With the intense small car price wars, will the new entrants actually make any money at all?

Without the certainty that can only come from being privy to their Profit & Loss projections, I would have to say no. Well, then, you ask – what are they doing here? The answer, actually, is quite simple – betting on the future.

If the Chinese market has proven one thing, it’s that an early mover advantage can pay massive dividends in an emerging market. India may not be the fastest growing market, but certainly it’s one of the key emerging markets/economies in the world. As a result, the various global car majors are willing to do whatever it takes to gain a foothold today – to ensure that they aren’t left out tomorrow.

And, because small cars make up 80% of the Indian market, that’s where the action is really hotting up. 2010 alone has seen the launch of the Chevrolet Beat and Ford Figo – starting at as little as 3.5 lakhs apiece. And, for not much more, you can now also have the VW Polo, which was recently crowned the European Car of the Year. The new Nissan Micra will soon join the race – followed closely by brand new challengers from its compatriots, Toyota and Honda.

The market dynamics being what they are, I doubt even the manufacturers themselves expected quite this level of price competitiveness. India is inherently price sensitive yes, but really it was the Nano that set things off – in terms of proving what can truly be achieved through innovative engineering and extreme cost cutting. Thereafter, it’s been a case of doing whatever it takes to really compete with the dominant player in this market, Maruti Suzuki. Needless to say, taking on Maruti on price isn’t easy – they’ve had decades to perfect the art of building economical cars (and trust) in this market. And while they too are expanding their manufacturing and R&D facilities, they’ve had plenty of time also to offset the majority of their fixed costs – something that the new entrants can’t even begin to consider in light of the thousands of crores that each have recently invested in new facilities.

So what are these new players doing to keep their heads above water? Well, for starters, they’re putting in as much local content into their cars as possible. Secondly, they’re going to try and manufacture as many cars as possible to achieve economies of scale. And thirdly, they’re just going to hope and pray that the market expands fast enough to accommodate each of them.