FINE! Young Cannibals…

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Different generations of the same model have often co-existed in harmony in the Indian market. But which one would the carmaker rather have dead? And when? A look at how the Indian market turns global platform strategies on their head.

 

Hyundai India recently launched the i10 Grand (BA). Essentially this is what the world knows as the next generation i10, though the Indian market variant has a longer wheelbase and is longer overall. This increase in length and interior space is dictated by Indian market requirements and also to differentiate the i10 Grand from the old i10 (PA).  

Santro vs i10

Even after the launch of the i10, the Santro never went away and now targets the entry level customer for Hyundai.

You see, the old i10 hasn’t done its retirement planning yet.It is acting more like a stubborn ex-minister refusing to vacate his house in the LBZ so that a new one could move in. The i10 refuses to vacate the showroom real estate that it has somehow wrested from the Santro (MX), Hyundai’s original small car in India.

Which is still around…

The thing is that there is sense in this confusion. More models mean the capacity to pull in more customers to the showrooms. The Indian customer is anyways blind and impervious to platform generations and treats every model as different.

That is the story for a number of global carmakers that have now started reading the Indian market better. They have also started taking a leaf out of Maruti’s book (is it because Maruti-Suzuki is the largest senior management supplier to the auto industry?) and are not shy about older generation models lingering on.

Every phenomenon has a reason

Global product lifecycles are a typical 5-7 years for small cars after which platform redesign often replaces at least 50% of the components. Global lifecycles often follow the trend of Start Bang – Quick Peak – Profit Plateau – Discount Slope – Ventilator Support after which a new model generation replaces the incumbent.

India vs Global Lifecycles

Lifecycles of successful Indian models are longer, often have a delayed Peak and an elongated Profit Plateau

On the other hand, Indian model lifecycles are often like Indian politicians, attaining puberty only by the age of 50.

A typical Indian car model often starts sedately, gathering momentum as more customers discover it and trust it. The model enjoys a long profit plateau as the customer trust builds up and then has a tail the size of Hailey’s comet.

However, all of this is true only in the case of successful models. The failures are often just an agonizing tail waiting to be replaced by the next generation.

And success is what defines lifecycles in India.

Maruti-Suzuki and the art of missing generations

Maruti-Suzuki found success early on with the Maruti 800 during the 80s, 90s and 2000s. During most of the first two decades, India was a country living in some sort of elongated automotive time warp. With nearly zero competition, Maruti could continue the M800 (Suzuki Alto/Fronte SS80) from (1984 onwards) for many years with only a single change in model cycle in 1986 (Suzuki Alto SB308).

So successful was the M800 that Maruti-Suzuki could afford to skip two generations (Third- and Fourth) of the Alto and stick to producing the SB308 for years. It was only in the year 2000 that Maruti-Suzuki introduced the fifth generation of the Alto as the first introduction of the nameplate in India. Even that came as an altogether new model placed above the M800 while the older generation continues till date, its 30th year of production at Gurgaon.

800 vs Alto

The 800 takes care at the real bottom of the market in B-and C-towns. Numbers declined after the alto’s launch but stabilised thereafter

Maruti-Suzuki’s chewing gum extension of lifecycles continued with the Alto (YG4), which has continued in India since then. While the original 800cc version was withdrawn from production in 2012, the facelifted 1.0-liter version (K-10) still continues in the market.

Maruti-Suzuki again skipped a generation of the Alto as the sixth-generation never made it to India. The company then decided to launch the seventh generation of the Alto as the A-Star (YC5) in the Indian market. A product designed more for international markets, the A-Star met with poor response in the market.

In 2012, Maruti-Suzuki launched another model named the Alto800 (YE3). This is also based on the seventh generation Alto platform and replaces the fifth generation Alto (only 800cc variant) in the market.

This implies that at present there are four models in the Maruti-Suzuki range that owe their origins to the global Alto generations. The immense success of the Alto range (peak of more than 35000 units a month) means that Maruti-Suzuki has been able to keep the lifecycle of some of the Alto generations immensely long in the Indian market.

That’s very clever of them. Why don’t the others do it?

The automotive industry is a slow learner. It’s the inherent nature, a result of 6-7 year lifecycles and 3-4 year development periods, which does that. Add to that quirks like “convincing global leadership in Germany / Japan / Korea / US,” and replicating Maruti-Suzuki’s strategy becomes much more difficult than what it appears.

But things have been changing. Global carmakers have spent an agonisingly long period of time without denting Maruti-Suzuki’s market share learning the ropes and some of them have figured out things. The result is manufacturers like Ford, GM and Hyundai not blinking twice while selling multiple platform generations in the market.

Ford is managing two different generations (B376 & B299) of the Fiesta in the market, though both of them, even collectively, do not give any sleepless nights to the competition.  The company also has the popular Figo (B517) hatchback and the very hot EcoSport (B515) small SUV and both trace their origins to different generations of the Fiesta architecture.

Hyundai is managing three generations of its global small car platform in the form of the Santro, i10 and i10 Grand.

GM too manages two generations of its small car Spark (Spark (M200) & Beat (M1JC)) in the Indian market.

Spark vs Beat

The Spark is a cheaper alternative to the slightly bigger, newer and more expensive Beat

At this point, it is difficult to make a logical comment on Mahindra mostly because of the company’s reluctance to end a platform (ever!) and our failure to differentiate generations of a Mahindra platform. For instance, we cannot logically deduce if the Thar is just a Commander with oomph or is the Scorpio the next generation of the Bolero platform.

Why is the Indian market unique?

Unusually extended lifecycles are possible in the Indian market due to a number of unique characteristics. Apart from the aforementioned factor of “Why mess with success”, a host of other factors propel carmakers to use unusually longer lifecycles:

  1. Naïve & Forgiving Uneducated Customer: The customer does not understand platform, generations and lifecycles. He does understand Bluetooth connectivity and steering mounted controls. Thankfully, most electronics can be fitted on an older platform as well.
  2. Customer’s Neanderthal Beliefs Superstitions Misconceptions: Many customers, especially those in the interiors of the country believe that the longer a car has been in the market the more ‘tried-and-tested’ it is. They associate the length of the lifecycle with the reliability of the product and manufacturers keeping long lifecycles (Maruti, Mahindra) play on this ‘strength’.
  3. Lower Competition: In a mature market, a fresher model often means nudging just a bit ahead of others in terms of features. This is not so important in India; especially in the small car segments and one can get away with a refresh, facelift and by adding parking sensors on an existing platform. In short, mere Botox can keep you away from surgery.
  4. Technology Churning: Or the lack of it. Unlike the higher segments, the small car segment sees relatively little technology churn and keeping a model floating is easier.
  5. Amortization: Due to the characteristics of the model cycle, the peak comes slightly later in the cycle. The profit plateau too is longer. This means that the amortization of tooling at both the OEM and supplier end is better but comes later in the lifecycle. Elongating lifecycles makes sense for everyone.
  6. Discount Slope: Again, the inherent characteristics of the lifecycle are such that the discount slope is not as severe. Most of the time, there is no pressure of a replacement model.
  7. Smaller Portfolio: With most manufacturers having a portfolio of 4-5 cars, it makes a lot of sense for a manufacturer to use a dated model to fill gaps in the portfolio. For example, the old model may cater to the fleet segment (Tata Indica V2) or may be used to target customers lower in the segment (Hyundai Santro) while the newer model goes after the upper end of the segment (i10 Grand).
  8. Passing the baton: Often in the case of highly successful models, the replacement looks like a giant leap of faith. Manufacturers often try to cushion against any unlikely failure of the replacement models by continuing with the older model as well. In many cases, the slowing down sales of the older model adds to the taking-off sales of the newer model to maintain the overall sales volumes.

    Santro vs Eon

    While the Eon is just the spiritual successor of the Santro, Hyundai would kill the older model only when Eon sales have stabilised

  9. The Sachin Tendulkar problem: You made a car and it became the darling of the masses. Now it has been around for a gazillion years and should ideally retire. The problem is that there are always a small, but significant, chunk of customers who are so happy with the model that they will replace it only with the same model. Why disappoint them when continuing to produce the car anyways prints you some more money. This factor is more a characteristic of some Maruti and Mahindra products.
  10. Suppliers: The automotive business is not just about the OEMs. It is more about the suppliers as pricing of a product depends heavily on the type of pricing that the OEM can manage with the suppliers. Suppliers are always happy to continue to supply to a model which has been around for a long time as the tools / dies have been amortized many times over and any sales, even declining, means high profits.
  11. Rotterdam-Mumbai Shipping Lag: Sometimes models enjoy an extended lifecycle even in the case of manufacturers who are otherwise model-cycle savvy. This happens mostly in cases where the model has a CKD / SKD assembly. The parent plant often has an inventory of a few hundred right-hand drive units after the model has been replaced in international markets. These units are enough to maintain the model going on for a few months or even a couple of years in the Indian market. The strategy works for a Skoda as it continues to offer the Laura with the new Octavia (or the old Octavia with the Laura in the past). The old model can then be offered at a discount pulling new customers in the fold.
i10 vs i10 Grand

The Grand i10 has added volumes to the existing i10

So how do models co-exist?

Launching a new model while continuing with the old one sounds good on paper. The last thing that a manufacturer wants is that the new model does not take off because the customer is still enamored with the old one. Most manufacturers counter this strategy by differentiating new generation model from old generations. The differentiation can be:

  1. Vertical: The new model comes on top of the old one targeting customers who are at the top-end of the segment. This is often the most common strategy as the new model is most likely to pack in many more features and equipment than the older generation and positioning it as a top-end model becomes easier. e.g. i10 grand vs the i10 and earlier the i10 vs Santro. This vertical segmentation is often taken to an absurdly microscopic level by ensuring that some features are available only on the newer generation model. E.g. Maruti discontinuing five-speed transmissions on the M800 to support Alto sales.
  2. Horizontal: The newer model is placed in the same segment but with the intention of targeting customers who want different attributes. Maruti did it with the A-Star which eventually became “just another model in the range,” rather than being the next generation Alto. Often this creates a “We don’t know what’s happening” kind of situation, as the customers are free to decide their preferences.

    Accent vs Verna

    The very old Accent acted as Hyundai’s entry level sedan for a long time

  3. Brand Insulation: This strategy works in cases where the retail customer has little love for your brand. Sales, if any, have been coming from the taxi /fleet segment. You create a new generation model with the hope of attracting retail customers while the old generation model takes care of fleet sales. You never provide a breakup of sales between the two generations to keep the analysts guessing on the success of this strategy.
  4. Rename: This strategy works well when you want to differentiate the model horizontally or vertically. This strategy also works well when the model being replaced has NOT enjoyed huge success in the market and customers won’t miss the nameplate much.
  5. Act like model cycles are an alien concept: Especially true for manufacturers like Mahindra where the customer is unaware about product lifecycles.

However, things are changing

The Indian market is maturing fast and the technology churn even at the small car level has become quite volatile. Indian product lifecycle bell curves are now aligning themselves on the lines of global lifecycles. In such a scenario, for any manufacturer to maintain long lifecycles is very difficult.

In fact, if you were reading this in 2018, the first 2100 words in this analysis would hardly make sense.

In the near future, Indian product lifecycles would get shorter to align themselves with global lifecycles. Part of this would be due to the market ‘Pull’ as the customer would get more demanding, while some of it would be due to the ‘Push’ from global OEMs who would find it very difficult to adjust Indian lifecycles in their global product planning.

At the same time, the extended lifecycle will not go away and the market is heading towards acquiring a complex, difficult to analyse, shape. The challenge would be on global OEMs to adjust global product programs to accommodate the quirks of the Indian market.

In such a scenario, Emerging Markets Automotive Advisors (EMMAAA) forecasts an increase in overlap of product generations. There are likely coexistences of 1-2 years between product generations that will happen in the future.

At the same time, from hereon, it would be likely impossible for a manufacturer to skip model generations for the Indian market the way Maruti did in the case of the 800-Alto.

So who is playing co-existence right now?

In short, many of them. While the phenomenon started with Maruti-Suzuki and they are still the masters of the game, many other manufacturers have noted their success and have decided to emulate them. Leading amongst them are Hyundai, General Motors, Tata and Ford.  However, the strategy of coexistence and the degree of implementation have different interpretations at different OEMs.

Does coexistence always work?

Not necessarily. There are models where the manufacturer decides that a clean and complete replacement of the old generation with the newer model makes more sense. In these cases, often the replacement model is very similar looking and targets the same white space that the older model occupied. Having two models in the same space may be detrimental for the brand.

Platform Coexistence

Platform Coexistence

Maruti used the clean replacement strategy in the case of the Swift where the new Swift replaced the previous generation. The company in this case, even carried forward the waiting lists from the previous generation into the new one.

It used the same strategy in the case of the Wagon R when the new generation replaced the old one.

Premium & Luxury carmakers prefer having a clean sweep as well. The older generation model is discontinued, often at large discounts, and the new generation model takes over. Luxury car manufacturers even implement it down to model year levels.

OEMs and their likely behavior

While manufacturers have started copying Maruti in terms of elongated product lifecycles, Maruti itself seems to be moving away from the strategy. EMMAAA notes that the future lifecycles at Maruti-Suzuki are likely to be shorter and sharper. Competition from other global manufacturers will keep the company on its toes and ensure that the product range is refreshed and replaced at regular intervals. The Engineering center in India is also going to play an important part in this aggressive model refresh and replacement program.   [one_third boxed=”true”] Over simplifying Coexistence Coexistence of different generation platforms may not be always as simple as adding a new generation over the old one. A global manufacturer has to look ahead, for many years, to check if the strategy makes sense for them. Often it may make sense to lose some customers in the short-term than lose profitability. While coexistence often ensures that the overall manufacturer volume even at the very start of the lifecycle (overlap period) would stay close to its peak volumes, any spike in the new generation volumes may result in manufacturing problems. [/one_third]

However, replacement of models may not necessarily mean a complete platform replacement in the case of Maruti-Suzuki. A new program code may not mean a platform replacement though it may entail a completely new procurement and re-skinning.

Meanwhile, other OEMs are likely to follow Maruti-Suzuki’s old strategy of stretching platform lifecycles. Hyundai would be extensively using the platform co-existence strategy to counter the large number of offerings from Maruti-Suzuki in the small car segment.

Ford which presently has the Figo using the old Fiesta platform and the EcoSport using the new Fiesta platform is not likely to use co-existence as the core of its strategy. The move towards ‘One Ford’ strategy means that Ford India would see its products more aligned with its global range. However, we do not discount one-off deviations like Ford deciding to continue the current Figo even after a replacement enters production. The current Figo may then be used to target customers at the bottom of the segment.

Co-existence of different generation platforms as a strategy would be adapted more by carmakers that are struggling in the market and are short of resources to match the product onslaught from rivals. Fiat is likely to move towards the strategy as the next generation Linea may be positioned above the present generation. The present Linea is likely to stay in the market, targeting the budget sedan buyers giving Fiat some badly needed numbers.

Indian manufacturers are likely to follow the co-existence strategy for a couple of decades as they build up their engineering expertise. At present the Indian manufacturers – Tata & Mahindra – do not have the volumes, resources or engineering expertise to replace platforms every 5-6 years. This constraint on resources means that the manufacturer has no other way out than continuing with the same platform. In some cases, substantial re-skinning and gadgeting may be done to freshen up the product.

 

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4 Responses

Leave a Reply
  1. john
    Mar 26, 2015 - 06:02 PM

    Typical IAR. Witty in style, though lacking in substance.

    for example: “The parent plant often has an inventory of a few hundred right-hand drive units after the model has been replaced in international markets. These units are enough to maintain the model going on for a few months or even a couple of years in the Indian market. The strategy works for a Skoda as it continues to offer the Laura with the new Octavia (or the old Octavia with the Laura in the past).”
    IS WRONG

    The Octavia (the Laura predecessor) was sold alongside the European Octavia (which went with the suffix Tour). In fact the Octavia in India was discontinued before its identical international counterpart called Octavia Tour was in Europe.

    Many more mistakes in your article, but i will stop here and leave it to you to figure it out.

    Jeev

    Reply
    • IAR Team
      Mar 26, 2015 - 06:15 PM

      Jeev,
      You comment was published with a minor editing as we should credit the correct authors. Also, let us check facts and the way things have been written before writing comments.
      best

      Reply
  2. Uday
    Nov 04, 2015 - 12:19 PM

    Well written. Can’t commend the choice of words and replacements used in the article.

    Summarizes the typical Indian consumer psyche. Bumped into this article while I was searching for some sales reckoners. Interesting and in hindsight, now that this piece is 2 years and 6 days young, most of the examples stated are relevant even today.

    Though i tend to disagree with ‘The Sachin Tendulkar Problem” for the analogy it offered, all the other explanations were convincing enough. and Being from teh Automotive Industry, I can easily relate to some of the things mentioned here.

    Reply
    • Uday
      Nov 04, 2015 - 12:20 PM

      Sorry. “Can’t Commend” to be read as “Can’t stop commending”.

      Reply

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