SUVs have been highly aspirational product for consumers. While high-cost of SUVs kept customers away earlier, the entry of affordable options in the recent years has made the segment the fastest growing in the Indian automotive industry, says Rakesh Rao.
In April 2017, when South Korean auto major Kia Motors Corp announced its plan to invest $1.1 billion in setting up manufctauring plant in Andhra Pradesh, it decided to foray into India with its SUV brand. And why not? The SUVs market is booming in the country with SUVs becoming the vehicle-of-choice among Indian buyers over the last few years.
“Over FY11 to FY18, the SUV market in India has emerged as a strong sub-segment, accounting for around 28 per cent of the total passenger vehicle sales volumes compared to just 13 per cent in FY11. In FY18, the segment recorded a robust growth of 21 per cent, which was much higher compared to the overall passenger vehicles sales growth of 8 per cent. Ind-Ra believes the momentum to continue in FY19 and expect a sales volumes growth of around 15-18 per cent,” observes Shruti Saboo, Associate Director, India Ratings & Research (Ind-Ra), A Fitch Group Company.
As per Society of Indian Automobile Manufacturers (SIAM) data, non-SUV segment (compact cars and sedans) sales grew from 21 lakh units in 2016-17 to 21.7 lakh units in 2017-18 – a growth of 3.3 per cent. On the other hand, SUVs segment grew whooping 21 per cent with 9.2 lakh units being sold in 2017-18 against 7.6 lakh units in the previous year. Growth of SUV segment has been consistent. The share of SUVs in overall passenger vehicle sales has increased to nearly 30 per cent in 2017-18, compared to 14 per cent in 2009-10.
Explaining the reasons for this growth, Kavan Mukhtyar, Partner & Leader - Automotive, PwC India, says, “Launch of several attractive new models and growing customer preference for SUVs is driving growth. Also, with changing lifestyles and improving quality of roads, consumers prefer SUVs that are robust with more passenger carrying space.”
Compact is impactful
Earlier, SUVs, a highly aspirational product for any consumer, were very expensive. With the entry of affordable options in the recent years, sales of SUVs have been rising continuously. Models, such as Maruti’s Brezza and Ford’s EcoSport, priced under Rs 10 lakh have enabled many people to fulfil their dream to own a SUV. This is the reason why compact, affordable SUVs are driving the volume in this segment.
Mukhtyar states, “While SUVs in the Rs 15-25 lakh category saw a booming 135 per cent growth with several new players Isuzu and FCA (with Jeep Compass) being new entrants; the volume growth came from the compact UV segment (<4000 mm). Tata Nexon, S-cross, Honda BRV and WRV were top gainers.”
Over these years, there has been a gradual shift in the customers’ inclination towards compact UVs compared to sedan. Saboo explains, “The better driving comfort, higher fuel efficiency and relatively heavier vehicles fit for damaged Indian roads have always been the key features of an UV. However, the new models launched by OEMs, being equipped with the existing features are also smaller in size and more affordable. This has led to emergence of a new sub-segment of compact SUVs which despite having a similar seating capacity as a sedan is being more preferred.”
While rising incomes have made consumers go from small cars to SUVs, auto companies are luring buyers with new generation of SUVs that are smaller, fuel efficient, spacious and practical. “Indian customers love SUVs which is evident from the segment growth. EcoSport was, in fact, the first product that started the urban SUV phenomenon, not just for Ford, but also for Indian automotive industry. Between 2013 and 2016, the segment grew a whopping three and a half times and drove the growth of the automotive industry. Today, it is the fastest growing segment in India – accounting for 16 per cent of the auto industry. And we anticipate the UV segment would reach 24 per cent and one million marks by 2021,” says Vinay Raina, Executive Director, Marketing, Sales and Service, Ford India.
Speaking about the success of SUV Creta, Rakesh Srivastava, Director - Sales and Marketing, Hyundai Motor India Ltd (HMIL), states, “Since the launch of the first Creta in 2015, Hyundai has become an established brand in the SUV segment. It is the cornerstone of Hyundai‘s longstanding SUV presence which will impress customers with its premium design, spacious interior and its advanced connected technologies. The benchmark success of Creta with over 4 lakh happy customers globally is a testimony of the customers’ increasing preference towards Hyundai’s modern premium products. The Indian Car of the Year 2016 (ICOTY), Creta has always been the preferred choice of customers looking for a perfect SUV. Ever since its launch in 2015, the perfect SUV Creta has been among the top ten bestsellers every month.”
Novel design for new models
Strong body architecture, higher seating position and relatively-larger cabin space make SUVs ideal for the Indian roads. As families grew, the demand for space, comfort and functionality increased among consumers. Earlier SUVs had a standard box-like design and was not much preferred by families, however over the years the design language has evolved, making it more aspirational and convenient not only for city driving but for different driving conditions as well. “The overall appeal, sophisticated to aggressive design, higher ground clearance, powerful engine options and off-road capabilities are attracting consumers towards this segment. The build of an SUV also makes the carline much safer, which appeals to the safety-conscious younger generation. Overall higher seating position, newer design and good package lead to an increase of this segment,” says a Volkswagen Passenger Cars official.
The official adds, “From the Volkswagen stable, the Tiguan has been acclaimed as Europe’s safest carline and comprises a host of active and passive safety features. The Tiguan made its debut in India with the Volkswagen 4MOTION Intelligent AWD system in combination with the 7 speed DSG transmission and is based on the modern MQB (modular transverse matrix) platform. Winner of the German Design Award 2017, the design of the Tiguan emphasises independence and dynamism. Volkswagen has brought in new design characteristics in the premium lifestyle segment, combining striking proportions with sophistication and on-road presence. This proactive attitude is systematically observed in details such as the horizontally aligned unit formed by the radiator grille and headlights, and the higher waist line, resulting in a confident on-road stance.”
At present, it is estimated that over 40 utility vehicle (UV) brands are running on Indian roads. With rising demand, companies are gearing up to introduce new brands or variants (of existing brands). For example, in May 2018 Hyundai India launched the 2018 Creta facelift.
“As a customer centric modern premium brand, we are continuously focused towards bringing new products to excite our customers. We have just launched India’s most loved and preferred SUV the new 2018 Creta. The new 2018 Creta has received an overwhelming response with over 14,366 bookings and 70,000 enquiries within 10 days of its launch. The new 2018 Creta is all set to break existing milestones and emerge the segment leader,” informs Rakesh Srivastava.
Hyundai India is also planning to launch a family car codenamed AH2 around the festive season of 2018 and QXi- Sub 4 mtr compact SUV in coming future. “Hyundai is committed to the Indian market and under the modern premium direction, we will introduce cars that exceed our customers’ expectations,” says Srivastava.
Industry observers estimate that over 35 new UV models will be launched in next three years, with industry leaders (such as Maruti and Hyundai) and many newcomers (like Kia Motors and MG Rover) rolling out their SUV models in India. Honda is reportedly looking to launch two new SUVs for India market, while Nissan India is planning to bring its SUV Kicks.
“The SUV segment is growing at a rapid pace, with the current market potential lying in the compact SUV segment. The aspirational yet value-for-money proposition attached to the compact SUV segment has made sales grow in nearly double digits almost every fiscal year. Globally, 2018 is a year of SUV offensive for the brand Volkswagen and we are continuously evaluating the market in India to offer the best from the global line-up,” states the Volkswagen Passenger Cars official.
India: The exports hub
Companies are using their Indian manufacturing facilities to meet not just the local demand but also to cater to the overseas markets. Srivastava informs, “Hyundai has been the largest exporter of passenger cars since inception. Our most preferred SUV Creta has been loved across the globe and our Creta exports are according to the business plan. Today, Hyundai Motor India has significantly contributed 40 per cent of passenger vehicle exports from India with volume of 2.7 million vehicles since the year 1999. Hyundai Motor India currently exports to over 88 countries across Africa, Middle East, Latin America and the Asia Pacific.”
Similarly, Fiat Chrysler Automobile (FCA) has exported about 8,000 units of Jeep Compass model from India since its launch to Australia, UK, Japan, Singapore amongst other markets. Since the end of 2017, the capacity at the Ranjangaon facility - a joint venture unit of Fiat India Automobile and Tata Motors that has turned into a major right hand drive export hub - has grown 1.5 times. FCA is reportedly looking at India to play a key role in exporting vehicles to right hand drive market in the future.
According to Volkswagen Passenger Cars spokesperson, “With more than 3.5 million owners around the world and since its launch in India last year, the Tiguan has received a tremendous response globally for its innovative technology as well as enhanced safety features. Now, on the back of increased demand, we have ramped up production of the Tiguan and will continue to pursuit the potential this carline has to offer in the country.”
Diesel vs petrol
Diesel run vehicles are increasingly being looked upon as big polluter. So will it affect SUV sales? Kavan Mukhtyar answers, “Yes, PM (particulate matter) emissions of diesel cars are comparatively higher than those of petrol counterparts. With price differential narrowing between petrol and diesel, customer preferences on SUVs are shifting back to petrol. Some of the more recent successful launches in SUV categories all offer the petrol variant - EcoSport, Nexon, Jeep Compass, BRV, WRV etc. In the short to medium term, we do not see this having an impact unless if the Government changes the policy and taxes diesel vehicles at a higher rate or ban them from larger cities.”
Shruti Saboo adds, “In the passenger vehicle industry, the preference towards petrol vehicles compared to diesel is increasing recently. The overall proportion of diesel cars has declined to 23 per cent in FY18 from around 47 per cent in FY13. Diesel cars are more expensive and require higher maintenance. With the narrowing of prices between petrol and diesel, the period of recovery of that extra price has also gone up. Further, being less environment friendly, it is more suspectible to changes in the regulatory norms.”
With BS VI emission norms to kick in by 2020, diesel-driven vehicles are expected to face the heat. The BS VI norms is likely to further increase the price gap between a diesel and petrol variant, which currently stands at around Rs 1 lakh, making the diesel variant less attractive. According to the SIAM, the share of diesel variant in SUVs has come down from 97 per cent in 2012-13 to 84 per cent now.
Saboo observes, “While diesel has always been the preferred choice for SUV, the share of the same has come down. The decline has been much steeper in cars and sedans. This could pose some threat to the sales growth of SUV, especially after implementation of BS VI norms when diesel vehicles would become further more expensive compared to their petrol variants. While OEMs are now increasingly launching their new models in both petrol and diesel variants, it would also be important to note that the petrol variants launched are as efficient as the diesel ones, in order to keep the growth momentum.”
According to Mukhtyar, BS VI norms will result in the increase in the price of the SUVs, however he does not expect any adverse impact on the segment. “From a supply perspective, it depends on the OEMs readiness on technology changes given the 2020 timeline. However, some of the international brands are ready with BS VI cars in their lineup. On the demand side, the consumer acceptance for ‘greener’ vehicles is going to be only higher than today,” he adds.
Drive towards premiumisation
With rising disposable income and more younger population opting for cars, OEMs have been including higher content of premium components in their cars in order to lure customers. This trend is also visible in SUV segment. Shruti Saboo elaborates, “As SUVs range across mid to premium segment, the demand for high quality infotainment, LED lighting, digital content is higher and remain some of the key features. Moreover, OEMs are also focusing on differentiated styling and premium interiors to lure the consumers.”
Mukhtyar adds, “Integration with smartphones and infotainment is a crucial requirement for today's customers. SUVs with its positioning as a feature rich higher end passenger vehicle will need to offer a range of features including infotainment systems.”
According to Vinay Raina, emerging trends in the SUV segment are best summarised by a clever product like Ford Freestyle. Recently launched in India, Ford Freestyle hits a sweet spot by offering a product to young prospective customers, who aspire to own a compact SUV but do not have the budget to do so. Such customers often have to compromise and end up buying premium hatchbacks or small cars that masquerade as SUVs with body cladding and raised height but lacking any SUV-like capabilities.
“Freestyle has been built ground up, combining SUV-like robust design, benchmark performance, innovative technologies and outstanding fuel efficiency. The democratisation, therefore, of SUV credentials in future products is what will happen more, thanks to the success of FreeStyle. With safety technologies like Active Rollover Prevention (ARP) with the Freestyle, customers will get more for less and look to prefer compact utility vehicles in the future,” states Raina.
While affordability is driving in volumes, the trend is equally strong in premium and luxury categories. “We see continued focus on SUV segment from the OEMs as it offers good margins and strong growth. OEMs will focus on increasing in-car features such as infotainment, safety norms, etc. There is a shift in preferences towards ‘premiumisation’ in compact SUV segment. There is increasing preferences on automatic transmission (AT); one can see the shift towards CVTs (continously variable transmission) in the sedan, hatchback segment,” says Mukhtyar.
The SUV market is expected to outpace the overall market growth in India, with sub-4 m SUVs continuing to dominate the domestic market space. According to IHS Markit, the SUV market in India is likely to double to 1.6 million units by 2022.
“We project SUV segment to growth by 10-12 per cent driven by a range of new model launches and intensifying competition. Favorable interest rate and finance availability will be additional drivers for this segment,” concludes Mukhtyar.
Today, it (SUV segment) is the fastest growing segment in India - accounting for 16 per cent of the auto industry. And we anticipate the UV segment would reach 24 per cent and one million marks by 2021.
- Vinay Raina,
Executive Director (Marketing, Sales and Service), Ford India
We project SUV segment to growth by 10-12 per cent driven by a range of new model launches and intensifying competition. Favorable interest rate and finance availability will be additional drivers for this segment.
- Kavan Mukhtyar,
Partner & Leader - Automotive, PwC India
Hyundai has been the largest exporter of passenger cars since inception. Our most preferred SUV Creta has been loved across the globe and our Creta exports are according to the business plan.
- Rakesh Srivastava,
Director (Sales and Marketing), Hyundai Motor India Ltd
While diesel has always been the preferred choice for SUV, the share of the same has come down. The decline has been much steeper in cars and sedans. This could pose some threat to the sales growth of SUV.
- Shruti Saboo,
Associate Director, India Ratings & Research