Maruti Suzuki India today launched the petrol-engined S-Presso, an SUV-inspired hatchback, designed to bring the fizz back into the carmaker’s entry level model sales. Shashank Srivastava, Executive Director (Marketing & Sales), Maruti Suzuki India, reveals what went into the latest Maruti’s brand positioning, why he is bullish on the XL6 MPV’s growth prospects, what’s holding positive consumer sentiment back, and whether the company can hold on to its passenger vehicle market share.
What was the premise behind launching the S-Presso as an entry level car but with SUV proportions?
Essentially in passenger vehicles, we have three categories – A, B and C. The A category is the passenger car, which is the hatchback and sedan. C is the van-type of vehicles like the Omni and Eeco. B is the MUV category, which has two segments – SUVs and MPVs. Five years ago, the B segment used to be around 20 or 21 percent but now contributes to almost 30 percent. This means the growth rate in this segment is much higher than the other segments; in FY2020's first quarter, where industry de-grew almost 18-19 percent, MPVs and SUVs de-grew by almost 8-9 percent and the A and C segments de-grew by almost 26 percent. When it grew, it grew the fastest and when it de-grew, it was the slowest. So this segment has one of the highest consumer interest.
Kenichi Ayukawa, MD & CEO, Maruti Suzuki India and Shashank Srivastava unveiled the S-Presso, priced between Rs 369,000 and Rs 491,000, in New Delhi today.
The S-Presso is a mini-SUV and that's how we are positioning it in the market. We have studied the demand of new customers asking for bold and aggressively designed cars. While this will fall under the A type, when we release our monthly sales numbers, it will create a new segment of its own.
What percentage of your sales comes from CNG variants in this segment?
It depends from model to model. Firstly, CNG sales come from pockets in the country where there is availability of this green fuel, for instance Delhi and Mumbai. The Wagon R sees sales as high as 40 percent coming from its CNG bi-fuel variants in these cities.
In that case, would you consider CNG for the S-Presso?
While we have introduced the petrol version today, we will be studying the demand and keenly watching for any opportunity for CNG in the S-Presso.
Maruti has adopted a similar crossover approach with the recently launched XL6 MPV as well. Can you explain the philosophy behind that?
Most of the growth for OEMs has happened in the SUV segment, not MPV. MPVs, which constitute about 8 percent of the market, have remained relatively flat. This shows that there is a fundamental change in the consumer choice over the past 4-5 years in favour of SUV-ish type of vehicles.
This also grabbed a lot of attention from the OEMs to this segment. In fact, the segment really picked up after the launch of the Vitara Brezza. The Ford Ecosport suddenly saw a spurt in growth, there was a lot of demand for the sub-4 metre segment SUVs. The largest growth has happened in this sub 4-metre category. We believe that the new XL6 will create some sort of a sub-sub-category within this category.
Shashank Srivastava with Kenichi Ayukawa at the launch of the XL6 cross-MPV, priced between Rs 980,000 and Rs 11.46 lakh, on August 21, 2019.
The XL6 is not really an MPV but more of an SUV because of its SUV-ish stance. Inside, it is more comfortable, design-oriented rather than boasting the rugged and raw appeal of an SUV. Therefore, we believe that this is a segment which would attract the people who want the recognition and the aspiration of owning a bold SUV-ish type of vehicle, which increasingly seems to be the customer’s choice as I mentioned. At the same time, these customers do not want to compromise on the space or the comfort which an MPV does offer. So, this is sort of a mix.
Our research just shows that the consumer preference in this MUV segment is not only about SUV or MPV. There are customers who actually want a combination as well. That was not available until the XL6's launch. So, if you look at pure MPVs like the Innova, Marazzo or Ertiga, they are a different category. There are other people who don't want a pure SUV also because they want a combination. This is what this vehicle (XL6) will offer, the stance and the aspiration of owning an SUV-style of vehicle.
In India, we have also found, from our discussions with consumers and looking at their behaviour of usage pattern of a car, that they want SUV-ish vehicles and that they don't really use it for SUV purposes. Some people do go off-roading but they are not a majority. In India, an SUV is not about off-roading. Indians take to SUVs for the high seating, bold stance and sporty design. That is what the Indians want, not for good rugged driving or off-beat trails.
So, do you believe the S-Presso and the XL6 will help arrest Maruti Suzuki’s fall, like the rest of the industry is witnessing right now?
Definitely, as I said, in the segment itself, the de-growth is much lesser and the growth in the last few years has been much higher than the other segments. So both ways, we are confident that the introduction of this vehicle in this segment will help us naturally. When we had not even revealed the XL6’s price, we were getting around 150-200 bookings every day when we had opened them on August 9. When we launched, that day, on August 21, it was some 2,200-odd.
In terms of the market, what's your sense now for this year's festive season?
We believe there will be an uptick in the market. We have seen enquiry levels going up, especially in the petrol segment, which means the general interest is there. However, the conversion from enquiry to retail hasn't been happening. August was similar to July and the previous three months, which means over the previous year there was large de-growth.
However, the festive season has kicked off with Onam in the first week of September and there was also Ganesha Chaturthi. Discounting the lack of sales during the inauspicious Shraadh period, we are hopeful of seeing demand by Navratri. We expect this uptick will continue because of the enquiry levels are good and the actual conversion to retail will happen.
Do you think that with flooding in both Maharashtra and Kerala, the prospects of a revival again look bleak?
The numbers that we are predicting for Kerala, probably we will not be able to achieve them due to flooding in the north and central parts of Kerala including Kasargod, Kannur, Calicut, Wayanad, Sultanbatheri and all. These are the good markets but have been affected by the floods. Likewise, in Maharashtra, Sangli and Satara, the Tier 2 cities and even the better ones like Nashik, were also affected by floods. But somehow that has actually led to a more positive sentiment in Maharashtra at least, because they were staring at a drought in parts of Vidarbha and other northwestern parts of Maharashtra. So even though, currently, Maharashtra may be having problems because of the flooding, there certainly is a different sentiment as compared to Kerala.
I believe that sentiment is actually much more important for the uptick than even the festive season. While the festive season affects sentiment in the sense people are in a celebratory mood, I think this year, the permanent sort of sentiment would probably not be celebratory. It will be there for this period. Something else has to happen than just these festivals. Sentiment has to change and the BS-IV or BS-VI conversion thing will remain and that confusion will not go till the next year comes in.
What, according to you, is holding that positive sentiment back?
There is confusion about electric vehicles as well as about BS IV diesel and safety regulations. There is also some uncertainty on how much cost will increase, which model will come, at what time. So, while these things will still remain, I would be more confident about the industry looking upwards if we not only see a good retail in this festive season, but also if some of that confusion goes away.
What are the current inventory levels at Maruti Suzuki dealers, given the slowdown in retail?
The inventory levels have stabilised to about 35 days or so. Of course, we have to see them model-wise and geography-wise and there can be variations. There may still be some dealers talking of 40-45 days of stock but I'm talking about the average and model. But this year, this average will not work because we have to see to it that the BS IV stocks remain zero. In previous years, we were under the assumption that since 30 or even 40 days. Wholesales would drop but as soon as the retails pick up, then this 40 will become 30 but here there is also a time limit, which is more sensitive.
With Maruti Suzuki having introduced eight models in BS VI format, it is actually giving us a competitive advantage because our dealers are not bothered about the BS IV stocks in these models, which comprise about 70 percent of our petrol sales. Most of the BS VI products are our best-selling models – Alto, Wagon R, Swift, Dzire, Ertiga and then there is the XL6.
We do not have a single BS IV stock now in the Alto, Baleno, Swift or the Ertiga. There are some left in the Dzire though. If it was 34 days of BS IV stock vehicles, then that would have made us a bit more jittery. Here, the 35 days includes the BS VI stock as well. This also gives us some competitive advantage with the profitability because we do not have to do a fire sale because we will run out of BS IV stock anyway.
We want to be seen as a company who is a market leader not just in volumes but also in our commitment towards a cleaner environment. This also explains our continued focus on CNG vehicles where we are giving out factory-fitted CNG vehicles.
Do you miss having a midsized SUV in your portfolio like the Grand Vitara?
If you look at our portfolio from 10 years ago when we did not have an MPV, the volumes were very small. There was only the Innova which used to sell 4,000 to 5,000 vehicles. We knew that the segment would grow substantially, which is when we introduced the Ertiga. At present, we are doing almost 9,000 vehicles a month. At the time of its introduction, we were doing almost 5,000 to 6,000 vehicles. Today, after the upgrade in the model and in these times of slowdown, there is a waiting period of almost four months for the Ertiga. From 6,500 vehicles a month last year, we are doing almost 9,000 vehicles per month – 40 percent year-on-year growth.
The XL6 is a unique segment that we are trying to address – boldness and aspirations of an SUV and the comfort and practicality of an MPV. To be honest, I have no idea as to what its volume would be, may 3,000-3,500 units a month. I believe after the turnaround from this slowdown, this segment would be huge.
We expect an uptick in this festive season, but can’t predict it to be a sustainable one. However, what we have to see is whether the celebratory consumption will continue after this festive season. Some of the factors affecting negatively include BS IV, BS VI, EVs, diesel, costs going up and various norms but if we are able to successfully clarify them, then I am sure that the sentiment can change. I can sense the change happening in rural India. The rural story is slightly different from the urban story. About 10 years ago, the rural PV market was just about 7-8 percent of the entire industry but today it is almost 30-40 percent and for us it is 38 percent. So now the rural markets have become a different segment and the rural growth is much higher than the urban growth.
The other negative that we see from the rural areas is the NBFCs. They are the ones that lend largely in those areas and the past 4-5 months have not been that good for NBFC lenders, which has affected rural sales.
Do you think that India will become the third largest market by 2021?
There is a deep correlation between economic growth and automobile growth. Unlike industries like food, which are basic necessities, automobiles are discretionary expenditure. A car could be the second highest discretionary expenditure that you could incur in your lifetime after a house. It is very much related to the economy. If the GDP growth goes down, it will have an effect on the automobile sales as well. Earlier, we used to have a growth of 7.5-8 percent (GDP) but now it is projected to be 5.4 percent.
In India, almost 50 percent of the market constitutes hatchbacks and van are almost 7-8 percent. So, almost 57-60 percent is on the lower side. Being most cost sensitive, they get affected easily; this is a big concern for us because prices will increase due to the transition from BS IV to BS VI, crash norms and other such factors. BS VI could push prices up by 5-6 percent and the crash and safety norms could further push them up by another 5-6 percent. So almost 60 percent of the consumers, who are cost sensitive, may also delay purchases which may affect the overall volumes as well. These are some of the reasons for the uncertainty in economic growth at this time.
Could there be a reverse migration from A segment to the B plus, for instance, a customer for Baleno might now settle for a Wagon R or a Swift?
That is possible. The overall volume may not change but we are more worried about the entry level where people planning to move from two to four wheels might continue to stay there. Thus, the overall volume gets affected. So, if the Ciaz becomes a Swift and if the Swift becomes an Alto, the overall volume remains the same but if the Alto becomes a used car, for example, then the overall volume will again get affected. So for this reason, the downward shift may happen even more and thus, the target for 2021 may or may not happen today for the industry.
According to certain reports, there could be a sudden upturn and the extent of the upturn could be unprecedented. There could be a growth of 27-28 percent. In 2009-10, we saw large growth which was repeated a few years ago. This cyclical nature is what is making us optimistic about growth. Realistically, because of the cost structure changing and the economy not doing so well has made it very difficult to predict growth.
Is it sustainable for Maruti to hold its market share in these changing times?
It is difficult to climb Mount Everest and even more difficult to stay there. If you calmly analyse where that 50-60 percent is coming from, then look closely at the A segment and within that petrol where our market share is more than 60 percent. In the C segment, it is more than 80 percent. In diesel, it is around 35-38 percent now. So through this, we can say that the A segment looks good but the problem lies in the B segment where the market share is 27-28 percent.
We are finding out why A and C is almost 60 percent. We find that the XL6 in petrol is the best option for the future. Diesel may no longer be the fuel choice of the consumer, due to which our market share could go up again. The Brezza and S-Cross will have a BS VI petrol variant very soon, which could further boost our market share. It is possible to project market share if you study it that way, pinpointing areas of concern. ‘Pinpoint the pain-point’ – that is our mantra now.
In our case, unlike Mount Everest, we never know what is the peak and hence, we have to keep climbing. If ever we slide down, we pull ourselves back.
What are the steps that you are taking for your dealers? We believe in some cases you have also enhanced the margins for some.
Some of the pain-points in those areas is the dealer stock because it affects profitability. Maruti Suzuki is very conscious about dealer profitability, which is one of our best strengths. Our business model includes sale of accessories, selling extended warranty, insurance, finance, pre-owned cars, aftersales, body shop and spare parts. We have a business model that does not just depend only on the market situation of the sales. So if we have a pain point like high stocks, then we keep focusing on the retail to bring the stock down and that is what we have done.
Of course, because of this, wholesale numbers have come down as well. So retail is bad but not as bad as wholesales. We have succeeded in bringing down the inventory levels to a reasonable level. From the financing perspective, banks are a bit reluctant and have tightened the norms; we have talked to them and have got inventory funding from some such as Bank of Baroda. We have just signed an agreement with the Federal Bank. Many banks have already agreed to increase their limits and we have also asked banks to keep a lower level of collateral for those with good credit ratings. Most of our dealer network comprises of more than 323 parent dealers who have a good credit history. We have talked to the NBFCs in the rural regions and have convinced them to reduce the interest rates.
The margins are different for different models now and varies from Rs 15,000 to Rs 50,000 now.
There is a perception in the market that with Maruti pulling the plug on diesels, spare parts availability might be a concern. How would you defend that?
No, that won't be the case. We have increased and kept a 5-year warranty on the diesel engines because there was this (erroneous) perception that the S-Cross and Brezza would shut down. We want to remove these apprehensions from people’s minds. The Zen Diesel, which was discontinued almost 13 years ago, still has its parts available.
The midsize SUV segment is a good segment overall. The XL6 is a 4.43-metre vehicle and we believe this is a segment with a natural progression for the people who want a bigger SUV-ish vehicle but do not want to compromise on space.
We are still studying the new Kia Seltos and its aggressive pricing and we are looking at the features it provides at this price point.