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The road ahead for Compact SUV market in India

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With the advent of vehicles like Mahindra Quanto, Premier Rio and Renault Duster launched in the country, the Compact SUV market is making a name for itself with more and more consumers moving towards this segment. Claiming to give an experience of both the worlds; a compact premium hatchback and an entry level sedan, the makers of these SUVs are pitching the product to appeal to a younger, professional and lifestyle oriented users. Why is India late in bringing this segment on road? And what is the future? Pitch finds out.

Vivek Nayer, CMO, Automotive Division, Mahindra & Mahindra

Vivek Nayer, CMO, Automotive Division, Mahindra & Mahindra

According to Vivek Nayer, CMO, Automotive Division, Mahindra and Mahindra, the brand that launched Quanto two months back, says that Mahindra is trying to create a new segment as the market for compact SUV was non-existent in India. He explains that this segment will appeal to hatchback owners, entry level sedan owners and SUV owners as well. There are areas and scope for improvement in each of these segments. For example, he says hatchbacks are compact, have decent mileage and have easy manoeuvrability but do not have the presence, high ground clearance or the space of an SUV. “We believe that the compact SUV is the best of both worlds, it allows the user to get the feel of both the worlds. It is compact from the outside, easy to manoeuvre in the city, and at the same time spacious from the inside,” adds Nayer.

Change to compact
Umang kumar, Co-Founder and CEO Gaadi.com affirms that the segment has gained popularity, but only over the past few years in India. “People in India now indulge in more outdoor activities compared to the past. This is the result of growing disposable income. For an average Indian family, a compact SUV makes sense because for its optimal proportions, practicality, usability, fuel economy and cost of ownership,” he adds.

But why are home grown brands coming out with compact SUVs now? Auto makers like Tata Motors and Mahindra & Mahindra have been making entry-level SUVs in the past. According to Kumar these products lacked the comfort and feel of the modern family cars and, hence, became more popular with cab operators instead. “The compact SUV segment, which since the launch of the Renault Duster and Mahindra Quanto, has given the buyer an option of well-packaged, practical utility vehicle with a character of its own. Next up will be the Ford EcoSport while, Tata Motors is also thinking of a compact Aria,” he says.

This has been pushed further with the growing popularity of Utility Vehicles in the country as data suggests. According to reports from SIAM (Society of Indian Automobile Manufacturers), sales of Utility Vehicles grew by 55.83 per cent during April-September 2012 and 60.54 per cent during April-October 2012 as compared to the same period last year. April-October 2011 recoded domestic sales of 1,92,591 vehicles in the Utility Vehicle segment, while in 2012 it is 3,09,180 units.

Market evolution
Has the market evolved? No says Nayer, he adds that Mahindra is evolving the market. With the introduction of the Compact SUV Quanto, Mahindra claims to appeal to a wider audience and hopes to draw volumes from all the three segments, which includes SUVs, hatchbacks and sedans.

He believes that if all three segments are put together the market size is of one lakh vehicles per month. He says that the premium hatchback market size is 40,000 a month, entry level sedans size is 20,000 a month and SUV is another 40,000 a month. “We are talking about a 90,000 plus market size out of which Quanto will get a share, as we have a production size of 2,500.

But is it true that models based on proven and global platforms are the way forward to build mass volumes in the country? Nayer says that internationally the ratio between cars to SUV in many markets like Malaysia and Europe are 40:60, 40 per cent SUV and 60 per cent car. “In India the ratio is half of that, which is around 20 per cent. We believe that in time, the kind of offering we are giving to the consumers and as lifestyle, aspiration and standards of living improve, people will buy more and more SUV kind of products, which appeal to their needs,” he adds, citing at the Quanto.

According to a survey by Gaadi.com, the share of voice for compact SUVs is 36 per cent compared to others which stands at 64 per cent. Indexed Data show that Mahindra Quanto in the period from 16th October to 15th November got a score of 16 out of 100 in terms of share of voice, followed by Tata Safari at 15, and Renault Duster at 11.

Is price the only factor?
The Quanto stars at Rs 5.99 lakh (ex-showroom) and goes to Rs 7.5 lakh (ex showroom), while Maruti Ertiga starts at Rs 7.3 lakh (ex-showroom) for diesel, and Nissan Duster starts above Rs 8.1 lakh (ex-showroom). Is pricing the only factor that is driving the sales? And does this segment hold enough market share to drive volume buys? Gaadi.com’s Kumar cites figures from his company’s report, which says that the sales figures of October 2012 show that SUVs comprised 8 per cent of the total cars sold during the month. He adds, “The newest addition to the compact SUV segment the Quanto, the sales of which slowly seem to be gaining momentum. Sales of the car increased by over 40 per cent month on month (m-o-m) post its launch in September 2012. The number Renault Dusters sold also increased by 28 per cent m-o-m.”

If the sales are steady and there is enough hype in this segment, then why is India opening up so late for the compact SUV segment? Nayer says that there are two reasons, internationally the SUV to car ratio is 40:60, because the per capita income is higher and the lifestyle is different.”That kind of lifestyle aspiration has recently come to India. In our country SUVs are bought only for utility purpose but of late people have started buying SUV for lifestyle purposes,” Nayer adds.

Murad Ali Baig, Auto expert

Murad Ali Baig, Auto expert

Murad Ali Baig, Auto Expert, says that, SUV today is a bit of a misnomer as the buyers are not into serious off-roading. He adds, “They just buy something that looks like an SUV, which gives them that macho feel.” With the rising tide of the compact SUV market, Baig explicates that what the market is seeing is not compact SUVs but low cost SUVs. “Therefore, the new cars like Renault Duster and some of the other cars are low cost vehicles and they give you a sense of an SUV but they are actually have limited real SUV capabilities. They are not proper off-roaders they are two wheel drives,” he further adds.

Urban cowboy or rugged terrain?
But is the retail strategy of foreign brands enough to counter the home grown brands in terms of the compact SUV market? Kumar says that, product marketing is one thing but, experiencing the product first hand can make or break a deal. As buyers become more educated about quality, driving dynamics, features and safety, it’s a never-ending fight between indigenous car makers and foreign brands. “The strategy adopted by Indian car makers is to provide a car with a whole lot more features while pricing it low. The multi-nationals on the other hand offer better build quality, safety features and the likes,” he adds. The figures in the past couple of months according to Gaadi.com seem to be moving in a positive direction. According to the site, customers have welcomed the new compact SUV segment. More players like Ford with EcoSport and Tata Motors with Compact Aria, are expected to jump in the fray. Also according to the site, in terms of share of voice, 30 out of the 100 people who searched for SUVs showed interest in a compact SUV.

What then could be the possible challenges both home grown brands and foreign brands could face in the market? Kumar says that, when a manufacturer has a compact SUV under its portfolio the biggest challenge for any manufacturer is keeping the manufacturing costs in check. “In a competitive scenario like India, pricing is crucial. Most local brands are able to offer their cars at a low price thanks to the localisation that goes into making them. A well spread dealer network also plays an important role when it comes to market penetration. Secondly, maintaining a set quality standard is as crucial as the pricing. The buyers have become more aware of safety features and overall build quality,” he adds.

With more than 15,25,488 passenger vehicles sold in April-October 2012 (SIAM), which also includes utility vehicles, compact or not, consumers are still having a tough time manoeuvring during peak hours. Will the Compact SUVs only bring a sense of ‘presence’ or ‘machoism’ on the streets or will they really help to cut through the tough traffic with space and ease? Only time will tell.

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