Hangover – Part Deux!

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As much as we shake our heads and wash our eyes, the memory of 2013 is difficult to erase. In the last two decades, it has not been often that the Indian passenger vehicle market has had its nose rubbed on the ground disdainfully. We Indians are not used to see passenger vehicle sales decline and so when it does, it is considered an ‘event’.

Especially when the decline is of the magnitude of 7.2%.

The last time a real decline happened was in 1998 when the market declined by 8.9%. Technically, the passenger vehicle market did decline in 2001 as well. However, that decline was less than 1% and in actual volume term was only 630 units.

So, this decline in passenger vehicle market comes after 15 years and was not small in magnitude. No wonder we are still staring in disbelief.

What went wrong in 2013?

Like success, failure too needs hard-work and meticulous planning. As a country, India did just that over the last five years and more. While the economy was strong, there was little done in terms of infrastructure creation, pushing industrial growth, controlling corruption and in for lowering inflation. A collective onslaught of high inflation, low growth and corruption has resulted in a steady fall in GDP growth.

The automotive industry’s fall is just an aftereffect of the economic mess.

Economic Uncertainty – A Lack of Confidence in Wage Growth

In specific terms, consumer confidence was quite low in 2013. In earlier years, high price inflation had been countered by high wage inflation. Private organizations could provide significantly higher wage inflation (than actual inflation) as these companies were growing at a higher pace as well.

This reversed in recent years with a slowdown in economy. As a result, private companies were no longer able to grow at the brisk pace they were growing in the past. Matching wage inflation to actual economic inflation was out of question.

In 2013, this phenomenon reached a point where the prospective car buyer’s confidence in the maintenance of his wages, and their healthy growth, was no longer there. He was no longer confident that his personal finances would be improving in the near future.

Car buying – an emotional as well as practical decision – is capital intensive and was one of the first to suffer in the face of this new economic uncertainty.

A Lack of Stimulus – Low Model Freshness    

Often a dull year is made exciting through the introduction of new models, which attract prospective customers as well as fence sitters to the showrooms.

The year 2013 was especially low in this aspect. [one_third boxed=”true”] EMMAAA defines Freshness of a vehicle model as a measure of the ratio the particular model has been in the showrooms to the estimated total lifecycle of the vehicle. As this ratio is converted into percentage and subtracted from 100, a higher value of Freshness indicates that the model has been in the showrooms for less time. Theoretically, on Day 1 of model introduction, Freshness is 100 and it keeps declining with every passing day of the model lifecycle. [/one_third]

In its recent study on Model Freshness, EMMAAA measured the freshness of showrooms of every brand and calculated that the Model Freshness Index (MFI) for 2013 had a value of 43.38. This is significantly lower 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 for the year 2012. 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. Out of these five, only three – EcoSport, Amaze and i10 Grand – were completely new models.

With very few new products in the market and a low overall freshness level, prospective customers were not stimulated to come to the showrooms. This further dragged sales down in 2013.

The Changing Dynamics of Segments

The problem with good times is that they mask weaknesses. Often strong and weak segments grow together, everything sells and everyone gets a bonus. A bad year is often the best time to analyze what the customer would choose with a gun on his head. Weak segments and weak products are shunned and the customer buys only solid gold stuff – cars that he won’t be able to do without.

In that sense, 2013 was a great year once we start unraveling the layers below the overall numbers.

A Segment: The Nano created this segment or the segment has been created for the Nano – whichever way you look at it, the Nano and the segment (Tata Nano is the only model in the segment) had a disastrous 2013. Sales were down 76% over 2012. While 2012 itself was a disappointing year for the Nano with sales of only 76,000 units, 2013 numbers were just above 18,000.

The only model in the segment – Tata Nano – also suffered from a low MFI value of 37.5.

While sales in the early months of 2013 was fluctuating in nature, sales stabilized at around 2000 units from June onwards. However, post the festive season, sales took another leap, downwards, to close at only 554 units in December.

It seems that the Nano has stabilized at about 1500 units a month and that can only be bad news for Tata. The spectacularly low volume is an indicator that the mainstream customer is mostly not considering the Nano in his buying decisions.

The challenge for Tata Motors then in the coming quarters is to make the Nano relevant again, more than looking at reviving the sales in any measure.

In 2014, EMMAAA forecasts moderate to strong percentage growth in the segment. However, the growth is by virtue of the ship hitting rock bottom in 2013 and not because of any meaningful revival in sales.

In other words, Nano sales have sank so much in 2013 that even a slight upturn in sales will result in a strong growth in percentage terms.

2013 in numbers

Only three segments managed to scrape through in to the green in 2013

Mini Segment: The Mini segment declined by only 2.33% in 2013. This limited decline was a result of Maruti’s Alto800 supporting sales. The model was launched in October 2012 and strong sales from the new model ensure that Maruti’s Mini Segment sales ended the year with a 0.48% growth over 2012 numbers.

However, sales dip at Hyundai (Eon / Santro – down 7.14%) and GM (Spark – down 58.3%) meant that the overall Mini segment ended the year with a 2.3% dip in sales.

For 2014, the segment holds the key to revival. Most of the buyers in this segment are first time car buyers and a lot depends on Maruti and Hyundai’s ability to find car buyers in smaller centers.

The segment suffers from product staleness as well as apart from the Maruti Alto800 and the Hyundai Eon to some extent; all the other products in the segment are at the end of their respective lifecycles. The collective MFI score for the segment was 30.63, much lower than the industry average of 43.33.

EMMAAA forecasts only moderate growth in the segment in 2014. The upcoming Maruti-Suzuki Celerio is expected to give momentum to sales. However, it remains to be seen if the Celerio is categorized as a Mini or a Compact car.

Compact: The Compact segment sees a lot of upward movement of customers as they shift from Mini segment cars to the bigger Compact segment cars. With the economy under pressure, this upward movement was restricted in 2013. As a result, Compact segment sales were down by more than 9% in 2013, over 2012.

On a model level, there were multiple factors at play affecting sales. The Ford Figo lost sales as customers moved to the EcoSport within the same showroom. Maruti lost sales n the segment mostly due to the staleness of the Ritz and Estilo models. GM could not sustain the momentum of the Beat and could not create excitement for the Sail UV-a. Tata Motor also lost significant sales volumes as fleet operators delayed fleet renewals due to economic slowdown. Sales decline also happened at Volkswagen (Polo) and Toyota (Liva) due to mid-life crisis.

Growth in the segment came from the Honda Amaze. Though the Honda Amaze is a compact sedan like the Swift DZire and so should be a part of the Super Compact segment, SIAM does classify the model as a Compact. Thanks to the Amaze, Honda could grow by 118.9% over previous year.

The Compact segment had a Mode Freshness Index (MFI) value of 47.42, significantly higher than the industry average. Freshness was helped by the Honda Amaze, Hyundai i10 Grand and Mahindra Vibe, all launched within 2013.

Super Compact: Not many passenger vehicle segments delivered growth in 2013 and the Super Compact segment was one rare oddity. The segment was helped by customer interest to upgrade from the Mini and Compact segments for a very small price increase.

The Maruti-Suzuki DZire compact sedan drove growth in the Super Compact segment. With an all-new generation of the Dzire launched in Feb 2012, Maruti could deliver a 28.5% growth in the segment. The other models – Toyota Etios Sedan, Mahindra Verito and Hyundai Accent – faced staleness in the market. The Verito also lost some sales to the spin-off hatchback, Vibe.

The MFI value for the segment was 48.94, helped by the fresh DZire and the unusually long lifecycle of the Verito. (Note – The Hyundai Accent ended its lifecycle in 2013 and was not considered for the calculation of MFI)

Mid-Size: Things became bad as we went higher up in the market. The Mid-Size segment lost more than 25% in volumes mostly as customers stopped doing discretionary purchases and stuck to the basics.

The only strong performer in the segment was General Motors with its Sail sedan. Launched in Oct 2012, the Sail managed to clock 2761% growth over 2012 sales.

Growth also came from the Renault Scala. The car was launched in September 2012 and registered a growth of 117.88% in 2013 over the previous year.

Traditionally strong models like the Hyundai Verna and Honda City fared badly. The Verna started the year strong but lost momentum midway due to staleness and market pressure, ending the year with sales decline of 13.97% over 2012. The City, in its last year of lifecycle, suffered a sales decline of 29.28% over the previous year.

The Mid Size segment had a MFI value of 44.83, only slightly higher than the industry value. The Freshness Index value was hurt especially by the Honda City, which was replaced in the first week of Jan 2014.

Apart from the City, the Ford Classic and Maruti SX4 also made the segment stale. The segment’s freshness was raised by the Chevrolet Sail, Skoda Rapid, Nissan Sunny and Renault Scala.

Executive / Premium: The situation worsened in even higher segments – the Executive segment lost 30.55% in sales in 2013 while the Premium segment lost more than 36% in the year as compared to the previous year.

In doing so, both segments became borderline irrelevant.

The Executive segment participants had a mixed bag year with some models performing well for a few months. The Fiat Linea picked up well towards the end of the year with the launch of a reduced price model. The new Skoda Octavia also supported sales towards the end of the year.

However, the Cruze, Laura, Corolla, Fluence and Jetta could not attract customers due to market sentiment as well as staleness.

The only model delivering growth in the Executive segment was the Hyundai Elantra, managing to clock a 59% growth in numbers due to its freshness.

The Premium segment lost 36% of the market and none of the participating models had an exciting year. The Superb continued to be the biggest seller in the segment though it too lost 43% of its sales volume in 2013.

The other big seller – Honda Accord – lost more than 21% of its sales in 2013. BY the end of the year, Honda had managed to sell all of 520 units and the company decoded to withdraw the model.

Utility Vehicles – UV1:

The Utility Vehicles market is always a mixed market with both personal users as well as fleet buyers. A slowdown in utility vehicles is often a better indicator of the economy than passenger cars.

The UV1 utility vehicles segment includes vehicles with length less than 4.4m. Due to their compact size, most of these vehicles are for personal use.

The UV1 segment was one of the few segments, which grew in 2013. The segment grew by 22.7% in 2013, over the previous year, and the key drivers were the Ford EcoSport and Renault Duster. While the Duster carried the momentum of 2012 into 2013, the EcoSport met with a very favorable response post its launch in the middle of the year.

While the EcoSport managed to add 33702 units to the segment, the Duster stayed strong during most of the year. While the Renault SUV slowed down after the launch of the EcoSport, it still managed to deliver a 116.6% growth in numbers.

However, everyone else in the segment suffered a sales decline. Even strong players like the Maruti Ertiga and Mahindra Bolero / Thar / Quanto suffered sales declines.

UV2: Most of the UV2 segment utility vehicles, barring the Safari, Innova and Scorpio, are primarily used for commercial applications. The segment witnessed a decline of nearly 12% in 2013 as sales of Mahindra utilities and Innova collapsed.

UV3: The UV3 segment has very little participation and is mostly irrelevant. In 2013, the segment lost nearly half its volumes as Force One sales collapsed while Aria sales faild to take off.

UV4: The UV4 segment represents SUVs like the Toyota Fortuner and Mahindra Rexton. The segment managed to grow by 12% in 2013, mostly due to incremental volumes from the Mahindra Rexton and the continued strength of the Fortuner. However, the Toyota Fortuner now controls most of the market and products like the Endeavour and Captiva are increasingly become irrelevant.

The UV4 segment benefits from the continued migration of many Premium car customers into the segment. A SUV has better capability to navigate rough roads, has better interior space and greater road presence, and Premium segment customers are preferring machines like the Fortuner.

Vans: Both hardtop (V1) and soft-top (V2) van segments saw sales decline in 2013. While V1 segment experienced a decline of 13.0%, the V2 segment saw decline of 11.8%. All vans are for commercial usage and a decline in sales is an indicator of the worsening small business environment.

 

 

 

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2 Responses

Leave a Reply
  1. Rahul
    Feb 06, 2014 - 08:16 AM

    Hi,

    This is an interesting website.

    It would sure help if you could clearly post the criteria for each segment. Are the segments as per SIAM classification?

    Would love a clarification on this.

    Thanks

    Reply
    • DR
      Feb 06, 2014 - 12:41 PM

      Rahul, All segmentation is as per SIAM classification, unless otherwise specified.

      Reply

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