Acting Fresh!

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In hindsight, it appears that a stale product lineup made 2013 worse than what it should have been. EMMAAA estimates that the model lineup in 2013 had one of the lowest Freshness Index Values in recent years.

Year 2013 is over, both literally and figuratively. In hindsight many in the Indian auto industry would have liked the Mayans to be correct for once and the world to have ended in 2012.

So badly mauled we were in 2013.

But not all years are equal and it is best to compare 2013 to other years to make sure we are doing apples to apples comparison. While doing any such comparison, we should look at the freshness of models in a particular year. A fresh model is more likely to pull potential customers – eager or serious – to the showrooms.

Why is Freshness Important?

EMMAAA divides the typical lifecycle of a car into four distinct phases – Start Bang, Profit Plateau, Discount Slope and Ventilator Support. Out of these, the first phase is just at the start of the lifecycle.

The Start Bang is the time when the model is very new, very Fresh and there is customer curiosity about the model. At the same time the launch, communication and marketing costs are high in this phase.

In most cases, Freshness is high sales volumes and better profitability

In most cases, Freshness is high sales volumes and better profitability

The Profit Plateau phase follows the Start Bang phase and this is the phase when sales peak. The vehicle is still Fresh in the market and its features, specifications and qualities ensure that most sales happen without any need for discounting. This is the phase when the profitability of the program is the highest.

The first two phases in the vehicle’s lifecycle are the most critical as they deliver the most profits for the manufacturer. These are the phases when the model is Fresh and the manufacturer can sell large volumes without the need for heavy discounting.

Once the vehicle is past the first two phases, the manufacturer needs a far more detailed strategy and much greater effort to sell the vehicles. This is the reason why the Freshness of a model is important for the manufacturer.

Model Freshness Index: EMMAAA looked at model lifecycles and examined how many months every model has spent in the market. This is then taken as a ratio to the expected total lifecycle of the model, calculated using EMMAAA’s model intelligence. The ratio is then converted into a percentage value and subtracted from 100. The average of the same for all relevant models is taken as the value of the entire market.

This is termed as the Freshness Index.

In brief, the Model Freshness Index (MFI) is an indicator of the freshness of the average car in the market. The theoretical value of the index is between 1 and 100 and the higher the value, the fresher the models in the market.

On Day 0 of the introduction of the car, the Freshness is 100 and it declines continuously as the life of the model progresses.

As a mathematical formula:

vehicle model freshness formulaAs an illustration, a model in its 24th month of lifecycle and with an estimated life of 75 months has a freshness of 68. (100-24*100/75)

Index Constituents: While calculating the MFI, EMMAAA does not consider any niche or low volume models. The research agency keeps a threshold of annual sales greater than 6000 units (average monthly sales of 500 units) while considering the constituent models of the Index. This is done to ensure that a niche model does not skew the index in any way since all constituent models in the index carry an equal weightage.

This omission means that for 2013, all luxury cars are not a part of the index. The omission also rules out cars in the Premium segment (Toyota Camry, Honda Accord, Skoda Superb etc.) and the Executive segment (Skoda Octavia, VW Jetta, Renault Fluence etc.) also. Further, it also rules out most premium SUVs, barring the Toyota Fortuner.

Finally, EMMAAA also removed people carriers like the Chevrolet Enjoy and Tavera, Tata Sumo and Grande and Mahindra Bolero from the mix as their sales is not much impacted by their lifecycles.

However, the Maruti Ertiga, Toyota Innova and Mahindra Scorpio are included.

Model Freshness Index value: Overall, EMMAAA considered 55 mainstream models to calculate the MFI for 2013. On January 1st, 2014, the Index had a value of 43.38. This is less than the median value of 50 and indicates an overall staleness of models in the year gone by.

In comparison, the MFI had a value of 48.35 on 1st January 2013. A more than five-point higher value of the Index in 2012 indicates that the mainstream model line-up in the past year (2012) was significantly fresher than that in 2013. As a comparison, while ten new models were introduced in 2012, only five were launched in 2013.

Freshness Index by brand

Renault, Nissan and Skoda do well in Freshness while Fiat, Maruti-Suzuki and Tata do badly

Freshness Influencers: Five new models were introduced in 2013 and carry high Freshness values. Three of them – Honda Amaze, Ford EcoSport and Hyundai i10 Grand – were completely new and will have normal, long lifecycles.

Two others models were spun off existing models and this shortens their lifecycle. The Mahindra Verito Vibe is a hatchback iteration of the Mahindra Verito sedan, which itself is a rebadged Renault Logan. The lifecycle of the Vibe is dependent on when Mahindra comes around to replacing the verito in the market.

Again, the Nissan Terrano is a rebadging of the Renault Duster. The next generation Nissan Terrano would be better aligned with the next generation Renault Duster.

Honda: The Honda showroom has a Freshness Index value of 50.21, seven points higher than the overall market. The Freshness has been improved by the launch of the Honda Amaze in April 2013. The Amaze is expected to have a lifecycle of 66 months and this places the freshness of the model in January 2014 at 86.4.

However, the Amaze’s good work gets completely undone by the City. Honda’s popular sedan is in its 60th month of lifecycle and is expected to have a lifecycle of 61 months only, placing the City’s freshness at a dismal 1.64.

Note that while Honda has already unveiled the New City, the next generation car is not yet commercially available and for the calculation of the Freshness Index, the existing model in the market has been considered.

Ford: Freshness for the Ford showroom is thanks to the EcoSport. Launched in July 2013 (actually end June 2013, but since it was the end of the month, June has not been considered), the EcoSport has been in the market for six months. With an expected lifecycle of 69 months, the EcoSport has a Freshness of 91.3.

Ford’s Freshness score is battered by the Classic. Launched in September 2005, the Classic has an elongated lifecycle of 111 months (estimated) and that places its freshness at a low 9.91.

Overall, Ford manages a Freshness Index value of 47.27, four points higher than the market.

Hyundai: The other completely new model in the market came from Hyundai, which launched the i10 Grand. Launched in September 2013, the i10 Grand has spent only four months in the market. With an estimated lifecycle of 84 months, this puts the Grand’s Freshness at 95.24, actually the best in the market.

However, the company’s decision to carry forward the i10 as well pulls down the Freshness Index value severely. The ongoing Santro Xing hatchback, in the market since July 2003 (the current generation), also pulls the Freshness value down. The hatchback is expected to have a lifecycle of 137 months and holds a Freshness value of 8.03.

Another drag for Hyundai’s showroom’s freshness is the i20, which is in its 63rd month of lifecycle. With an expected total lifecycle of 72 months, the i20 has a Freshness value of 12.5 only.

Overall, Hyundai manages a Freshness Index value of 44.35 for its showroom, just a notch more than the overall market.

Freshness - Individual models

The i10 Grand is the Freshest car in the market as per the Index though the Honda City suffers on a mere technicality

Mahindra: Mahindra launched the Verito Vibe in the market this year and that improves the Freshness of the company’s showroom. With an expected lifecycle of 43 months, the Vibe manages a Freshness value of 81.4 in its eighth month of existence.

The XUV500 and the Quanto also improve the Mahindra showroom’s freshness but the Scorpio and the Verito drag it down.

Overall, the Mahindra showroom still does better than the market. With a value of 51.44, Mahindra actually manages to even better Ford and Honda.

Nissan: In 2013, Nissan introduced the Terrano SUV in the market. Essentially a rebadged Duster, the Terrano is expected to have a lifecycle of 63 months to align it better with the next generation Duster. In its fourth month of existence, the Terrano carries a strong Freshness of 93.65.

Overall, the Nissan showroom has a strong Freshness Index value of 64.81, a huge 21 points above the market average.

Nissan’s Freshness is also helped by the Sunny, which is in its 28th month of existence and carries a Freshness value of 61.11.

Renault: The other strong Freshness Index performance comes from Renault. The brand has three models in the showroom – Scala, Pulse and Duster – and all three are in the early stages of their respective lifecycles. Overall, this gives Renault a Freshness value of 70.46, 27 points above the market average.

Skoda: Volkswagen’s Skoda brand performs well as the Rapid, its only model under consideration is in its 28th month (out of 72) of lifecycle. This gives Skoda a Freshness Index value of 61.11.

Maruti: Maruti-Suzuki performs rather poorly on the Freshness Index front. With a Freshness Index value of 35.77, the Maruti showroom appears quite stale on EMMAAA’s evaluation criteria.

Maruti’s Freshness is raised by the Swift (59.72), DZire (68.06), Ertiga (75) and the Alto800 (79.17) but gets pulled down by pretty much everything else. The big drags on Maruti’s Freshness are the 800, Omni, SX4 and the Alto K10.

Tata: The Nano, Manza, Indigo eCS, Indica, Safari Storme and Indica Vista are the models that constitute the Tata showroom. However, apart from the Safari Storme and the Manza, none of the other models fares above market average in Freshness value.

In its 14th month of existence (out of an estimated lifecycle of 96 months), the Safari Storme has a Freshness value of 85.42. On the other hand, the Manza, in its 51st month of lifecycle but with an expected lifecycle of 96 months carries a Freshness Value of 46.88.

The Nano in its 60th month of existence and is expected to have a lifecycle of 96, putting its freshness at 37.5. Tata’s showroom freshness is most adversely impacted by the Indica (old generation), which is in its 180th month of existence. This puts its freshness at 11.33.

Chevrolet: At 40.79, the GM brand has a Freshness value slightly lower than industry average. While the Sail UV-a and Sail sedan, both launched in end 2012, improve the Freshness, the Spark (80th month of lifecycle) with a Freshness value of 11.11 pulls things down.

Toyota: The Japanese manufacturer manages just a slightly better than the market average Freshness Index value for its showroom. While the Etios and Liva help the Freshness cause, the Innova pulls things down.

Volkswagen: The German brand is another one, which has an industry average matching Freshness value. At 45.48, VW does only slightly better than the industry. Both the Polo and the Vento – the two models under consideration – have now completed more than 50% of their expected lifecycle.

Fiat: Fiat’s two models – Grande Punto and Linea – are likely to see extended lifecycles in India. While the Punt has spent 55 months in the market, the Linea is now 61 months old. The two models combined give Fiat’s showroom Freshness Index value at 24.23.

What changes in 2014?

It is not possible to calculate the Freshness Index value of the market at the start of a year. This is because model cycles may fluctuate by a few months from the earlier estimated values.

EMMAAA estimates that 2014 will end with a Freshness Index value of 47.08, about four points higher than the value in 2013. This makes 2014 nearly as Fresh a year as 2012.

What helps in 2014 is the expected discontinuation of models like the Hyundai Santro Xing and the Maruti 800. There are also models like the Maruti A-Star and Estilo that would be replaced in 2014 by the Celerio. The SX4 is also likely to be replaced in 2014.

What also helps is the introduction of brand new models like the Datsun Go and Go+, Hyundai i10 Grand Sedan and MPV and the Honda Jazz & Mobilio.

 

 

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