The market has been flooded with utility vehicle launches in recent times, be it the KUV 100 and the TUV 300 from Mahindra and Mahindra, the Creta from Hyundai, the Honda BR-V or the Vitara Brezza from Maruti. Rising income levels and higher affordability, coupled with innovative positioning of products, have swept customers off their feet as far as such vehicles go.
Long-term trends in sales
Along with cars and van-type vehicles such as the Maruti Omni, utility vehicles are classified in the category of ‘Passenger Vehicles’. Due to its close link with factors such as inflation, interest rates and availability of disposable incomes in the hands of customers, the auto sector is considered a cyclical one, with a few years of good sales followed by a period of lull, and so on. Passenger vehicles are no exception to this.
Over the years, growth in utility vehicle sales has predominantly mirrored that of cars. During the global economic crisis year of 2008-09, for instance, both car and utility vehicle saw lacklustre sales volumes. But in the two following years, these segments witnessed 20-25 per cent growth in sales volumes. Similarly, in line with the cyclical upturn in auto sales in the last two fiscals (2014-15) and (2015-16), cars and utility vehicles recorded a 5-7 per cent growth in sales volumes. The only exception to this trend was 2012-13. When sales in other segments such as cars, trucks and bikes were slowing after three years of high growth, utility vehicle sales stood out with 52 per cent growth in volumes.
The Hyundai Creta
With most utility vehicles running on diesel, 2012-13 was a time when the price differential between petrol and diesel was at a high. While petrol prices were linked to the prevailing market prices, diesel rates were still administered by the government and were, hence, lower during this period.
Diesel prices hovered between ₹40 and ₹50 a litre (Delhi, Mumbai, Kolkata, Chennai) in 2012-13, while a litre of petrol cost anywhere between ₹67 and ₹78 across these metros. Lower running costs and higher mileage have prompted many customers to opt for these diesel vehicles.
Increasing share
The government has since decontrolled diesel prices. But the momentum that picked up in 2012-13, continues even today. The share of utility vehicles in total passenger vehicle sales has steadily moved up from 12 per cent in 2010-11 to 21 per cent now. For one, despite a narrowing of the price differential, diesel is still cheaper than petrol and clocks more miles per litre.
Second, increasing demand for utility vehicles is a sign of a maturing market. More, and younger, Indians are moving up the corporate ladder quickly and can afford bigger vehicles at higher price-points. With utility vehicles offering more space, muscle and engine power than cars, these are also suitable for long drives and work well on any kind of road conditions. This makes them ideal for weekend road-trips for short holidays, the popularity of which is growing in leaps and bounds.
Sensing customer interest in utility vehicles, companies have also introduced a new sub-segment in this category, loosely called ‘compact utility vehicles’. While these vehicles have the muscle of any other bigger SUVs, they come at lower prices. The Society of Indian Automobile Manufacturers (SIAM) classifies these vehicles as those with length less than 4,400 mm and available at prices up to ₹15 lakh. Vehicles that have been successful in this category in recent years are the Duster, Ecosport, Creta, Mobilio, SX4 S-Cross, Vitara Brezza, TUV300 and KUV100.
Thanks to this, auto manufacturers such as Hyundai, Renault, Maruti Suzuki and Ford, which did not have much of a foothold in the utility vehicle segment earlier, have gained a good market share in this category. At the end of fiscal 2016, Maruti Suzuki (with Ertiga, SX4 S-Cross, Vitara Brezza) was the second largest player in this segment with a 16 per cent market share. Hyundai has a 11 per cent market share now, thanks to the Creta. Ford (Ecosport) and Renault (Duster) have a 5-7 per cent market share. Mahindra and Mahindra still remains the market leader, with a 38 per cent share in this space. But it has taken a hit in the last two-three years as it entered the compact utility vehicle market much later than other players. The TUV300 and KUV 100 were launched only in 2015-16.
Headwinds
Even as customers graduate from cars to utility vehicles, certain types of vehicles in this category have faced the ire of the National Green Tribunal for causing higher pollution. The Tribunal has banned vehicles with engine capacity over 2,000 cc (2 litres) from being sold in Delhi and the National Capital Region since December 2015. It is also thinking of extending the ban to 12 other cities.
This ban has affected sales of vehicles such as the Scorpio, Bolero, XUV 500 and Rexton from Mahindra and Mahindra; and the Innova and Fortuner from Toyota. While Mahindra and Mahindra has gone ahead with manufacturing 1.9 litre engines to work around the ban, Toyota thinks the ban is temporary and has recently inaugurated its local engine plant for the Innova in Bangalore. Other luxury vehicle-makers such as Mercedes Benz and Jaguar Land Rover, that have vehicles with engine capacity of over 2 litres, have also been affected. But with most compact utility vehicles sporting engines with less than 2 litre capacity, their good run is expected to continue.