mr Nakanishi also added. The profit ratio will fall to “7 or 8 per cent” beginning next year, compared with 10 per cent this year, he said.

Suzuki will spend 200 billion yen ($1.75 billion) to expand capacity and build a research facility in Haryana, already home to Maruti’s factories. The research facility will develop cars designed for Indian market.

Boost capacity
The company will invest an additional 200 billion yen by 2010 to raise factory capacity to build new A-Star car. It will boost output capacity by 300,000 units, increasing total capacity in India to 960,000 by fiscal 2009.
Suzuki will start exporting the A-Star to Europe next year. The automaker is counting on the new model to boost annual European sales to 420,000 vehicles from 310,000 last business year.

Maruti Suzuki will use its cash to fully fund the investments, Mr Nakanishi said adding Suzuki will build 1.2 million vehicles in India in fiscal 2009 — 1 million for India and the rest for exports.

In order to boost its Indian market presence, it proposes to increase its dealers to about 1,000 according Nikkei newspaper, reports DPA.

The company, which plans to export cars with 1,000-cubic-centimetre engines from India to Europe, initially plans no expansion of its production capacity in the South Asian country.

It’s tough road ahead now on
“So far, it’s been easy to maintain a 50 to 55 per cent share, because there weren’t strong competitors,” Mr Nakanishi said. “But from now on, it won’t be the case.”

Cutting prices may help Suzuki maintain dominance in its biggest market as the company faces greater competition from Tata and foreign rivals.