Post Globalization, Global MNCs were allowed to set up shop in the sub-continent. While many MNC OEMs entered into the Indian market, only a few could make a significant impact in the overall sales. Maruti Suzuki has been a forerunner in the Indian Passenger Car Market and challenging it’s dominance in the highly monopolistic and government-regulated industry during the late 1990s was an impossible feat. However, only 1 OEM could present a tough fight to the leader – HYUNDAI. And the product that led Hyundai’s onslaught was Santro! This so called ‘Small Car’ made such a big impact that it helped Hyundai achieve over 10% Market Share right within the first year of Hyundai’s operation! It not only helped the Korean Auto Major achieve record breaking sales, but also strong profitability at an unprecedented pace.
Maruti v/s Hyundai in past 19 years (since the inception of Hyundai)
Recently, we went through the book written by the veteran BVR Subbu (Santro – The Car That Built A Company) and got to know several interesting trivia about the Indian Auto Industry. Mr. BVR Subbu is known as the face of Hyundai in India and has been regarded as the architect of the group’s phenomenal success in India. He built the Hyundai brand in India from scratch and spearheaded the success of the Santro. Before talking more about Santro, lets look at the interesting bits from the book:
The incidents that led the road for Maruti’s dominance in the late 1990s –
Tata Motors turning down a government offer to produce a small car in 1965
Government rejecting Tata Motors’ proposal in 1985 to ‘manufacture’ cost-competitive, technologically advanced cars in a JV with Honda Motors, Japan
Mercedes-Benz dropping out of a JV plan with Tata Motors in the 1990s to develop a compact car
Reasons for Hyundai’s instant success in the Indian Market –
While other Global OEMs were focusing on bringing in their sedan-based lineups into the Indian market, Hyundai’s understanding of the Indian market was better and launched the entry segment car Santro which helped it gain significant volumes right from the launch.
While Global biggies Ford, GM & Honda had largely assembly operations in the 1990s; Hyundai made huge investments to set up ‘integrated manufacturing’ operations with localisation levels of over 80% in the first year itself!
Hyundai has also been known to offer latest technologies & features since day 1! Technology such as multi-jet fuel injection (vs. prevalent carburettors), Euro-2 compatible models, and power steering (prevalent only in high-end models then) was offered from Santro itself.
Hyundai also started with a relatively large network of 75 dealers, covering 90% of the market (by volume) by reducing its outlet size to lessen the upfront investments required and ensure dealer viability.
Hyundai’s decision to go solo (as against opting for JV partnerships with Indian houses as others did) together with strong and quick support from all global departments (R&D, finance, marketing, etc) facilitated the company’s keen focus, and organisational speed and agility in India.
Vendor development strategy on two specific planks – a) to commit single-source procurement in order to provide economies of scale, and b) to use well-developed existing Indian suppliers as far as possible. In other cases, Hyundai facilitated partnerships between its Indian and Korean vendors to ensure seamless transfer of quality processes and working methods.
Role of luck in Santro’s/Hyundai’s launch success –
Every product requires a little bit of luck to achieve success. The Santro received it in the form of a Supreme Court order that effectively allowed only Euro-2 vehicles to be registered in the NCR, effective June 1999. As the technology was available with its parent, HMI moved swiftly to showcase its technological advantage in the market as “Engineered for Euro-2”.
Even after massively slashing the price of the Maruti Zen post the Santro’s entry – had created enough pricing headroom for a highly localized manufacturer to attain at least break-even pricing even at the product launch stage.
A tussle between Suzuki Corporation and the government of India over the sale of stake in Maruti during late 1990s (which also allegedly delayed the launch of the Wagon R, which was introduced as a competitor to Santro) and manufacturing-quality issues that plagued Tata Indica, which had received strong customer response, also contributed to the success of the Santro.
Maruti had almost bought Hyundai India operations –
Hyundai group had faced an existential crisis during the Asian meltdown. Indian government regulations requiring Hyundai India to have a significant portion of their debt locally also proved a challenge, as global banks were unwilling to lend to the Indian subsidiary.
While the Indian team did eventually secure finance from local Indian banks, continued stress on the parent company along with investment requirements at Hyundai almost forced the former to sell its India operations to Maruti. The parent and its banks retained Hyundai India only due to their inability to secure a fair price for the operations back in the day.
Moreover, Santro’s sales picked up significantly once Euro-2 vehicles were made mandatory. This ensured strong profitability and liquidity for the company, and it did not looked back again.
So, how did Santro actually contribute to Hyundai’s volumes –
Santro’s volume trend in it’s 17 years existence in the Indian market
Santro’s contribution to Hyundai India’s volume over the years
Over 13 Lakh Santro’s were sold in 17 years!
Santro is based from Global Atos hatch. In 2003, the first generation (Zip) was replaced with the second generation Atos Prime, marketed in India as the Santro Xing, which enjoyed great sales success.
In its final few years, Santro had become a popular option as a hatchback taxi, and the car was still selling close to 30,000 units per year when Hyundai made the decision to discontinue production.
16,838 was the highest volume Santro had achieved in a specific month (March 2006). Co-incidentally, Hyundai sold the highest number of Santro’s in the year 2006!
Santro single handedly managed Hyundai’s volumes in India. In the first 10 years (i.e. 1998-2017); 76% of Hyundai India’s sales was contributed by Santro! (out of 11,40,116 Hyundai’s sold, 8,62,428 cars were Santro’s)
The first brand ambassador for both Hyundai India & Santro was Shahrukh Khan. The first Hyundai product that Shah Rukh advertised for was the Santro hatchback, which turned out to become Hyundai’s most successful product in India. It is also one of the longest Carmaker-Brand Ambassador partnerships yet!
One of the first Hyundai-Shahrukh Ad: