Suddenly compact sports utility vehicles (SUVs) are all the rage; following Renault's Duster and Ford's EcoSport, Hyundai launched the Creta in July this year. The Korean car maker must be happy with its decision because in a span of two months the SUV has sold some 15,000 units. In comparison, the Duster is doing a run rate of around 1,300 units per month while the EcoSport is clocking about 3,000 units a month.
To be sure Hyundai is losing out on volumes of models like Eon, Xcent and Verna because it simply doesn't have the manufacturing capacity to meet the demand for all at the same time—currently Hyundai's two plants in Chennai can roll out 6,80,000 vehicles a year. So while its models—the Xcent and the Verna—were doing reasonably well, the Creta should compensate for smaller volumes from the passenger cars. Company officials claim bookings are in the region of 40,000 which means customers must wait at least a couple of months for delivery. Talking of market shares doesn't make too much sense since Hyundai is starting from scratch, but for the record, its share of UVs has risen from virtually nothing in May to 16.8% in August.
There are those that believe the compact SUV will also help Hyundai make more money especially if volumes for the Creta come in at close to 50,000 in FY16. That's because the starting price is R8.6 lakh compared with R5.03 lakh for the Xcent and R7.8 lakh for the Fluidic Verna. Typically, the margins on an SUV are higher than those on compact hatchbacks and compact sedans.
Hyundai's revenues and profits in 2013-14 were virtually flat; net profit of R1025.25 crore in FY13 grew marginally to R1108.2 crore in FY14. That's not surprising since volumes in FY14 dropped 3%; as a result revenues at R25,229.27 crore in FY14 rose only marginally over RRs25,110 crore in FY13.
Hyundai Motor India's senior vice president for sales and marketing, Rakesh Srivastava, doesn't deny his firm wants to be more profitable. He justifies tweaking the product mix saying a varied product mix is necessary to keep sure customers are satisfied as also to ensure profitability. "We are making more of what the customer wants," Srivastava explains.
Abdul Majeed, partner and auto expert at PriceWaterhouse points out that at a time when the demand environment is weak, car makers are attempting to keep pace with buyers' tastes. “If you do not cater to customers' preferences you could lose out since the competition is keen. There seems to be an appetite for compact SUVs so it makes sense to cater for it,” Majeed observes. Indeed, customers aren't loosening their purse strings just yet though the festive season ahead might see brisk sales.
UV volumes, for instance, contracted 4% year-on-year (y-o-y) in August while that for passenger cars grew by about 6%. On the whole, there seems to be a little more appetite for cars rather than UVs, possibly because the larger UVs are positioned at much higher price points.
Hyundai's market share in the passenger car market in August was 20.2% down from 24.1% in April alone and 22.3% in 2014-15. The July market share at 18.3% was the lowest for Hyundai in three years, analysts point out. But the company sees merit in both changing the product mix and going slow on exports.
As Srivastava says, right now the popularity of the Creta in the Indian market has meant cutting back on exports. "The Elite i20 and Creta seem to be in demand so we are producing more of these,” he explains.