FCA finding its way with a Compass?
31st Jul 2017 10:58 pm
A look into the Compass killer pricing and its impact in the market.
To a collective gasp and cheers from the hall, Kevin Flynn, president and managing director, FCA India, announced an ex-showroom (Delhi) price of Rs 14.95 lakh for the Jeep Compass. What kept the excitement going was the announcement of an equally aggressive Rs 20.65 lakh for the top-end model.
After the pricing debacle of the Grand Cherokee and the Wrangler, and the Group's continuing lack-lustre performance in India, a value-for-money deal was always on the cards. So, just how did Jeep arrive at the killer Compass price? We take a look at some of their carefully planned moves and the little bit of help from lady luck.
Brand strength or rather the lack of it made FCA take an all-or-nothing approach with the Compass. Jeep has a fair share of brand recall in India, not all of it associated with high quality vehicles, but even for those in the know, FCA’s subpar service support was always going to weigh it down.
With abysmal sales, a line-up based on two aging cars and nothing new on the horizon, the Fiat brand is also far from confidence inspiring. Thus, Fiat-Chrysler was in no position to price the Compass at a premium. Anything close to competitors like the Hyundai Tucson would mean quite a few customers would look away.
Localisation & volumes
Make local and export global; this combination has greatly helped FCA meet its target price. The Compass has a high localisation level of around 70 percent and, furthermore, with India set as the production hub for all right-hand drive markets, FCA has a greater price-volume benefit as well. The company is targeting a production of 47,000 units in the first full year of production. Of these, 25,000 units will be exported while the balance will be for domestic sales.
While the company was always working towards an aggressive price target, a little luck came its way in the form of GST. The new tax structure meant that SUVs were now priced a good 12 percent lower, something that Fiat say certainly helped.
Interestingly, at the announcement conspicuous by its absence were the words "introductory pricing". Speaking to Autocar India, Flynn said, “We debated using (the word) ‘introductory’, but I really did not want to; it dampens the mood and we are really focussed on maintaining the price, quality and cost goals.” Thus, while the Compass pricing can be hiked, it’s likely to stay super competitive for a while. What will help Jeep achieve this is the localisation level that the company says is yet being increased from the current 70 percent.
The pricing effect
SUVs are typically costlier to produce but they also have prices set slightly higher due to the aspirational premium tag associated with them. But with the super competitive price of the Compass and a similar approach expected with the Renegade, a rework of the SUV equation in India is likely.
The Compass competes squarely against the Hyundai Tucson but it undercuts the Korean SUV by a good margin. The base model is cheaper by over Rs 3 lakh! Hyundai has traditionally been the price-value leader but with increasing brand strength, the Korean firm has slowly moved up the price ladder. The Compass pricing will surely have Hyundai plotting some counter moves.
Oddly enough, another competitor likely to be affected is Mahindra. Having licence-produced Jeeps in India, Mahindra is often associated with Jeep, and the word itself has now come to define a vehicle category. With the Compass pricing competitive against even the XUV 500, and the Renegade all set to go deeper into Mahindra territory, customers could likely see the American firm as the ‘real’ Jeep option, thus posing stiff competition to M&M’s models.
Yet another competitor about to be affected is the yet-to-be-launched Captur. To be competitive, Renault’s upcoming SUV needs a price below the Compass but sufficiently away from its own Duster which currently tops out at Rs 13.45 lakh, ex-showroom, Delhi. The Compass pricing is thus likely to have an effect on not just the Captur but the Duster as well.
With the Compass pricing, FCA has certainly sounded the war cry and the 5,000 bookings the vehicle has received prior to the price announcement are only set to get bigger. What remains now is for the company to deliver on the ownership experience, as with a refreshed network, competent product and killer pricing, the wheels to FCA’s resurgence have certainly been set into motion.