Hyundai Motor India’s MD and CEO S S Kim talks about why the OEM is still betting on diesel and compact cars, even as both do not enjoy the favour, in varying degrees, that they used to earlier.
What are your expectations from the recently launched Nios, and how do you look at this particular segment? How do you see this segment growing?
The Indian auto industry has been growing and dropped only this year. From next year, I think it will grow again and will be led by SUVs, MPVs or others. The compact segment percentage will go down, but it occupies the main volume. It still occupies 48 percent of the car market and is still important for OEMs.
Our team conducted a survey among about 1,000 white-collar engineers in our plant and asked what kind of body type vehicle would you purchase as your very first vehicle? Surprisingly, most of them, they answered 'compact segment vehicle'. I was really surprised. My expectation was that they will maybe say SUV or something like that. This shows that the demand for the compact car segment is still quite strong. The advantages are affordability, lower maintenance cost and economical.
The SUV segment is still growing. Do you see the growth continuing for long?
SUVs are a global trend. At the same time, the demand will be very stable in the higher compact segment. That’s our projection and estimate.
Unlike the SUV segment, the preference for diesel is not very strong in the compact car segment. Additionally, with BS VI, the technology cost impact as a percentage of the vehicle’s price is more in a small diesel engine, affecting affordability. What gives you the confidence that there will be a market for a compact diesel car like the Nios? And, how will you maintain the car’s competitiveness?
So, our diesel strategy in this market is based on the understanding that there are a lot of diesel enthusiast customers in this market. So, regardless of the price issue or cost issue, these vehicles offer advantage in terms of fuel efficiency, strong performance and fun to drive, while meeting all norms. So, we see that even though there might be some price increase, there will still be stable demand in the segment from customers who want to drive a diesel vehicle. We feel that it is our responsibility to meet their needs, and that demand.
In terms of price increase, as a global OEM we already provide Euro 6 diesels in Europe, Korea and some more markets. So, my point is that we can share the R&D cost among the countries. A lot of cost-saving ideas are under consideration, because we do not want to give a big burden to the customer. So, maybe we will approach the market with some acceptable price range, sometime later. That’s our plan.
Hyundai currently has the Grand i10 diesel. What percentage of Grand i10 sales does it contribute to? Secondly, there is a growing negative sentiment towards diesel. How are you going to tackle that part?
The diesel variant was 20 percent of the Grand i10 sales earlier. After the market shift back towards petrol, the global sentiment against diesel and the shrinking gap between petrol and diesel rates, it is now around 10 percent. It can change. Even if there’s no gap in fuel prices, a diesel offers 20-30 percent better fuel efficiency.
With the government also talking about alternate fuels like CNG, do you plan to offer more models with CNG option?
We already have four models with a CNG option. The volumes will increase if the CNG distribution network is expanded. There are now 1,500 CNG stations in India. These are concentrated only in some states. Earlier this year the government announced that it will increase the number of CNG stations. If that happens, very good.
What is the average customer profile of the Kona electric SUV? What is the strategy with the Kona?
They are mainly early adopters comprising high-profile customers, leaders like CEOs and MDs.
Our strategy for the Kona in this market is not to seek any volume or seek that much profit at all. To be honest with you, we lose money in the Kona EV business. The reason why we introduced Kona to this very small niche segment is because you know, for India to move to have some future electrification direction, first of all, we strongly feel that the mindset of the customer needs to be changed, some concerns of the customer should be solved.
Our experience in Korea, and in many countries, when we introduce EVs first the early adopter customer had big stress about charging and driving range. Once they turn on the switch and start to drive, they begin looking for the charging station because of the range anxiety. Sometimes there’s a long waiting period in a charging station or maybe it’s out of order. That’s a pain point. To move ahead and have some solid demand in this segment we have to change the customer mindset by solving some issues and concerns. That will be number one priority for OEMs. By introducing the Kona EV in this market, we contribute a lot in terms of changing customers’ point of view and perspective about EVs.
How do you look at the overall industry situation and when do you see any kind of a turnaround for good?
As you know, the industry is experiencing maybe the lowest downturn situation in 20 years. This has already been informed to the government through SIAM. A number of OEMs are asking for a GST cut for a direct and immediate impact.
The government has done a great contribution by providing some indirect stimulus, even to the automotive sector, but still no GST cut has been given to the automotive sector. I think that based on the government support to the banking and finance industry, some clarification about the future of the internal combustion engine and BS IV vehicles (is needed). From the festival season, demand may pick up slowly. Personally, I think it will take time because the customer sentiment is too low for them to change their mind and purchase a new car. But we are expecting some gradual change.
Are you witnessing any action on the ground after the economic reform announcements by the Finance Minister?
From the customer perspective, because there is no tax cut and only the revised registration fee plan is postponed, there isn’t a big impact. Dealers are expecting some change and some improvement but the credit crunch situation is still ongoing. Probably it will take more time to normalise their credit management system and to increase the credit limit. It cannot happen overnight.
If that is the case in the market now, at least for a temporary period have you customised or devised any specific strategy fill the gaps in facilitating demand?
In the recession period, in a downturn period the best way for the OEM to change the customer mindset and make them make a purchase decision will be to take care of their mind, their sentiment. They are worried about the future, about their income. We have very limited functions or initiatives we can do to improve that situation. There are some technology enthusiast and early adopters in the market who wait for something new. So, as an OEM our responsibility is to introduce technology driven vehicles, such as turbo and DCT powertrain . Our strategy is based on technology.