Two-three bags with camera gear and the same number of assistants,” Arjun Dogra lists his essentials for an assignment. The ad stills photographer used to cram all this and himself into his Maruti Swift and drive up to 400 km a week in and around Chennai. Not the most comfortable experience, especially if the drive is up to Bengaluru or Goa. In September, Dogra spent Rs 10 lakh on a Renault Duster. “Long journeys are more comfortable now,” he says, adding that he wants the utility vehicle to act like a “regular car” over weekends, negotiating city traffic and congestion with ease. “The clutch is a little hard for city driving, but it’s okay,” is Dogra’s verdict.
Up north, Yash Malhotra had his own reasons for buying a Mahindra XUV500. For this 40-something entrepreneur and property dealer, the shiny new toy confers both utility and status. Hailing from Gohana in Haryana, 86 km from Delhi, Malhotra had been driving a Hyundai i20 for the past two years. “Everyone in my town turns to see my XUV,” says Malhotra proudly. A more practical advantage is that the deeply devout Malhotra can pack his like-minded joint family — four more adults and three children — into the SUV for their pilgrimages to Haridwar and Vrindavan.
Mayank Pareek, chief operating officer, Maruti Suzuki, points to internal research that about 58% compact car owners change their vehicles every five years. “People like to upgrade to a sedan or a better model. Now, many of them are upgrading to a utility vehicle (UV) at a similar price,” he says. But what is a UV? The Society of Indian Automobile Manufacturers (SIAM) defines it as having off-road capability, a two-box, ladder-on frame and seating between five and 10 people. Based on that description, currently, there are 41 different UVs in India — from Mahindra Scorpio, Renault Duster to Nissan Evalia — with prices ranging from Rs 5 lakh for the Premier Rio to a jaw-dropping Rs 8.5 crore (for the newly launched Evade from Canada’s Conquest Vehicles). But if you’re willing to be patient, you can choose from some five or six more — the Ford Ecosport, Maruti XA Alpha, Chevrolet Trax and Force One 4x4 are all expected to hit the road soon.
While the demand for SUVs seems to be self-sustaining at present, auto companies are also ensuring that Indian consumers’ top priorities, when buying a car, are covered even in SUVs. They’re making the vehicles affordable and fuel-efficient (relatively speaking, of course: SUVs are notorious gas guzzlers). It helps that the same manufacturing platform can be used for several vehicle models. For instance, Mahindra’s Scorpio and Xylo share a common platform, as do Toyota’s Fortuner and Innova. Going forward, Mahindra’s recently launched Quanto will reportedly share a platform with its planned monocoque range, while Nissan is working on a compact SUV on joint venture partner Renault’s Duster platform. “It’s all about catering to customer’s unmet needs with a constant focus on cost,” says Shah.
Sharing common components and engine architecture not only brings in efficiencies, it also means economies of scale — all of which add up to quicker launches and, hopefully, cheaper vehicles. Not surprisingly, then, the practice will only become more widespread in the coming years. A white paper by research firm Evalueserve shows that globally the top 20 passenger car platforms contribute to 40% of the production volume and estimates that this share will reach around 45-47% by 2015. The report also adds that “OEMs will increasingly adapt their existing platforms and develop new ones” specifically for India and China given that these markets will account for a higher proportion of global sales over the next few years.
While captive financiers like M&M Finance and Tata Motors Finance offer attractive deals, independent auto finance agencies, including nationalised and private banks, have also contributed in pushing volumes. Nearly 90% of SUV buyers opt for finance, points out Ashok Khanna, business head, vehicle loans, HDFC Bank. “SUVs tend to bring in high ticket size. So it’s a lucrative opportunity,” he adds. HDFC Bank’s UV finance business grew 30% y-o-y in FY12, while the compact finance vertical is slowing.
Finance aside, auto companies are also working on making it easier for their customers to reach them by expanding their sales and service networks. “The customer must be sure that wherever, he goes, he can get his car serviced. This is especially true for utility vehicles, since people travel off-road with them,” says Pareek. Maruti has 3,100 service stations, up from 2,800 last year, and aims to cross 4,000 by 2015. The company also has 870 dealers across 800 locations all over India. Although it’s no match for Maruti, Mahindra has the advantage of its legacy as a commercial vehicle and farm equipment manufacturer — it has 1,000 service centres and over 400 dealerships. In addition, it also has Mahindra First Choice, a 150-centre strong multi-brand car servicing chain, which is working towards having 500 centres by 2015. Companies like Renault, Toyota and Nissan, too, are beefing up their networks substantially. The idea being that no matter where the potential buyer is, there’s a dealership somewhere close by.
Room for more
The biggest driver of the UV market right now isn’t the slew of launches, accessibility and attractive finance offers — it’s the preference for big, spacious vehicles that aren’t just symbols of their owners’ growing affluence but also their changing lifestyles. “There is a growing preference for leisure travel with family, alongside daily travel needs,” agrees M&M’s Shah. “UVs with more seats and power fit the bill perfectly.”
Some 1,200 km south, Venkatesh Kumar, senior manager at the Maruti dealership in Guindy, Tamil Nadu, is used to women and children visiting the showroom — after all, Maruti has been a family car for a couple of generations of Indians now. But like Singhania, he, too, sees a distinct pattern among SUV buyers: they’re usually around 40, own a car, upper middle class and have a family of at least four. “They come for the Ertiga,” he says, “and don’t mind waiting weeks for the diesel version.”
And that’s where the greatest attraction of SUVs lies. Remember we said these monsters are gas guzzlers? Well, they chug diesel, and that’s an auto-buy for many customers obsessed with fuel efficiency. Diesel prices in India are kept artificially low through subsidies, making an SUV as cheap to run as similarly priced petrol-engine sedans. For instance, a Toyota Etios will take you about 630 km on a full tank of petrol (14 kmpl and a fuel tank capacity of 45 litres), whereas with a Renault Duster you can go as much as 850 km on a full tank of diesel (17 kmpl on a 50 litre fuel tank).
Analysts however, point out that roughly 60% of all passenger vehicles sold today are diesel, up from 40% in FY11 — with SUVs, the ratio is even more skewed towards the cheaper fuel; in fact, Pareek admits that the lack of a diesel version played a huge part in the failure of Maruti’s Grand Vitara (launched in 2007). “The diesel price differential is a strong driver,” points out Ajay Srinivasan, auto analyst at Crisil. And that’s what also raises questions on the sustainability of this sales spurt.
In September, the government announced a sharp hike in diesel prices of Rs 5 a litre; the subsidy on premium diesel, meanwhile, has been done away with completely, raising its price by a staggering Rs 21 a litre. There is talk of another round of price hikes in the next six months and of imposing extra levies on diesel SUVs. Will the popularity of utility vehicles survive such purse-pinching measures? Opinions are divided. Deepesh Rathore, MD, IHS Automotive India a consulting firm, takes an extreme stance: “It can kill the segment.” Others, like Autocar’s Sorabjee, believe that as long as the petrol-diesel gap remains, the demand will continue to grow.
As with most products in India, continued affordability will be the key to success. The maximum growth, say industry sources and analysts, will come in the Rs 7-10 lakh sub-segment. And certainly, that’s where most of the new launches are placing themselves — the Toyota Rush is expected to cost Rs 7 lakh, Ford’s Ecosport at Rs 6 lakh, while Chevrolet Trax and Maruti Suzuki XA Alpha will be under Rs 10 lakh each. But given rising input costs, it will be a challenge to maintain those price points. To cope, auto companies usually negotiate three-year contracts with suppliers to ensure input price stability; they also uses common platforms that help achieve economies of scale. But obviously, such measures can only help up to a point: all the major auto companies have already announced price hikes this year. The increase in prices is higher than for compact cars: the Duster, for instance, has become costlier by Rs 40,000 (diesel variant) while Audi’s Q3 now costs Rs 50,000 more.
Back in Gohona, Malhotra paid Rs 15 lakh for his XUV500 but candidly admits he would have bought it even if it meant paying several thousand more. It doesn’t matter that the roads where he lives aren’t made for SUVs and he’s had to build a shed at his farm 2 km from town for his vehicle. “That’s no inconvenience, given the stature it gives me,” he laughs. Now, if only more people think like him, auto makers will be a happy lot.
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