WHY MARUTI, HYUNDAI, TATA, KIA & MAHINDRA, ARE EYEING THE UV SEGMENT. - LAST 5 YEARS ANALYSIS
The Auto Industry in India is very dynamic and ever-changing. It's not for the faint-hearted. We are the Fourth-Largest in the World.
While it offers a huge potential due to a large and diverse country, huge population, a young and growing middle class, a large service sector, there are also challenges due to its price sensitiveness and almost unrealistic stress on reliability.
The fuel policy and discontinuation of Diesel fuel type by a few OEMs, has resulted in a huge decline in the contribution of Diesel Engine Cars: they contribute just over 17% of total volume, against 60% in 2012. The shift has happened to Petrol Cars – which contribute over 83% of the total volumes now.
In spite of a yearly volume of around 27L cars, more than 84% of the market is controlled by just 5 OEMS - Maruti/Hyundai/Tata/Mahindra/Kia: Maruti has 45% of the market, Hyundai 15%, Tata 9%, Kia 8%, and Mahindra 6%.
The other major Auto Giants including Toyota, Volkswagen, Honda, Ford, Fiat, and others are struggling even after being there for more than almost two decades. General Motors has now closed its manufacturing unit in India.
But the sheer potential of the Industry and demographics of the Indian populations means that India will always be on the focus of every Auto Major that is looking at huge opportunities and economies of scale.
Let's take a look at the Body Type wise volume
Hatchbacks are the major chunk of the Industry, contributing to around 50% of the industry. The Sedans are the spine, contributing 18-19%; and often the first choice, when the hatchback customers upgrade. However, the Hatchbacks and Sedans are declining at a pace higher than the total industry.
The UV and MPV are for the sporty customers, and now combined contribute more than 45% to industry. They are also preferred by the medium and higher income group levels.
UV vehicles are the name of the game, with consistent growth performance over the years, it is very evident that the market is highly inclined towards the UVs.
The UV and MPV segments have grown due to some excellent products, that have been captured the customer's interest. Some names that need mention are the Creta from Hyundai, Seltos from Kia, Thar from Mahindra, Tata Nexon, and Tata Harrier, Maruti Brezza. A lot of UV and MPVs are being planned to be launched in FY2021-22.
Interestingly, Mahindra has been displaced from its perch of “ Indias Top UV Manufacturer” by Hyundai. Mahindra has gone in for a complete restructuring of its Product Portfolio and also made strategic changes in its Top Management.
Sedans continue to shrink
The decontrol of fuel prices; and only a marginal price gap between Petrol and Diesel prices, meant that the Diesel Sedan was no longer the first preference for upgradation from a hatchback. The Hatchback segment suffered due to an overall slowdown in the economy, especially the Services Sector.
The Government's insistence on implementing BS6 norms resulted in an increase of price models across, which also affected demand to an extent.
BELOW CHART SHOWS CONTIRUBTION OF ALL BODY TYPES OVER THE YEARS
UV and MPV now contribute to about 45% of the industry.
Now, if the Hatchbacks and Sedans continue to decline; and their contribution comes down to around 50% or below, this could mean higher realization for the OEMs.
However, the decline in Hatchbacks and Sedans could mean a change in ground realities for Maruti (which depends on Hatchbacks and Sedans) as also for Hyundai (i10/i20), Honda, Volkswagen, and the others. Tata hatchbacks, which are doing very well, could challenge Maruti and Hyundai.
Jeep, Kia, MG, Hyundai, Tata could make an aggressive challenge.
BELOW TABLE SHOWS GROWTH OF ALL BODY TYPES OVER THE YEARS
Ola, a major player in the Aggregator model, and a key driver for driving demand for Sedans is making a foray with huge investments into the e-Scooter segment, will this lead to a greater fall in Sedan numbers? Uber, the other major aggregator, has not been to gain leadership in spite of a strong challenge.
The Pandemic could deal a death blow to the shared mobility platform – that is largely Sedan dependant.
Possible Reasons for the decline :
The aggregator model used Sedans largely, has reached a matured level of numbers.
Aggregators, especially Ola, diversifying into other segments – launching e-scooters.
Customers upgrading from Hatchbacks directly to SUVs.
Pandemic has dealt a death blow to shared mobility and long-distance traveling.
Work from Home culture could lead to a serious fall in demand for the Taxi Segment,
High Fuel prices and the strict government norms on BS6 and other areas have made the operational cost of a Sedan, used for commercial purposes, very high.
BELOW TABLE SHOWS CONTIRUBTION OF SEDAN SEGMENT OVER THE YEARS
Possible Reasons for the decline :
The major markets of Maharashtra, Delhi, Gujarat, Karnataka, Kerala, Tamil Nadu, Uttar Pradesh, which account for more than 70% of hatchback sales have seen a consistent drop.
Nonavailability of Diesel from many OEMs and shift to BS6 at a higher price range, has made customers spend a little more for the UV segment.
Increased activity by the OEMs focussing on product development and up gradation in SUVs, for higher realizations.
BS6 implementation and the high consequent price rise also affected the demand.
BELOW TABLE SHOWS CONTIRUBTION OF HATCH SEGMENT OVER THE YEARS
UV's have had a dream run
Hyundai, Kia, and Tata, with their UV models, have driven the demand. And in spite of most models of Mahindra declining, this has been offset by the performance of the others.
The Thar has been a runaway hit for Mahindra; and driving demand for the company.
The success of the UV segment has seen the other players like MG, VW, Skoda, Mercedes, Toyota, Ford to be very optimistic on India and plan a slew of launches.
BELOW TABLE SHOWS CONTIRUBTION OF UV SEGMENT OVER THE YEARS
When you have a particular body type running at a very rapid pace and delivering growth year after year, UV body type is where all OEMs want to be. The contribution of UV continues to grow at a rapid pace and it challenges the dominance of the hatchback segment.
No doubt, Kia entered India with the UV segment. So did MG. We also see a slew of launches from Maruti in the UV segment coming up next year. And Hyundai has changed its communication as the Largest Manufacturer of UV. Mahindra continues to only survive in this segment. UV body type is here for the long run, so either OEM's get their best value cars in this segment or they are in for rough weather.