Tata v/s Mahindra – The battle of the ‘Indian’ OEMs

In Nov’17, Tata Motors surpassed M&M as the third biggest OEM as per passenger vehicle sales (source). We have been fascinated by the recent turn of events for both the Indian-origin Passenger Vehicle manufacturers and present you a detailed report on how the OEMs have shaped itself over the years. We also love the competitive spirit these companies present and the efforts they put to improve themselves for the cause is commendable. We still remember – In August 2012 when Mahindra had pipped Tata as third biggest OEM, while addressing the shareholders Mr. Ratan Tata said “I have a great respect for what Mahindra & Mahindra has been able to do. I also have a certain degree of sadness and shame that we have let that happen”. Right on the next day Mr. Anand Mahindra had tweeted “Mr Tata’s comment is extraordinarily humble and generous”. He further added that the M&M group “takes it as a pat on the back from a big brother” and “it inspires us to work harder..”.

Mahindra & Mahindra and Tata Motors are only Indian passenger vehicle manufacturer that flourished well against the onslaught of foreign manufacturers in India. Incidentally both have started their passenger vehicle manufacturing journey with an SUV. Manufacturers such as Hindustan Motors (1954), San (1998), Sipani (1982) and Standard (1950) have gone extinct over time. While those on verge of extinction are – Force Motors (Gurkha), ICML (Rhino MUV – a Toyota Qualis rip-off) and Premiere Auto (Rio-India’s first 4m SUV). Reason – they did not invest their soul in developing contemporary product on their own.

2012 onwards homegrown Indian passenger vehicle manufactures are facing toughest challenge on home turf from the foreign manufacturers. India’s passenger vehicle export is also strongly dominated by foreign manufacturers.

India – Market Share (Volume)

India – Export Share (Volume)

Let’s see how the two Indian Passenger Vehicle Manufacturers fare:

1. TATA MOTORS

Tata Motors is finally reaping the benefits of the seeds sown by erstwhile Chairman Cyrus Mistry and Managing Director (MD) Karl Slym. Year 2013 was really bad for entire automobile industry in India, when we witnessed negative growth, for Tata Motors Passenger Vehicle Business Unit (PVBU), it was worse. Largely because of old product portfolio that started crumbling.

  • Second generation of Indica and Indigo siblings christened as Vista and Manza did not do too well because of uninspiring design and quality issues
  • Looks of Tata Safari Storme became kind of sissy as oppose to Hulk (Tata Safari) it used to be
  • Over ambitiously priced Aria landed in no man’s land
  • Sumo Grande was too quirky design for potential buyers to digest
  • Nano failed to deliver the value at bottom of pyramid

With the new MD at helm in 2012, Tata Motors started journey of trasformation called HorizonNext”, first by giving new lease of life to old products and simultenously developing new generation engine, platform and product. Transformation was not limited to products but has been around all the process, from product development and manufacturing, to sales and after sales customer experience. Efforts started showing results with Zest launch, seen in backdrop of Tata Motors past performance and not industry as a whole. In late 2014, Tata Motors roped in Mayan Pareek, a Maruti Suzuki veteran who knows the industry inside out, to lead the PVBU. Untimely demise of Karl Slym, in 2014,  has created vaccum in the organisational leadership.

New generation products from Tata Motors namely Tiago and Nexon have had got good acceptance. Hexa is doing well in comparison to its predecessor Aria but far behind segment benchmark Toyota Innova, competition will intensify further with launch of new Mahindra MPV in early 2018, which is developed by Mahindra’s US Tech center and bigger Maruti Suzuki Ertiga with in-house developed 1.5L Diesel Engine, later in 2019. Tigor is having weak numbers from beginning, due to underpowered diesel engine in the segment. Same mistake Hyundai made, with launch of Xcent in 2014, one can now see the course correction with updated 1.2L diesel power plant.

Tata Motors is also developing electric powertrain, and recently won Government contract beating Mahindra, to supply 10,000 electric Tigor. Though it would not see the light of day anytime soon in market, as consumer demand is very meek due to high total cost of ownership and unavailability of charging infrastructure. Numbers clearly shows that Tata Motors is slowly and silently phasing out older products like Indica, Indigo and Nano. Tata Motors has long way to go, considering that Maruti Suzuki and Hyundai are firing on all cylinders, wonder what else these duo can do in future with their ambitious India plan.

Tata Motors Product Pipeline

  • 4m Hatchback
  • Tiago Sport – interesting to see whether it will be mere a body kit addition or really it would get retuned engine
  • Executive sedan to take on Honda City
  • Compact SUV – Hyundai Creta rival
  • Replacement for Sumo
  • New Safari based on JLR derived platform and another more premium product to take on Toyota Fortuner
  • Electric – Nano, Tiago, Tigor

2. Mahindra & Mahindra

UV Market Share

The company which has started manufacturing UV in India in 50s and continued to dominate the segment for decades has lost the crown to Maruti Suzuki. It is still banking heavily on old workhorse – Bolero (2001) and Scorpio (2002). Both are champion in rural and semi urban Indian market. Bolero’s sale is largely guided by rural demand which heavily rely on good monsoon (rainfall). This is clearly reflected in sales figure, look at the period of 2014 and 2015 when monsoon was really bad in our country, October 2016 onwards numbers are quite upbeat.

Scorpio in India is more of a symbol of muscle power and mostly owned by politician and contractors. Sometimes I wonder, by what name Mahindra’s marketing team call this buyer segment. My observation is, the mentioned profile of buyers usually wishes to buy Toyota Fortuner (preferably white color!), but those who can’t afford, go for Scorpio, and others settle down for humble and more affordable Bolero.

XUV 500 was great success for Mahindra, but after that, none of the product succeeded in bringing desired volume. This is something Mahindra must be worried about, as sales are getting stagnant and competition is getting more intense.

TUV 300

Was it replacement for Bolero? As it has ladder chassis and RWD, which is deployed by Mahindra for rural and semi urban market offerings. Or intent was to compete against monocoque sub 4m compact SUV like Ford Ecosport? Either way positioning seems to be little confusing. Somehow tank inspired design didn’t sink well with large majority of potential buyers. Well people aspire to fly a jet fighter but how many want to drive a tank? Moreover, ride quality and refinement level is not up to the mark.

KUV 100

Mahindra’s second attempt to enter hatchback segment, with an investment of ₹ 1000 Crore. First was Verito Vibe, a notchback based on Verito (earlier Renault Logan). Since SUV is flavor of the season and very much in DNA of Mahindra, hatchback was styled as mini SUV. But side profile was not pleasing to look at, feels like design team was more inspired by frog, unlike XUV which was inspired by Cheetah. This segment is dominated by petrol engine and buyers are spoilt for choice with refined products since long time. As first attempt to build petrol engine, KUV 100 was having many rough edges. Fuel economy was dismal due to larger capacity AC and ECU mapping, and owners complained of vibrations in higher gear ratios namely 1st, 2nd and reverse. Thus numbers took a dip and Mahindra started course correction, quickly followed by an update, as KUV 100 NXT.

 e2o

Mahindra is second mover in Indian electric passenger vehicle segment by acquiring first mover Reva in 2010. They had a bottoms-up approach, unlike Tesla, which was top-down. Approach is really visionary and commendable, to provide green car but product seems to be half-heartedly made. When I took the test drive, rubber beading around the door had started coming off, rear door opening handle was not working so I have to use the other door to get out, despite battery indicator showing some juice left, it suddenly decided to drain completely and vehicle need to go back to showroom on the back of another vehicle! Safety is questionable, even top end P8 variant priced at ₹ 11.48 Lakhs doesn’t have Airbags, even as option, moreover I am not quite sure how much protection ABS-thermoplastic body panel will provide. Total cost of ownership and several other limitations like range, charging point availability, doesn’t add up well in value equation, in short it is not value for money! Is this the reason why other automakers are waiting and are not quite in haste of launching electric products in India, in order to skip early adoption hiccups and lack of infrastructure? In second half of next decade, electric vehicles will have higher prominence. So, Mahindra seems to be on right path, but it has many, many miles to travel.

Mahindra Product Pipeline

  • MPV developed by Mahindra’s American Tech center, it is benchmarked against Innova, but likely to be positioned between Maruti Ertiga and Toyota Innova. Seems quite promising with new 1.6L diesel engine.
  • Extended TUV300 with bigger engine
  • Monocoque body – 4m SUV
  • SsangYong Rexton – to be positioned above XUV 500
  • SsangYong Tivoli derivative – to take on Hyundai Creta
  • Electric – KUV100, Scorpio, Tivoli, XUV500

Global Ambition

Both the manufacturers are exporting vehicles to our neighboring countries, Africa and South East Asia. All these countries are developing or under-developed ones, but both have ambition to enter in the developed market. Here, there is divergence in choice, whereas TATA is obsessed for the UK, Mahindra’s obsession is for the US market.

Tata

2003                       Tata had an arrangement with the MG Rover of UK to sell rebadged Indica as City Rover, sales   seized when MG Rover Company went bankrupt in 2005

2008                       Tata got lucky with acquisition of Luxury car maker – Jaguar & Land Rover, which is contributing lion’s share to group’s top line and entire bottom line

Mahindra

2006                       Mahindra got into sales arrangement with US based distributor, though it never translated into sales but got into legal trouble because of lawsuit filed by the distributor in the US court

2010                       Mahindra acquired bankrupt Korean SUV manufacturer –SsangYong. SsangYong turnaround is complete now with entire new product range, some of which are jointly developed

2017                       With lawsuit settled Mahindra is finally entering the US market, by establishing a plant in Detroit. Mahindra is banking on R&D facility in the USA for all their new products, the new vehicle will roll out from the plant in 2018 and will be called Roxor.

The Way Forward

Both the manufacturers has lined up new product and engine pipeline to expand and protect the core business and simultaneously working on next generation technology to be deployed in future. Both are leveraging their acquired overseas company and global technology center based in the UK and the USA for future product and technology development. It is interesting to see how well Mahindra is able to leverage famous Italian design house – Pininfarina, which was acquired in 2015.

In coming year’s Automobile industry will soon be in a flux with new, emerging and futuristic technology. With breakthrough in digital technology, cars will become more Connected and in distant future Fully Autonomous. Also with emission norms becoming more and more stringent across the globe, hybridization, electrification and light weighing will gain more prominence. Rate of technology adoption for price sensitive Indian customer will depend on Automobile manufacturer’s ability to make such technology accessible. This opens a new window of opportunity for ambitious companies, but equally, it’s a great threat, if they lose the race of in-house development of cutting edge new technology. From market perspective, drivers of such technology could be needs of the buyer (e.g. remote vehicle management) or could be Government policies and regulation (e.g. Electric cars).

Due to digital layer, which is going to sit on the top of others, many new players will have an easy entry into the automotive domain. For example people get easily carried away with the infotainment system coming in cars over several other specification, thus non-automotive players will start encroaching the space quickly and may make several existing automotive companies irrelevant in coming or distant future.

Homegrown companies need to strengthen their core product line for near future and need to be ready with future technology. Indian buyers are moving towards more and more premium products in every segment, backed by higher ability and willingness to pay. So offering just cheap technology to serve bottom of pyramid may not work in future. Products made for bottom of the pyramid of each segment has done very badly in the past, be it Tata Nano or Toyota Etios.  To be successful in automobile industry, product and pricing need to be spot on, for example look at Renualt Duster, even with slim footprint across India in 2012, it was runaway success, though later it lost the crown.

To corroborate above just consider Tesla. Tesla is successful because people are not buying mere an electric car. They want to buy Tesla because of sleek design, exemplary performance, which is loaded with new age technology, and also happens to be an electric car. Tesla is doing what Apple did to smartphone industry with iPhone – disruption. Those who don’t change with changing technology frontier will end up like Nokia or Blackberry.

As far as aspiration to achieve global footprint is concern, these companies first need to strengthen roots in home ground first. It is pretty much evident from the companies like VW (Germany), Fiat (Italy), Ford-GM-Chrysler (USA), Peugeot- Renault (France), Toyota-Honda-Nissan (Japan), Hyundai-Kia (South Korea), who established themselves in home market first, before setting foot on foreign soil. Also one has to have some uniqueness which is well acknowledged in foreign market and public in general associate brand with, e.g. – quality, engineering, safety, performance,  new age technology, design and such. In western world, Hyundai-Kia were regarded as cheap product manufacturers in 90s, but look where they are today. One of the biggest breakthrough for them was new and stylish design language, when they set-up design center in Europe in early 21st century and hired design chief from VW Group and of course, highly improved product quality. To be globally recognized and respected brand, Indian manufacturers need to reinvent themselves, especially when technology paradigm is shifting.

(The article is written by the Newest Pundit on the team – Rohan Rishi. You can connect with him at emailrohanrishi@gmail.com)

Indian Car Sales Figures – November 2017

Last year November was a tough month for the Auto Industry citing the effects of Demonetization. Hence the Industry grew a healthy 13.7% YoY. However, there was a degrowth of 1.8% in terms of month-on-month comparison. November generally is a lean month for the industry as the festive season (Dussehra/Diwali) would have just ended and the customers would also be anticipating year-end discounts in year end (i.e. December). However, OEMs with huge bookings base would synchronize their demand and increase their dispatches in December – Like Maruti (which grew 14% YoY & 7% MoM). The other OEMs would be struggling as the dealer stocks would have piled up and they would be apprehensive considering the upcoming year end. That’s the reason why you would see a steep Month-on-Month degrowth for OEMs like Hyundai, Honda, Mahindra, Nissan, Renault, Skoda & VW! Many OEMs also plan their annual plant shutdowns in December – hence expect the December numbers to be even lower than November.

Let’s look at the modelwise analysis here:

Highlights –

  • Captur initial numbers are not impressive. We expected the capable SUV to give a tough competition to the likes of Creta, Compass etc. However, it seems to have cannibalized Duster’s sales. Duster registered its lowest ever sales in past 21 months! It signifies tough times ahead for Renault has huge hopes are pinned on Captur to revive its overall sales. As Kwid volumes are diminishing as well, Renault may find it very difficult to sustain its growth/volumes.
  • Tata has dethroned Mahindra from the No.3 slot! However, it has been solely on the basis of 2 Products – Nexon & Tiago. While both the products are a class apart, the dwindling performance of the other models in the portfolio is a matter of huge concern. Any drop in the sales of Tiago/Nexon in coming months will prove detrimental to the Indian MNC.
  • Maruti is the only OEM in the Industry which seems sorted right now – Top 6 selling models in Nov’17 were from Maruti/Nexa. It is practically an impossible feat to achieve. Also commanding a Market Share of over 53% in a market like India is no easy task. With the launch of New Swift nearing by, we expect the OEM to scale even higher volumes in the future.
  • Mahindra is somehow lost right now. The refreshed TUV or the KUV Nxt hasn’t been able to garner enough attention to bring volumes on the table. The average performance of these New Models have put Mahindra under pressure to bring a capable new model launch or else it may permanently lose its No.3 slot.
  • Honda is fighting hard to sustain numbers from its current volume sellers (City & WRV). However, new launches in the respective segments (New Verna & New Ecosport) have made the game all more challenging.
  • The most exciting segment right now is Sedan – Ciaz, City & the New Verna are fighting hard to gain leadership category in the segment. While City & Ciaz have been ruling the turf for quite some time now; Verna has made a stellar start. However, it’ll not be easy to sail through for the Korean OEM. City/iVTEC fanatics will still chose the model & price conscious customers would opt Ciaz; Verna has placed its bet through features. The biggest winner indeed will be the consumer here!

Top 25 selling models of November 2017 –

Top Selling Hatchbacks (entry & mid level) –

Top Selling Premium Hatches –

Top Selling Compact Sedans –

Top Selling Sedans –

Top Selling Compact SUVs –

Top Selling MUVs –

Top Selling SUVs –

November 2017 Car Sales – Snapshot

The Industry Grew 13.7% in Nov’17 when compared to Nov’16. All OEMs showcased a positive YoY growth, apart from Renault & VW. The race for N0.3 & No.4 slot has now gone all more interesting. Finally Tata has dethroned Mahindra from the No.3 position. Even Toyota has ranked a level above than Honda in Nov’17. In terms of new launches, Captur has not given expected volume jump to Renault – Instead the French OEMs degrowth of 18.8% is a concern.

Maruti’s Domination Strategy_Statewise

While preparing the statewise passenger cars sales statistics, we couldn’t ignore the way Maruti Suzuki has dominated the markets throughout the nation. It is not a easy task to maintain a Market Share of >50% in any category and the ease with which Maruti does it has been a Case Study for Industry observers across the world. Out of all, these 2 strategies have been critical to the OEM –

  1. Segmentwise Presence and Leadership: As of today, Maruti has dominated literally every segm\ent. Be it \entry level hatch (Alto), Mid level hatch (Swift), Premium Hatch (Baleno), Compact Sedan (Dzire), MUV (Ertiga), Compact SUV (Brezza) or C segment Sedan (Ciaz) – Maruti has a segment leader offering. The Product Planning of Maruti is a matter of envy for global biggies and have left them clueless on how Maruti manages to bring products which align to customer expectations and price it lowest in the respective segment as well!
  2. Pocketwise Strategy: Maruti has been very aggressive in terms of building Market Share pocket(region) wise. This is what we wanted to highlight in this post. Maruti has the lowest Market Share in East Zone (at 47.7)!

We have ranked the Zones as per Market Share (North stands at No.1 with highest MS of 52.2%) –

The top level states in every Zone is as mentioned:

  • J&K – The Northern most part of the country has been the top most market for Maruti Suzuki in the North Zone and enjoy’s a Market Share of ~68%!
  • Goa – The Konkan Region in the West had Maruti’s best acceptance and Market Share of ~63%.
  • Kerala – It is said that it is a tradition in Kerala that the first car at any household had to be a Maruti! It holds true even now in some households and it still commands 56% Market Share in Kerala! The likes of Indus Motors, Popular Motors belong from Kerala and are touted to be one of the Biggest Maruti Dealers in India. Kerala’s Indus Motors is estimated to deliver Maruti Suzuki vehicle every 15 minutes!
  • Tripura – Due to poor infrastructure and dependence on diesel vehicles, East had always been a concern market for Maruti. Cars (or rather SUVs) with higher ground clearance & Diesel engines were in demand in these markets. The likes of Bolero, Sumo,etc were in huge demand in these markets. However, the entry level first time buyer still had no option other than Maruti & the newer products like Ertiga, Brezza helped Maruti pull up the Market Share in East considerably. Tripura as a state has the highest Market Share in East Zone at  68.5% which coincidentally is the highest in India as well!

A look at Maruti’s Top Markets in terms of Market Share –

Basis volumes, the Top 10 States of Maruti Suzuki are –

  • The Average Per Month’s Volume of Maruti in Maharashtra is higher than what Tata/Honda/Toyota would sell in the entire country in a month!
  • Maruti sells over 98,000 cars combined every month in the Top 10 states!