The cost of a car, especially a small car, matters a lot in India. This is a truth that other carmakers, except Honda and Skoda, seem to have learned

We have been hearing a lot of noise about every automaker's wish - or plans - to enter the small car market in India. Although some foreign carmakers have ventured into the market, they are finding the ground realities, like the price sensitivity of an Indian buyer, the biggest hurdle to overcome.

Take for example, Honda Siel Cars India Ltd (HSCI), which is finding it difficult to sell its pricey Honda Jazz in the crowded compact car (A2) segment, while other low-priced cars are selling like hot cakes.

During August 2010, the total sales of A2 cars in the domestic market rose 27% to 116,558 units from 91,539 units a year ago, according to data provided by the Society of Indian Automobile Manufacturers (SIAM). The biggest gainer in terms of volume, during the month was, surprisingly, Ford India Pvt Ltd, which sells its Fusion and Figo variants in the compact car category. During August, Ford sold 6,382 units in the A2 segment from 47 units the same month a year ago, on the back of its newly-launched small car Figo. Ford has received about 34,000 bookings for Figo since its launch in March.

Similarly, new entrants like Volkswagen and Nissan also witnessed good sales in the A2 category during the month. While Volkswagen sold 3,211 units of its Polo, Nissan sold 1,182 units of its newly launched Micra in August.

Three carmakers were losers in terms of sales in the A2 category - Fiat India Automobiles Pvt Ltd, Tata Motors and HSCI. During August, sales of Fiat, which is handled by Tata in the country, fell by 44.7% to 1,012 units from 1,830 units. Even Tata Motors, the country's biggest vehicle maker, could not arrest sales of its famous Indica from falling. During the month, sales of Indica fell 21.5% to 7,531 units from 9,598 units a year ago.

While variants from Fiat and Tata are relatively older and hence could have lost their sheen, for Honda it was the higher price that put the spanner in the works. While all variants from other carmakers in the compact car segment are available between Rs3.72 lakh to Rs7 lakh, the price of Honda Jazz starts from Rs7.56 lakh.

The Indian customer, more sensitive to price-related issues, seems to have simply ditched the Jazz for more lucrative and low-priced offerings from other carmakers like Ford, Volkswagen and Nissan. New launches by Maruti Suzuki India Ltd, the country's largest carmaker that is famous for its 'value for money' cars, also played their role in curtailing the growth of the pricey Jazz.

While Volkswagen's Polo was gaining ground in terms of sales, its other subsidiary, however, had to face a fate similar to Jazz. Reason? Again higher price. Fabia, the offering from Skoda India is priced between Rs4.86 lakh to Rs7.62 lakh. Compare it with the prices of other top selling compact cars, which ratify the low price and higher sales theory.

Ford's top selling car Figo is available for Rs3.72 lakh to Rs5.59 lakh, ex-showroom Mumbai, while VW Polo and Nissan Micra are priced between Rs4.34 lakh to Rs6.70 lakh and Rs4.13 lakh to Rs5.59 lakh, respectively.

In order to regain market share and attract new customers, Honda has to seriously rethink on its price strategy. Despite able and good support from the Tata team, Fiat is still finding it difficult to maintain its sales momentum. Maybe Fiat also needs to revisit its pricing policy, especially for its variants in the compact car segment. As far as Tata Motors is concerned, can we have some new models in the A2 segment before someone starts comparing Tata Indica to the everlasting (and unchanging) Ambassador from Hindustan Motors?