It’s None Too Good Until It’s Second To None

The literal translation of Hyundai, a Korean word, into English means “modernity”. Just what the auto major is constantly striving for. Hyundai Motor India (HMIL), a wholly owned subsidiary of South Korea-based Hyundai Motor Company (HMC) that ranks second in India, is now aiming for the market leader position. That is the long-term goal of HMC says Rakesh Srivastava, senior vice president (sales and marketing) at HMIL. Realising this vision means dethroning the undisputed market leader and rival Maruti Suzuki. Sounds impossible! “Not really,” says Srivastava. “HMIL is the largest passenger car exporter today and the second largest car manufacturer after Maruti. We operate with the mindset of a market leader. We always have. That is why we offer technologically-superior products to our customers,” he says with a calm confidence sitting in his large corner office on the sixth floor of a plush building in Delhi’s Jasola.

For the record, HMIL has held the tag of ‘second-largest car maker’ in India for around 18 years in 20 years of its existence. It earned the position within months of launching its tall boy model Hyundai Santro in October 1998. While it is tempting to dismiss the notion that someday Hyundai can end the dominance of Maruti Suzuki, the Koreans are confident of it. Three years ago, chief coordinator of Hyundai Motor India C. H. Han was quoted in media saying exactly that. He said “HMC has asked for leadership position in India”. But shy of making big headlines, Han tweaked the comment by adding “if not in numbers, then by emerging as the ‘most-loved’ brand”.

The HMIL managing director and chief executive Y.K. Koo is, however, less shy and more forthcoming. He says, “Hyundai has always been in competition with itself. We endeavor to become the most loved and trusted car brand that can only be driven through customer satisfaction.” With some gentle prodding, Koo concedes, “Hyundai is aspiring to achieve market leadership.” When asked how will you do it, without hesitating he says, “This will be done on the strength of new products and innovation.” Koo and the senior management at HMIL know very well that the strength of mighty Maruti Suzuki —leader of passenger car market — comes from its 16 years head start.

Srivastava is quick to point that when Hyundai started, Maruti already had an overall marketshare of over 70 per cent. At the end of last year, however, Hyundai’s market share stood at a little over 17 per cent while that of the largest car maker was over 47 per cent. “We would like to believe we gained a lot of space in the past two decades. With a mix of new and refurbished products, we will gain more market share going forward,” he adds. But so will Maruti and the others. Based on financial data sources from the Registrar of Companies, HMIL’s revenue was roughly half of Maruti and its net profit was one-third of Maruti for 2014-15. In terms of passenger car sales data, Maruti sold around 12.9 lakh units in 2014-15, while Hyundai sold 4.2 lakh units. In India, HMIL has already pumped in over $3.2 billion on its own and another $1.4 billion investments from original equipment manufacturers (OEMs). The company has drawn up aggressive plans that include making further investments in land, models and technological upgradation in existing variants. According to an insider, HMIL hopes to increase its marketshare by 1-1.5 percentage points every year for the next decade to get closer to the market leader who is facing competition from all car makers and across segments.

Positive Signs
On 21 November, HMIL rolled out its 7 millionth car, a feat it achieved in just 18 years and some days, beating rival Maruti by a decade. Maruti took 28 years to cross the 7-million mark. Hyundai says it will cross the 10-million mark by 2021. Meanwhile, in order to keep pushing the sales by attracting customers with new models and variants, HMIL has firm plans of launching at least three more sports utility vehicles (SUV) before the end of 2018. On November 14, it launched Tucson, which will bridge the gap between Creta and Santa Fe. It starts at Rs 18.99 lakh, ex-showroom Delhi.

HMIL plans to bring in a new model every year in a segment where it doesn’t have a presence, says Srivastava. Plans of launching a model below its best-selling Creta are well-known in the auto circles. Koo says Creta will continue to make money for HMIL. To press forth the point of it performing like a ‘market leader’, Koo says Hyundai also has several firsts to its credit in the Indian passenger car market. It was the first company to introduce technologies such as multi-point fuel injection, common rail direct injection and rear camera in small cars.

Koo throws in some numbers to establish Hyundai’s recent achievements. Last year, Hyundai sold more in 28 European countries than in India, which contributes 13 per cent to its global sales. On capacity front, Hyundai is equipped to manufacture 7,20,000 units every year if it stretches capacity of its plants in Chennai. Till 2018, Hyundai is well placed to meet the demands in India, says Koo.

“Hyundai has been successful in changing its portfolio. It started as a smaller car manufacturer and entered premium hatchback and compact SUV segment. It has been successful in knowing consumer preference,” says Abdul Majeed, partner in PwC and National Automotive leader. But Majeed, like several other auto experts, is clear on one aspect of this business. “Hyundai will have to do some serious work in expanding its distribution network if it wants to catch up to Maruti,” adds Majeed.

V.G. Ramakrishnan, managing director, Avanteum Advisors LLP says, “In terms of business structure, it has shown the world how to conduct business in the Indian sub-continent. It has created a big domestic market here and also used India as an export hub. All global OEMs that came after Hyundai have followed the same model.”

Koo is quick to acknowledge this. He says Hyundai is focusing on the rural markets (beyond top 110 cities) to increase sales. “This is being done by increasing the number of rural sales outlets (RSO) in tier-3 cities to achieve maximum penetration. Currently, there are 357 RSO’s. The number will go up soon,” says Koo.

Hyundai’s three products — Grand i10, Elite i20 and Creta have all done well in their respective segments. “Nominated as ‘Indian Car of The Year’ in 2014, 2015 and 2016, the Grand i10, Elite i20 and Creta have redefined their respective categories. While Grand i10 rewrote the rules in the hatchback segment, Elite i20 captured over 60 per cent market share in the premium compact category, and Creta received over 100,000 bookings within eight months of its launch,” says Koo adding that the next phase of growth for Hyundai will come from the small and large SUV segment. And he is not wrong in his assumptions.

“What Hyundai has shown is that even with an unconventional product for the Indian market, it can bring in great success for the company,” says Ramakrishnan. That is the reason perhaps, HMC is said to be working on re-introducing Santro sometime in 2018 as a potent entry-level car.

But the largest car maker in India has its own targets to meet. “We have promised the Indian consumer about 15 new models till 2020,” says Kenichi Ayukawa, managing director & CEO, Maruti Suzuki. “In 2015-16, we sold 1,429,248 vehicles, growing faster than the industry and increasing our market share for the fourth consecutive year to 46.8 per cent. Our profit went up 23 per cent and we could take several steps for the long term,” he said in company’s latest annual report. The first time Maruti Suzuki sold over 1 million vehicles in a year was in 2009-10. “We have been moving up ever since. Now, we aim for 2 million vehicles in a year by 2020,” says Ayukawa.

SUV to Rule
The growth in the SUV segment, especially the compact ones, has been phenomenal in the recent months. Almost all the big carmarkers are giving multiple choices to consumers in SUVs and why not? After all, the utility vehicle segment has recorded a phenomenal 40 per cent growth in the first half of current financial year. While the compact SUV segment is growing at a compounded annual growth rate of 32 per cent, premium is growing at over 51 per cent.
Majeed says, “Within a segment, many new sub segments have emerged. The company that has presence across the segments and sub segments will always have an edge over others.”

Hyundai, which has been successful in decoding changing trends, avoided any dezlay in launching its global best seller SUV, the Tucson. On November 14, it launched the Tucson at a starting price of Rs 18.99 lakh (highest variant pegged at Rs 24.99 lakh, ex-showroom Delhi). Its other two SUVs are the Rs 9-lakh Creta at the entry level and the high-end Santa Fe.

“The growth of the SUV market is a global trend. In India, the market is growing by 32 per cent, and we want to offer wide range of options to consumers in the segment,” says Koo. Compared to Hyundai, rival Maruti Suzuki has only one compact SUV in the market today.

Maruti’s other big car S-Cross, which was launched few weeks after Creta, has so far not added big numbers to the company’s overall sales figures as was expected. But R. S. Kalsi, executive director for sales and marketing, Maruti, disagrees. “With S Cross we created a new segment, “premium crossover”. We have attained leadership in that segment. Similarly, Baleno is an established leader in the premium hatchback segment and Brezza in compact UV,” he says. Listing smart hybrid vehicles such as Ertiga and Ciaz which were “well received” by customers, Kalsi says over 60 per cent of its volume is coming from SHVS (Smart Hybrid Vehicle System) equipped trims. “Similarly, we democratised two pedal technology by bringing it in several of our models. Examples of two-pedal technologies include auto gear shift, continuous variable transmission and automatic transmission that take care of the need to shift gears manually,” says Kalsi.

Hyundai, to further expand its stronghold in the growing segment, is working on a mini SUV that would compete with models such as Ford EcoSport and Brezza. The model named QXI should be launched in under 30 months.

“Sales of bigger car will increase in future and Maruti will have to break the mold and be ready,” says Ramakrishnan, adding that while Maruti has proved that it can make good products like Baleno and Brezza. it will have to notch up its game in future. Hyundai’s Koo says the company is already looking at new categories and segments to increase the company’s portfolio. “New products are fueling the growth of the Indian car industry, and Hyundai has aggressive plans.” Earlier this year, at the Greater Noida Auto Expo, the company showcased a concept of a compact SUV, called the Carlino (based on the i20 platform), which Koo says can make way into the country by the end of 2018. Compact SUVs are expected to sell more than 370,000 units by 2018. By 2016, its total sales were around 272,000.

Maruti Challenge
Comparatively, the achievements of Maruti over the years are just unbelievable. Maruti r olled out its 15 millionth car, a DZireVDi, from its Manesar facility after 31 years and 5 months since beginning in early 1980s. Maruti Swift has completed a decade and sold over 1.3 million cars as of last fiscal. Alto has sold over 3 million units as well.

A Crisil report released in March 2011 said that, “With more number of players and models vying for a share of the growing pie, the intensity of competition in the domestic car market is set to further increase”. The report added, “With increasing number of players and models, the high levels of volumes per model that was achieved for Alto, Swift & Santro will be difficult to achieve.”

Five and half years later, the four-wheeler market is proving the prediction. While Hyundai took Santro off the road, sales of Maruti’s best-selling cars — Alto, Celerio and Swift — are falling with every passing month compared with the corresponding month of the previous fiscal year.

Even though Alto managed to retain its position as the best-selling model in April-September period this fiscal selling 1,20,720 units, it saw a decline of 7.93 per cent compared with 1,31,128 units sold in the year-ago period. Maruti Suzuki sold 81,926 units of compact sedan Swift Dzire in the first six month of 2016-17 compared to 1,03,651 units in the same period last fiscal, a decline of 20.95 per cent. Sales of Swift also came down to 80,756 from 1,06,911 units in the same period. The primary reason for the drop are availability of multiple options and intense competition.

While Hyundai has always been a strong competitor for Maruti in the smaller segment and perhaps the only one, recent launches like Renault’s KWID, Nissan’s Datsun Redi-Go, Tata’s Tiago are also eating away Maruti’s share.

Majeed says, “Brand building without small cars is impossible in the Indian car market. So every car marker today is trying to succeed in the segment.” Among hatchbacks, Renault’s KWID priced at Rs 2.7 lakh has emerged as a bright star.

Renault India Operations CEO and managing director Sumit Sawhney says, “Renault KWID has been a runaway success and has revolutionised the compact hatchback segment. The car sales have crossed the 1-lakh milestone with over 165,000 bookings since launch. We have just launched KWID AMT, and are confident that KWID will add more customers to the Renault family.”

Another major challenge that Maruti may face in the next few years is to upgrade its line-up. “With a rise in income, consumers will upgrade their car and this is where Maruti will have to be ready,” says Ramakrishnan. At present, Vitara, Ciaz, Ertiga and S-Cross are the big cars for Maruti, but they aren’t really big. Maruti is totally absent in the fast-growing mid-level and large SUV market, unlike other OEMs, claims Ramakrishnan. Making car appealing to young buyers is another area where Maruti is working really hard, but it is still far behind competitors, he says. Maruti’s average buyer is now 37 years old compared to 43 years old in 2010 which is still above the average age of buyer for rivals like Hyundai India and Honda Motors. “Our buyers are between 25 and 35 years of age irrespective of the vehicles they choose. Hyundai, globally, is a very young company with a very young product line-up,” says Srivastava of HMIL.

Other Challenges
Apart from market leader Maruti, other passenger vehicle manufacturers including Tata Motors, Mahindra & Mahindra (M&M), Ford India and the rest are also keeping up the pressure on Hyundai. Though the recent board room troubles at Tata has dented the market dynamics of this diverse auto manufacturer, for M&M, it is an established fact that it is currently India’s leading SUV manufacturer. Equally true is the fact that M&M has seen pressure on its market share in the utility vehicle segment in the past 15-18 months. Around two years ago, M&M ruled the domestic utility vehicle category with a market share of over 40 per cent. Today, it is under 30 per cent. But M&M is still the leader. It launched three new vehicles in the last 15 months — TUV300, KUV100 and NuvoSport. But Hyundai’s Creta and Maruti’s Brezza and S Cross have posed considerable challenges. Pravin Shah, president and CEO (Automotive) at M&M, was recently quoted saying that in the utility vehicle segment, M&M clocked a growth of 14.5 per cent in the first half of 2016 which was lower than the overall industry growth rate of 40 per cent due to the launch of several new products. But lately, M&M is doing well. “We have a cumulative growth of 12 per cent in utility vehicles, 19 per cent in exports and an overall growth of 9 per cent in the month of October. Some of our power brands such as Bolero, Scorpio, TUV300 and the Pickups have performed well,” says Shah.

Ironically, for Tata Motors, the October sales numbers were extremely positive despite the group being in the news over board room matters. The figures show that Tata had a good market response to its hatchback Tiago. The company sold a total of 16,311 units last month, up 28 per cent on a year-on-year basis. This was its highest monthly sales number for the past four years and includes a sharp increase in sales of the Tata Zest too, acknowledges Mayank Pareek, president, Passenger Vehicle Business, Tata Motors. But will it pose any direct threat to Hyundai, most experts say a firm ‘no’.

Future Fuel
Last December when Supreme Court of India banned registration of diesel passenger vehicles with engine capacity of 2000cc, it forced manufacturers to look beyond conventional fuel sources to survive in the long run.

One of the latest technologies making big headlines is the hybrid technology. PwC partner Majeed says, “Given the country’s uneven electric supply, the other best option for carmakers is hybrid. The battle between hybrid cars will be the next big thing in the Indian four-wheeler market.” And why not, most of the companies already have hybrid options for their top-line models and many are working to include hybrid options in their full line-up.”

Hyundai will be the third carmaker in India to introduce hybrid and mild-hybrid technologies in its cars between 2018 and 2019. HMIL CEO Koo says, “We have plans to showcase our new Ioniq range of hybrid, plug-in and all electric vehicles to test the Indian market. It will give Indian customers a peek into our technology prowess, as well as prepare us for future alternative technologies.”

The Ionic brand of cars have been very well received in the global market for their sleek design and excellent mileage. The Hyundai Ioniq Blue hybrid, which will go on sale in early 2017, will carry a 58-mpg EPA combined rating, the highest of any non-plug-in vehicle.

While Toyota and Honda have introduced full hybrid vehicles in India, Maruti and Mahindra & Mahindra have introduced mild-hybrids with reasonable success. In comparison, however, full hybrids from Toyota and Honda cost upwards of Rs 35 lakh and haven’t gained as much traction.

Subrata Ray, executive vice president, Corporate Sector ratings, ICRA, says, “A key trend we anticipate is usage of mild hybrid vehicles in India owing to preferential tariff structure on such vehicles. However, full hybrid acceptance could remain low unless there is substantial reduction in the price of rechargeable batteries. OEMs are aware of these evolving trends and they have aligned their product lineup (both existing as well as proposed) to cater to these evolving customer preferences and regulatory requirements.”

Hyundai too is working on mild-hybrid technology that will be strapped in its current models such as the sedan Elantra and other small car brands to utilise the concessional tax regime for such vehicles. Maruti as well is toeing the line. While its hybrid sedan Ciaz has done pretty good business, Maruti is working of introducing hybrid technology in small cars.

Terming development of smaller cars with hybrid technology as “as an area of big interest” for both the firm and parent Suzuki, Maruti Suzuki India chairman R. C. Bhargava says the company is trying to exploit the space for small cars with green technology. “In India, hybrid technology for smaller cars makes sense because globally there is no hybrid technology for small or low-cost cars today. and that I think needs to be developed. We, Maruti and Suzuki, are working on it,” says Bhargava. He, however, did not commit a time frame for coming out with such vehicles.

All in all, such intense competition in the passenger car segment will benefit customers a lot as there will be several options in every segment. Whether Hyundai races ahead or not, its India commitment and growth has pushed the market leader and those at number three, four or five to buckle up a great deal.

Also read interview with Jnaneswar Sen, Sr. VP, Marketing & Sales, Honda Cars India

Also read interview with Sumit Sawhney, Country CEO & MD, Renault India

ashish.sinha@businessworld.in; arshad.khan@businessworld.in;

@ashish_BW; @arshadkhan_BW