Sunday, September 30, 2012

The Indian Utility Vehicle Segment: Design Creativity for Market Opportunity

From a scenario, two decades ago when Mahindra & Mahindra’s (M&M’s) Jeep was the only utility vehicle of sorts available in India, the Indian utility vehicle (UV) segment has indeed come off age.  Tata Motors began work on this segment in 1989 with its Tatamobile which was followed up with Tata Sierra in 1991 and Tata Estate in 1992. The first real push towards UV acceptance with range expansion and design modernization came with Tata Sumo, introduced by Tata Motors in 1994. This was followed, again by Tata Motors, with Tata Safari which set new standards in design and styling, when it was launched in 1998. Mahindra & Mahindra followed up with its Scorpio and Bolero models, responding to Tata Motors’ success.

Maruti-Suzuki, which was the pioneer that transformed the India passenger car industry in the 1980s, has been trying its bow at family vehicles first with Omni in 1983 and later with Gypsy in 1985 and Wagon R in 1999. The utility vehicle landscape saw the introduction of Qualis by Toyota in 2000 to a disappointed and muted welcome but the segment  got quite a transformation when Toyota launched its replacement, Innova, in 2009. Toyota Innova has since become the king of multi utility vehicles (MUVs) on the Indian roads; it is the favorite of both cab owners and private families alike. M&M continued to build on its UV success with more modern XUV 500 and Xylo vehicles. Not to be left behind, Maruti Suzuki in 2012 introduced a 7 seater utility vehicle specially engineered for Indian families, called Ertiga, and positioned as life utility vehicle,which quickly reached the Top 10 car table within a few months of launch.
The growth in the MUV segment has opened up the market for import of luxury marquees in this class, lately. While Audi Q7 and Q5 as well as BMW X5 and X3 have been the early leaders in this segment, Toyota Prado and Land Cruiser, Mitsubishi Outlander and Pajero, Honda CR-V, Nissan X-Trail, Tata Motors Land Rover and Range Rover as well as Evoque and Mercedes GL have been the major vehicles imported as completely built units (CBUs). BMW has been the first to recognize the attractiveness of SUV profile for young upwardly mobile people and has designed Q3 as its small SUV with big thinking. Renault has not been behind with its Duster while M&M Quanto has been the indigenous answer taking advantage of lower excise duty for sub-4 metre class. The recent explosion of the MPV and sports utility vehicle (SUV) models is thus reflective of a structural change in the Indian automobile market.
Market dynamics
Worldwide, SUVs offer greater pricing and profit advantage, besides growth potential, for the automobile manufacturers, India would be no different. The developed markets have had a tradition of encouraging utility vehicles as vehicles of weekend lifestyle as well as a “drive-free” lifestyle that brings the weekend life to weekends.  Given the way families move in a flexible manner, balancing professional work and personal life, and with gender equality coming to the fore in coping with multiple responsibilities, the  utility vehicles and crossovers  are as near to each other in customer preference as standard sedans are. The rural needs are probably catered to by micro-truck, huge station wagon type vehicles which carry people as well as produce. In the Indian market, where evolutionary trends follow the developed markets, the potential is enhanced by an open acceptance of the utility vehicle concept by the rural population. The success of Tata Sumo as a bridge vehicle across the urban-rural divide has been an interesting development of the Indian market. The inability of Tatamobile, the first station wagon in India, to get positioned as the true rural “people-produce” vehicle is another validation of the need for a well-designed utility vehicle concept.
The cumulative production data for April-March 2012 shows production growth of 13.83 percent over the same period last year. In March 2012 as compared to March 2011, production grew at a single digit rate of 6.83 percent. In 2011-12, the industry produced 20,366,432 vehicles of which the share of two wheelers, passenger vehicles (cars and utility vehicles together), three wheelers and commercial vehicles were 76 percent, 15 percent, 4 percent and 4 percent respectively. With a population exceeding 1,300 million, with rural population within that exceeding 900 million, with increasing “suburbanization” driving urban expansion, with nearly 80 percent of passenger transportation needs being met by two wheelers and three wheelers, with punishing road conditions caused by poor road infrastructure, with joint families rather than just couples being the nuclear family norm, with festivals and family events dominating the social canvas, and with Indians being used to travelling with large baggage utility vehicles could see an explosive growth  in India. Currently, the total passenger car production in India is 3,000,000 per year approximately, of which only  ten percent is in the UV category. Population-wise too the UVs are a small fraction. However, if the trends described herein stoke a change in consumer preferences, the growth rate of the UVs, already double that of passenger cars albeit on a much lower base, could be treble that of the passenger cars.   
More models, less choice
The indigenous UV segment does boast of a plethora of models; Hindustan Motors Trekker,  M&M  Jeep, Marshall, Scorpio, Bolero, XUV 500, Xylo and now Quanto, Force Motors Force One, and Tata Motors Sumo, Safari and Aria, for example. In spite of this, in terms of design package and functionality, the overseas designed models, whether completely imported or partially made in India have a clear consumer appreciation, their sales being inhibited only by the high price of such models. Such models are General Motors Tavera and Captiva, Mitsubishi Motors Outlander and Pajero, Nissan X-Trail, Mercedes R, G, M and ML, Jaguar LR and RR, Hyundai Santa Fe, Ford Endeavor, BMW X1, X3 and X5, Audi Q3, Q5 and Q 7, Renault Duster and Koleos, Honda CRV, Toyota Fortuner, Prado and Land Cruiser and so on.  The price premium on imported/semi-imported models in some cases goes up to as high as 400 to 600 percent. Clearly, this should have provided the opportunity for the indigenous UV manufacturers to come up with products of greater design substance at an intermediate price premium. Tata Motors did make such an attempt with Aria as the first crossover vehicle in India but the vehicle has had a very lackluster reception due to certain design bugs and service inadequacies. On the other hand, Toyota with its significantly indigenized Innova is ruling the India roads, rural or urban.
The Indian customers in the UV segment are a varied and demanding lot. They demand of their preferred model the ability to seat seven or eight people and carry luggage too if it can be helped! Despite the largeness it entails, they expect the vehicle to navigate the crowded and narrow Indian streets comfortably. They expect the vehicle to straddle both the urban and rural roads safely, and be able to be comfortable on both long and short hauls. To the users, the vehicle must look elegant and also be rugged.  And not to be missed, the vehicles must be economical both on the acquisition price and running costs. The government also adds its own weight to the design criteria by insisting on Bharat IV norms (broadly Euro IV equivalents) in respect of emission controls. It is for no reason that Carlos Ghosn, the chairman and chief executive officer of Renault-Nissan termed the Indian automobile market one of the most challenging in the world.  While the Indian automobile industry has a huge UV opportunity, its ability to harness the potential would depend on design creativity.
Innovation of Innova
The form that design creativity can take for market leadership in India is well illustrated by Toyota’s Innova. As the name suggests, it is indeed a unique vehicle even in the global automobile industry. Despite retaining the same dimensional features as a 5 seater sedan car, Corolla (which has dimensions of 4540, 1760 and 1480 mm in length, width and height),  Innova as a utility vehicle (4585, 1760 and 1850 mm in length, width and height) has been engineered to accommodate 7 to 8 people with the requisite boot space as well as seating and cargo flexibility. As a result, it meets both the urban and rural needs, as well as intercity and intra-city traffic and drive conditionsof India nicely. By offering, in addition, diesel engine as a standard feature from early days of Innova’s introduction Toyota made sure that Innova also emerged as a vehicle particularly low on driving costs. The product profile backed by an impeccable service backup of Toyota ensured that Innova became the choice vehicle in the UV market, with a pricing that is attractively pitched between the homegrown MPVs (like Tata Safari and M&M Bolero) and the imported MPVs such as (Honda CRV and Mitsubishi Outlander). If smart dimensional packaging alone could deliver such differential positioning to Toyota Innova, more fundamental innovations  which are customized to the multi-purpose India user needs could lead to additional successes (Toyota sells around 80,000 Innovas ranking higher than any other UV in India and sharing the space as one among the Top 10 cars in India).  
Fundamentally, the ability to enhance the wheel base (for example, 2750 mm of Innova compared to 2600 mm of Corolla Altis) while reducing the front track and enhancing the rear track with comparable road handling and safety would be a vital benchmark of spatial engineering. There could be other innovations too, such as a switchable all-wheel drive option to make on-road off-road traction easy or a transverse mounted engine with front wheel drive to further economize on dimensions. Whatever be the innovations “less is more” needs to be the design mantra for UVs in the Indian market. It is important to maintain a minimum seating capability of  at least 7 passengers, with adequate luggage space, to make the UV a truly family vehicle in India, while optimizing all other performance characteristics like ground clearance, turning radius, gradient management, cruising speed, ride quality, road handling, vehicle and passenger safety, easy navigation, and interior comfort. This requires companies to adopt a three tiered approach to design innovation that optimizes exteriors, interiors and performance in one India-centric package. The Indian automobile manufacturers would need to consider if they will be governed by current market size and offer many “apparent variants” or a few “real options” customized for multiple needs. The former may succeed with a “mix and match” or “cut and re-form” approach which would be economical (as with Quanto) but would not drive the UV segment to its full potential. In contrast, a design strategy of developing the right form, comfort and performance combination on entirely different and discrete platforms like Toyota does (RAV4, Innova, Fortuner, Prado and Land Cruiser) could open up the UV segment in India to unforeseen growth
Future beckons
The Utility Vehicle segment in India, though growing at double the rate of passenger cars is still relatively small in India. As against 3,000,000 passenger cars produced in India, only 400,000 utility vehicles are produced. The UV segment, however, has the potential to outdo even the passenger car segment, given all the reasons discussed in this blog post. And the world statistics clearly lead the way too. The demand for UVs trebled over the last two consecutive decades, worldwide. Over 30 percent of the cars sold in the USA are UVs. Europe, a longstanding sedan market, is seeing a rapid market push for UVs. Indian automakers have, therefore, an unprecedented market opportunity in the utility vehicle segment, by whatever name it is called (aka, multi-purpose vehicle, multi-utility vehicle, sports utility vehicle, crossover vehicle, or even light utility vehicle). All that is required is design creativity, manufacturing versatility and marketing acumen on the part of the Indian auto makers that could reshape the Indian passenger transportation scenario, and also transform themselves into truly global players.    
Posted by Dr CB Rao on September 30, 2012  


Narayanan said...

Cost and design preferences will continue to be factors in choosing a vehicle. However, given the dubious distinction India has in the ever-increasing rate of traffic accidents, one wonders to what extent manufacturers are proactively considering innovation in safety to help "nudge" good behavior from consumers say in encouraging use of seat belts or incorporating smart design for child safety. While increasing fuel efficiency is an obvious need, providing better dashboard intelligence for e.g., to curb unnecessary oil change (the 3000 mile myth)would also serve well. In addition to taxi service, car sharing options such as Zoom in Bangalore could help expand the market for Utility Vehicles, especially in Tier 2/3 cities.

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