Small SUVs – Mega Successes

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EcoSport

Mini SUVs are kicking the collective bottoms of the ubiquitous hatchbacks. How did this happen?

The Ford EcoSport (B515), as expected, has become a runaway success. Good looks & intelligence is always a deadly combination and the EcoSport was bound to create ripples. The hatchback-killing price just added extra toppings, ensuring that the mini-SUV hit the road running.

Since the launch, there has been a “new iPhone is out” style customer rush outside Ford showrooms. Media reports indicate that the company had excess of 50,000 bookings for the EcoSport, within the first 50 days of launch. At that time, the company management decided that they were too overwhelmed by the response and needed time out to count the moolah.

They stopped taking fresh bookings.

Ford EcoSport

At that point, some of the popular variants, especially the diesel ones, had an estimated waiting period stretching to nine months to a year.

Since its launch in June 2013, Ford has dispatched more than 20000 units to its dealers. This is the data till end September (SIAM numbers).

Bookings are expected to reopen in October 2013.

In the near future, Ford should be adding an additional shift and its suppliers would ramp up accordingly.

Ford could also do well to add a Honda Amaze style TVC elucidating why it makes sense – for someone who has paid the deposit – to wait for the EcoSport till next summer.

EcoSport’s runaway success becomes even more significant in the summer of 2013, when the overall industry is facing one of its worst slowdowns in history. Passenger vehicle sales in the first nine months of the year are down by 7.7% with no respite in sight.

Emerging Markets Automotive Advisors (EMMAAA) forecast 2013 to end with more than 6% damage to passenger vehicle sales.

Small SUV4In such conditions, for a vehicle to come out-of-the-blue and corner 50,000 bookings is commendable.

It is also bound to hurt the incumbents – Maruti and Hyundai, particularly – quite badly. Significantly, the hurt is going to be prolonged because both manufacturers have to keep fighting for more than a year-and-a-half before their own mini SUV models start production.

Renault Duster – the unlikely superhero that started it all

A few miles away from Ford’s Maraimalainagar plant lays Renault-Nissan’s Oragadam facility. In recent months, the company has seen its Duster (H79) small SUV lose some of its momentum to the EcoSport. However, things are returning back to normal as the EcoSport’s long wait is sending prospective customers back to the Duster. September 2013 sales were creeping up towards the 4000 mark again.

Renault launched the Duster in mid-2012 and in the first twelve months, the Logan (L90) based crossover managed to sell more than 54,000 units. This is even after a relatively sedate start to sales when the first three sales months for the Duster accounted for less than 8600 units.

Renault DusterHowever, once the quirky looker gained sales momentum, there was little stopping it. At its peak, the Duster has seen more than 6300 units leaving the Oragadam plant gates, in a month.

However, that was many months back and things have changed somewhat. The Duster faced a temporary lull in sales – July and August, together, saw only 5156 units shipped. Sales seem to be back on track with 3973 units being dispatched in September 2013. Most of the sales slowdown has been due to the EcoSport while some of it is the making of the Nissan Terrano (H79N), a Nissan rebadged variant of the Duster.

The Terrano, a vehicle to keep Nissan showrooms relevant, is expected to take a chunk of Duster sales. However, the cannibalization should be part and the Terrano should also nibble into the sales of other vehicles in the market as well, ensuring that the overall platform numbers are more attractive.

That’s what Renault-Nissan would like to believe.

Core suppliers won’t be too unhappy then.

However, by the time the EcoSport and Terrano spoilt the Duster’s party, the small crossover had already become a sales success. With nearly 65,000 units delivered in the 15 months of its existence, the Duster has single-handedly kept the Renault dealers solvent. Its cousins – Pulse, Scala, Fluence and Koleos – have fared worse than the supporting cast of Chennai Express.

Manageable SUVs – the new hatchbacks

The Duster-Terrano and EcoSport are expected to have a stellar 2013-14 and beyond. Their strong sales numbers in the face of an industry slowdown are an indicator of the changing preferences of the Indian car buyer. The customer is now happy to experiment with different body-styles and may prefer a SUV to a traditional hatchback / sedan.

We at EMMAAA term this as a “maturing of the market” where the car buyer has a more rounded sense of appreciation of ‘different’ body-styles. He is also a more experienced buyer who has bought cars earlier or has seen cars in his family. A new body-style, hardly seen earlier in the market and which never even seemed to be a packaging possibility, excites these customers.

Vinay Piparsania, Executive Director – Marketing, Sales and Service of Ford India feels that “(The EcoSport) it was a body-style defined as per the customer’s requirements. The body-style blends practicality, interior space and the ability to meet challenging road conditions in a contemporary package.”

As a consequence, a well-rounded product like the EcoSport – even in today’s challenging market – can still find a 6000 units-per-month niche. In contrast, the traditional hatchbacks targeting 20,000 units a month face a lot of pressure.

Take the new i10 Grand for instance. The consumer media has mostly positive reviews of the car and it is competitively priced. Yet, the market response is muted. As per media reprts, the Grand has managed to get 10,000 bookings within 20 days of its launch. September sales data indicates that the Grand has resulted in an increase of only 1500 units to Hyundai’s Compact segment volume.

In comparison, the Honda Amaze had managed 22,000 bookings in three weeks while the EcoSport ran to 50,000 bookings within 50 days of launch.

EcoSport vs Amaze vs i10 GrandHyundai’s own Verna, launched in 2011, when the market was a blooming lily, managed to get 5000 bookings within a week. Note that the Verna is a mid-size sedan, priced much higher, and aimed at a much narrower segment than the i10 Grand.

Hyundai’s i10 Grand performance becomes even more worrisome in light of its significantly higher contact points. Hyundai has 346 dealers across the country as compared to 265 for Ford and 155 for Honda. This lowers the cars-booked-per-dealer score for Hyundai dismally when compared to a Ford or Honda.

Clearly, as far as Round 1 goes, the niche product has given the mega-volume, generic hatchback a black eye.

Even the winners have little to celebrate

While the Ford team would be busy uncorking champagne, they do have their own problems to fight. The Figo, once a healthy 7000-a-month hatchback, came down to 2200 units (Aug 2013 sales). September has shown a minor recovery with 3515 units being dispatched. It seems that the prospective Figo customers are walking across the showroom floor and hugging the EcoSport.

Vinay Piparsania of Ford feels its natural as “A new product draws customers to the showrooms.”

“In the present economic scenario, where the customer sentiment across the industry is pretty soft, a lower sales tracking (on the Figo), consistent with the overall lower industry numbers is not unexpected,” feels Vinay.

EcoSport eats into everyone's salesThe scene is slightly different at the Renault showrooms where the Duster is the only reason for customers to walk in. While Renault has tried its best at justifying the showroom’s expensive real estate by hastily rebadging some Nissan products, the customer focus has seldom deviated from the Duster.

Why the mad rush for mini SUVs?

The recent rush for mini SUVs is not a phenomenon out of the blue. In a way, it has its roots in evolution. Indians – educated or otherwise – like imitating the American way of life. Large chunks of population in many parts of the country have often dreamt of moving to America and carving out their future. At times, the education of a child is designed around the idea of him / her eventually moving to America.

In contrast, not many dream of moving to Belgium. Or New Zealand.

Not counting the huge gap in annual income, there are a large number of parallels that can be drawn between Indians and Americans. Both are a little rough on the edges. Both like fast food and have a high rate of childhood obesity. Both can be deadly couch potatoes when left unattended. Heck, both countries have a high proportion of entrepreneurs and self-employed as well.

And like Americans, Indians too have a love for SUVs.

The problem is that the Indian SUV market has always been under-penetrated. Before the Duster came along, there was not a single SUV available in the below Rs 800,000 bracket. Astonishingly, even below the Rs 1.5 million levels, there were only the Mahindra and Tata SUVs to choose from.

The problem with the million rupee SUVs has been that these are crude, body-on-frame machines. The Bolero, Scorpio and Safari could not meet the requirements of the urban commuter who wants greater finesse and sophistication.

The high body-roll on these machines, lack of any refinement and their loud image ensured that only a specific section of the society was buying them.

The decent machines started only near Rs 2.0 million, taking them out of the reach of most of the car buyers.

Surprisingly, the numbers of these SUVs were still quite good. Mahindra sells more than 15000 of its ubiquitous machines every month, laughing its way to the bank in the process. Tata could move nearly 3000 of the Safari out of the factory gates in a good month. Meanwhile, Toyota kept struggling with meeting the high demand for its overpriced Fortuner, as real-estate brokers took fancy to the machine.

However, the demand in urban India was being ignored. Thus when the XUV 5oo (W201), the first monocoque SUV in the market, came out in 2011, there was a phenomenal rush to Mahindra showrooms. The XUV soon became a 40,000-units/year brand. For urban buyers, the XUV was two leaps ahead of the Scorpio or Safari. The ride was comfortable, with lower body roll and the equipment level was high.

The only glitch was that the XUV 5oo was priced at more than Rs 1.0-million, taking it out of reach of many. It was also a large machine with little frugality, which in the days of US$ 100+ crude prices, was bad news.

Not many were dreaming of ditching their small hatchbacks and jumping into an XUV anytime soon.

[one_third boxed=”true”] Preparation Helps:

The EcoSport’s success in a half-dead market is also a credit to Ford building up the interest for an unusually long time. The company first unveiled the EcoSport at a glitzy event during the New Delhi Auto Expo in Jan 2012. With the first units hitting the roads only in June 2013, that is a 17-month long twiddle-your-thumbs period, one of the longest we have seen in the industry. The unusually long window also gives the media a lot of speculation room to discuss (or create) issues like the EcoSport’s four-meter-ability and pricing issues. However, Ford feels extremely confident about the extended pre-launch idea. They are of opinion that, “The customer gets a better sense of what to expect and their feedback (taken during the extended pre-launch) can be used to fine-tune the product.” Vinay goes on to add that the extended pre-launch period is a “whole new paradigm in the industry” and Ford “may follow a similar pre-launch strategy in the future.” In comparison, Hyundai kept a very short pre-launch period for the i10 Grand, allowing very little time for the fizz to build up. [/one_third]

That changed with the Duster. The small SUV from Renault provided car-like size, car-like power, car-like maneuverability and car-like frugality. On the positive side, it came with a more practical SUV body-style and higher ground clearance.

The results were amazing – the hitherto unknown French brand became extremely popular overnight riding on Duster sales. Waiting lists stretched many months and the Duster pulled in customers from the Compact, Super-Compact and Executive segments.

The Duster opportunity was also early identified by Ford who first displayed the EcoSport at the Auto Expo in Jan 2012.

“(Mid / Small SUVs ) was a white space that we had seen. It also serves as a progression for a customer moving up from a hatchback / sedan,” Vinay Piparsania added.

The EcoSport is now building on the Duster’s foundation. The small SUV from Ford pushes the envelope wider than the Duster. The smart styling, frugal engines, compact size and (better than hatchback) usability mean that prospective car buyers find it hard to ignore the EcoSport. The very aggressive pricing also means that even the mini-segment (B-segment) buyer is dumping the hatchback for the SUV.

Future Bright….and crowded

Renault and Ford would be thanking their lucky stars that the Duster and EcoSport, respectively, have the whole segment to play with. There is absolutely no competition from the heavy-hitters – Maruti, Hyundai, Mahindra and Tata, and even the Japanese makes – Honda and Toyota – have nothing in the showrooms. Heck, no one will have anything in the showrooms for at least twelve more months.

That’s like a low-budget Indie movie hitting the screens and then realizing that no Khan, Kapoor or Kumar starrers are due for the next two weeks.

But that is not how things will stay for long.

Future Model Programs

Maruti and Hyundai both have small SUVs on the drawing board. In the case of Maruti, there are multiple small SUVs, of varying sizes, in the pipeline. The first of the lot should be the global replacement of the SX4. This Compact SUV (code: YAD) is expected to hit the showrooms in end 2014.

The other, and more relevant SUV from Maruti would be the production version of the XA-Alpha SUV concept displayed at the Auto Expo, New Delhi in January 2012. However, this will take long. The smaller, sub-compact sized SUV (code: YRA) is expected to hit the showrooms only by end 2015.

Meanwhile, Hyundai is readying a sub-compact SUV (code: IB) on the i20 platform (code: PB) to be introduced in the market in early 2015.

tl2

The other significant competition would come from the Mahindra S101. The yet unnamed, undefined vehicle should hit the showrooms in end 2015. Supplier speculation points to multiple body-styles, including a small SUV.  With every recent product, Mahindra has been making moves towards the urban customer. The S101 is a critical product for them, especially after the failure of the Quanto, to establish Mahindra as a brand acceptable to urban customers.

By the end of 2014, Honda should also have a small SUV (code: 2XP) in the showrooms. The small SUV will use the next generation Brio platform and should use the Amaze’s diesel engine to get the cash counters ringing.

Also on the distant horizon are the VW/Skoda small SUVs. Volkswagen has plans to get the Taigun small SUV concept (code: VW126) to India though the small SUV will not enter the market before mid 2016. The Skoda Polar is not yet confirmed for India and again should not come before end 2016.

However, knowing VW/Skoda’s fascination with premium, it would need a lot of unlearning for them to price thee SUVs anywhere close to where the EcoSport is.

EMMAAA forecasts the mini SUV market to grow to more than 370,000 units per annum by 2018. The automotive advisory group further predicts the segment to account for slightly less than 100,000 units in 2013.

Not bad for a segment which did not exist in the first half of 2012.

 

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