After
much prevarication and procrastination I have completed this magnum
opus of a post, even if I do say so myself, and am publishing it just
in time before the December sales become finalized and hence the
November 2016 data becomes obsolete.
It
is difficult to develop an understanding of the evolution of the
purchase considerations of the Indian consumers in the face of the
changing economic scenarios, the whimsical regulatory actions
(odd-even
anyone?) and the new consideration sets of product offerings made
through new entry, brand extensions, category launches etc. Since
consumer behaviour drives demand, in conjunction with supply factors
it will decide the sales of products and hence the market share of
companies. In any case, there is going to be a considerable “path
dependency” in the way the supply factors affecting market shares
evolve, since many corporate actions such as new launches, category
entry or exits, windups, entry or exit of multinationals etc. are
likely to be unforeseen. These are all normal perils in equity
research, and the done thing probably is to project historical trends
into the future and provide sensitivity analysis to help understand
the valuation implications of various factors. But it doesn’t hurt
to have a few insights to vary the forecasts with, so I will invest
some time in reading up on the factors listed above that impact the
forecasts and hence the valuation.
Rather
than the normal way of approaching the purchase decision through
sequential steps like need recognition, information search and so on,
I will proceed in a slightly haywire manner because my idea is not to
help with the marketing of any products, but merely to understand the
market share trends in the sector.
The
purchase criteria for each category are, of course, different. Two
wheelers and passenger vehicles do have an element of social status
associated with them, hence they are not merely utilitarian devices.
For instance, the perceived failure of the Tata Nano has been blamed
on its positioning
as the world’s cheapest car, while it was targeted at families
looking to switch from using a two wheeler. However, they may have
wanted not merely the comforts of a car, but the sense of prestige
associated with car ownership as well. The growth of the SUV and
crossover markets is also attributed to the status
symbol role of these vehicles. To preserve the status symbol
quality, OEMs have occasionally steered
away from sales to taxi fleet operators, although fledging sales
may lead them to resort
to this tactic as well. Hence the passenger car product
positioning strategy does have some fluidity to it.
On
the other hand, three wheelers and commercial vehicles may focus more
on fuel efficiency, durability, ease of maintenance and other such
practical considerations that help save costs and keep drivers, who
are mostly employees, happy and productive. Hence for one of their
three wheeler products, Bajaj Auto lists
driver friendly features such as service brakes, shorter turning
radius, driver cabin and spacious seating prominently alongside the
performance features such as carrying capacity, power and low
maintenance. Similarly, driver satisfaction is both aimed
at and pointed
out as a source of competitive advantage by logistics operators,
the main purchasers of heavy commercial vehicles, since there exists
a
shortage of truck drivers in India. For instance, BharatBenz, a
player in the Indian trucks and buses market, highlights driver
friendly features such as “‘distance-to-empty’ indicators,
green band, unique and industry-first safety features such
‘engine-brake’, retractable seat-belts and a high-strength
passenger cell” in
their website. Volvo trucks feature I-Shift
technology
that is supposed to select the right gear and helps retain drivers.
Trends in the Passenger
Vehicle Segment
I prefer to have a top down
approach that works from the market share trends observed and try to
correlate that (qualitatively) to the demand conditions such as the
changing demographics, increasing purchasing power and the evolving
consumer taste, and the supply conditions such as the changing
technology, entry of companies or brands and new product
introductions. The following graphic elements sum up the recent
market share trends in the passenger markets.
Maruti Suzuki Market Share Trends
Maruti Suzuki has been
consistently gaining market share in the past three years, the only
one in the top five by market share to do so. Most recently, it
captured a 52%
share of the market in the month of November 2016, making it
larger than the rest of the market combined. There are quite a few
factors believed to be responsible for these gains over the last
three years. According
to one expert, the major contributor to a company’s sales are
its new launches. Its new premium models sold through its Nexa
outlets, Vitara Brezza, Baleno, Ciaz and S-Cross have
done well. Improving existing models through face-lifts, new
features and safety elements is believed to have energized
the sales of older products. The company also has an enviable
distributor network, with 1750
showrooms, 680 more than the nearest competitor. This is
attributed to its early mover advantage which also gives it a
stronger
brand value reflected in better resale prices for its cars. This
may also have helped in the economic downturn phase where consumers
become risk averse and stick
to familiar brands.
Hyundai
Motor India Market Share Trends
Hyundai
too has increased its market share. Almost all the increase seems to
have come in 2015 over 2014, arguably due to the performance of the
models Creta,
Elite i20 and Grand i10. The first of these is a crossover SUV
launched in July 2015 which has been called a game changer for the
company by bringing
in good volumes. Its continued growth in 2016 could have been
capped by the blizzard of new premium launches by Maruti Suzuki. It
was counting on changing the order of priority for the consumer from
mileage,
features and comfort to the reverse of that. Either Maruti has
beat Hyundai to this or the consumer has acquiesced to the prevailing
economic gloom and chosen the original order of preference. Hyundai
apparently had hoped to leverage their global portfolio to make their
cars more refined, sophisticated and sporty like its offerings in
other markets in order to take on Maruti. However, in doing so they
may have positioned themselves in direct competition with the look
and design strong Kwid, Renault’s breakout model that pushed the
Elite i20 one place lower on a year on year basis in the
August 2016 sales. Although the Grand i10 is going
strong despite the assault by Kwid, unlike the Maruti Alto which
is seeing sales decrease, Hyundai has only two cars in the top ten
selling cars whereas Maruti occupies the remaining six slots in this
table. Hence it can manage to worry less about the impact of the Kwid
alone, unlike Hyundai who need to ensure that its two top selling
models remain competitive against the Kwid and other new entrants in
the market. It can take heart in this regard from the
November sales data that showed the Kwid drop to 10th
position in the table, behind the two competing Hyundai models.
However, this data also shows Hyundai’s position vis-a-vis Maruti
deteriorating on a year on year basis, and also compared to August
2016. Hence its market share was only 14.3%
in November 2016, as opposed to the 16.9% from April to November
period.
Mahindra and Mahindra Market Share Trends
Let
us consider the market share changes of M&M. Despite the
rapid growth of the SUV segment, where the company has market
leadership, the erosion of its market share in that segment has led
to a decrease in market share for the brand in the past two years.
The SUV segment is said to have registered a 32% growth in financial
year 2015-16, whereas the passenger vehicles segment as a whole grew
only a little over 7%. While the company’s market
share in the utility vehicle segment has been eroding, falling
from over 55% in FY 12 to under 38% in FY 16, and to under 30% in the
first four months of FY 17, this has been enough to ensure an
increase in sales that helped it finish third in the latest market
share tally shown in the pie chart.
Let
us explore the reasons for the spurt in the growth of the utility
vehicle market and the decrease in M&M’s market share in the
segment. As noted earlier, the SUVs are considered a higher status
symbol than the hatchbacks. Hence, with increasing disposable
incomes, many younger people have begun to buy SUVs earlier in their
life, reflected in the
decrease of the average age of the buyer from 39 to 31. The
launch of the compact SUV or crossover sub-segment, which is more
affordable than the SUVs, has helped
grow volumes. The number of yearly launches in this hotly
contested and crowded segment run
into the double digits, which creates more choice for the
consumer and possibly boosts segment sales. This can also be
identified as the major reason for the decrease in M&M’s market
share as it can safely be called a laggard in identifying the
possibilities of the crossover segment and being complacent with new
launches, relying on its established products, the Bolero and the
Scorpio that thrived in a less intense competitive scenario where the
other competitors such as Maruti and Tata Motors focused more on the
car segments.
The
Bolero is taking much flak for less than expected sales, occasionally
attributed
to weak rural demand, when in fact the ground may have moved from
under its feet as the more manoeuvrable and stylish crossovers may
have encroached on the lower end SUV’s turf. The new launches it
has undertaken are reported
to not have the same impact as these earlier success stories for
the company. For instance, one of these, TUV 300, is rumoured to be
priced significantly higher than the comparable competitors.
To
stem the tide in the market share, M&M has decided
to launch two new products. One of them is based on a brand new
platform, unlike the TUV 300 which is a compact SUV based on the
Scorpio platform. It is expected to be launched by H2 FY 18. Another
based on the Tivoli platform (which M&M acquired through its
purchase of the Korean car maker Ssangyong) is expected to be
launched by H2 FY 19. It remains to be seen where the erosion in
market share will end, if at all, for M&M in the SUV segment, and
how it will impact its recent market share gains in the passenger
vehicle segment.
Tata
Motors India Market Share Trends
While Tata Motors had lost
its third place to M&M long back, it can be seen losing a bit
of it’s market share in the past two years as well, struggling to
stay above the 5% market share threshold. While circa
2012 its challenges were dwindling sales of its trusty Indica and
Indigo models, coupled with the lukewarm performance of its Aria
hatchback and the micro-car Nano, more recently the issue was the
poor market reception to its launches the
Bolt and the Zest, which were expected to move its hatchback and
compact sedan play to a more premium
positioning, as opposed to the earlier products which found
considerable
traction among taxi operators due to the low total cost of ownership.
Other factors such as poor service, dealer relations and brand
perception, alongside frequent leadership changes are
also blamed for the poor performance. The current strategy seems
like a rehash of its strategy in the past years, i.e., hopes pinned
on new launches. Margins
are also apparently being compromised to chase market share. New
products in the pipeline include a compact sedan code named
Kite-5, an SUV called Hexa and a compact utility vehicle called
Nexon. To help create a premium brand positioning, footballer
Lionel Messi was roped in as the brand ambassador, which has run in
to its own set of problems as the
player courted a few controversies recently. However, this
strategy has been described as effective in driving new sales.
Honda
Cars
India Market Share Trends
Honda
has been perhaps the biggest market share loser in 2016, as can be
seen from the market share trends. The sales of its best selling
sedan City, has suffered due
to competition from Maruti Suzuki’s Ciaz, supposedly partly
because consumer preference shifted to the petrol variants after a
regulatory action that was adverse for diesel cars above 2L
engine capacity, and the company was not able to shift its inventory
fast enough. Its new offering in the crossover space, the
BR-V has not been successful in bringing in the numbers. However,
analysts are not satisfied with Honda’s rationale regarding sales
dipping due to low diesel vehicle sales, since the
Maruti Suzuki Vitara Brezza is supposed to be selling well
despite
having only a diesel variant. Additionally, the only novelty
expected from Honda’s stable for India in 2017 is apparently a
facelift
for its City. This paints a pessimistic picture as far as Honda’s
growth prospects in India are concerned, since the company does not
seem to have a game-plan to recover from its market share losses.
Toyota India Market Share Trends
Toyota Kirloskar Motor Pvt Ltd
has seen marginal annual reductions in its market share over the past
two years. While it is a giant globally, lack of small cars, i.e.,
hatchbacks while sell like hotcakes in India and is the mainstay of
the market leaders sales, although recently giving way to crossovers
and compact sedans in a small way, has come in the way of Toyota
growing in a big way in the country. Whilst its offerings in the
sedan and the hatchback space, the Etios and the Liva respectively,
did well upon launch in 2010, sales
have since become lacklustre. To take another shot at the market,
it aims to bring some of its global offerings to India, viz., a
sub-compact car called Yaris and a sub-compact sedan called Vios.
However, the management seems to be taking a longer term view,
betting on the pollution control standards BS-IV coming into the fray
in 2020, and launch of the Japanese Daihatsu brand, owned by Toyota
but with smaller offerings than the latter globally, in India in the
next three to four years. While market share has stagnated,
operational metrics have been improves upon recently, turning a loss
in 2013-14 into a net profit a year later and winning awards for its
customer service, which leaves the company stronger to compete with
more fervour in the future.
Renault
India Market Share Trends
Renault entered the Indian market
over half a decade ago with its Fluence
sedan and Koleos SUV. They were not able to bring in enough
volumes to drive market share growth for the company, so they
are being discontinued. It is believed they failed because the
lack of local sourcing of components made the offerings costly
because of the import duty incurred. Hence for their latest model,
the hatchback Kwid, they went with about 98%
components sourced locally, making the product price competitive.
There were other
innovations on the cost front as well, such as using only a
single windscreen wiper, using 3 nuts instead of four in the wheels
and doing away with fasteners with use of welding, which helped
reduce the weight by around 5 to 6 kilograms and improve the mileage.
Customer
appeal was augmented by having navigation and entertainment
features generally not seen in its class, coupled with design
elements that resemble crossovers more than hatchbacks. This led it
become a blockbuster
product for the company. Together with the compact SUV Duster, for
which Renault aims to increase localization from around
70% to 80%, the Kwid has driven market share gains for the
company, taking it close to a 5% market share in the April to
November 2016 period, more than twice what it had in CY 2015. It now
seeks to achieve that 5% threshold by
end 2017, possibly because of limits to growth encountered
because of segment volume constraints. To grow market share further,
it plans to introduce one new model every year, targeted at segments
where it is not present. It also plans to increase its sales
outlets from 270
presently to 325 in 2017.
Ford India Market Share Trends
Ford’s market share went from
4%
in 2011 to under 3% in 2015. The reason has been attributed to a
lack of blockbuster products. While its hatchback Figo and its
compact SUV Ecosport did well during launch, they could not keep the
momentum up. The company is also believed to be making losses in
India, and in the absence of a clearly articulated strategy being
made public, the outlook for the company seems pessimistic as far as
domestic market share is concerned.
Nissan India
Market Share Trends
Although Nissan lost around half
a percentage point of market share in CY 2015 over CY 2014,
comparison between CY 2015 and April to November 2016 shows that it
has gained back around that much to leave its market share roughly
unchanged over the period described in the graphical analysis in this
report. In India, Nissan has pinned its hopes on the lower priced
Datsun brand, the change in whose fortunes has led to the see-sawing
market share performance in the
past two years. Its earlier strategy of playing in the market
with Nissan branded vehicles such as the hatchback Micra, the sedan
Sunny and the MUV Evalia had not gone well, arguably because many
aspects of the customer experience such as dealer network and brand
marketing were perceived
as being deficient. Additionally, they were said to be priced too
high for the Indian market. For instance, Datsun’s Go hatchback is
supposed to be 25% cheaper than the cheapest offering from Nissan.
Meanwhile, Datsun’s challenges were identified by analysts to be
the lack of brand recall and the small sales and service network. In
2016, its market share recovery was driven by the sales of its
lower-priced hatchback the Redi-Go, launched in mid-2016. Emboldened
by the positive market reception, it has announced plans to take the
market share up to 5%
by 2020, by launching 8 new products.
Volkswagen India
Market Share Trends
Volkswagen market share has been
showing marginal reduction in the past two years and hence has stayed
below 2% in the last three years. The
sales of Volkswagen in India, however, has decreased drastically
in the past few years from over 78,000 in 2011 to just above 43,000
in 2015. However, things seem to be looking up as Volkswagen’s Ameo
sedan is supposed to be the most affordable car in its category, and
has apparently been
selling well, since its launch in July 2016. However, it has been
suspected that Ameo’s
success has come at the cost of VW’s hatchback Polo, whose
sales fell to 1047 units in July 2016 from 2977 units in the month
before, while the Ameo sold 2200 units in the month of its launch. In
2013, when its makret share was about 3%, the company wanted to more
than double it to 7%
by 2018. Those days are, of course, long gone. Perhaps suffering
from a once bitten twice shy syndrome, Volkswagen hasn’t publicized
any audacious targets for India, despite having found some sort of a
footing with the Ameo.
General Motors India
Market Share Trends
General Motors market share in
the Apr-Nov 2016 period was less than 1%, having seen a decrease of
about half a percentage point from CY 2015, which was itself about a
percentage point less from CY 2014. Things are not looking up for the
company as it has cancelled its plans to invest $1 billion in India
due to the adverse
market share trend. GM’s failure in India has been attributed
to its high
cost structure which keeps it from offering low cost products
which sell well in India. To add to its woes, apparently many dealers
are switching
loyalty to other brands. Hence, the outlook on General Motors
market share in India also remains bleak, despite ambitious yet vague
aim, of significantly increasing market share, articulated by the
company.
Other OEMs Market Share Trends
The remaining market share is
brought up by the smaller players in the Indian passenger vehicles
market whom I will discuss together. Skoda is the biggest of these
with a
roughly 0.5% market share, following a decreasing trend in the
past two years. Its efforts to create a value
luxury segment has clearly not paid off. It had to discontinue
its compact car Fabia after the low level localization led it to
incur losses on the product in a bid to keep the price competitive.
Dealership
and service issues are believed to have adversely affected the
company’s sales as well, which
has been acknowledged by the company. Now it wants to leverage
its network of 75 dealers across 65 cities to grow its sales by 10%
in 2017, by introducing four
new models.
Fiat India is another small
player which has seen its market share reduce over the last two
years. In FY 2016 it had a market
share of 0.3%. As per its top management, the
strategy of “filling dealers” up with stock and “expanding
network ahead of commercial viability” have backfired. It wants to
have an empathetic approach to its dealers to rectify this situation.
When this fire-fighting will lead to an increase in the market share
remains to be seen.
Force
Motors is mostly a commercial vehicles manufacturer who tried
their hand in the SUV market with a product called the Force One
which was a failure and has been discontinued. Hence it will likely
not figure in the passenger vehicle data going ahead.
Isuzu motors is a Japan based
company and their Indian arm sells some pick
up trucks and MUVs in India. It has a nearly minuscule market
share in the passenger vehicles market, but it has been growing well.
Due to the denominator or small base effect, we can see it has more
than doubled and more than tripled its market share in the year
before last and the last year respectively. To continue this growth
it has created an INR 3000 crore manufacturing plant that can roll
out 120,000
vehicles a year at full capacity.
The last of the OEMs was
Hindustan Motors which discontinued
the production of its iconic Ambassador brand and shut shop,
which means it will no longer figure in the list of OEMs, although it
was doing contract
manufacturing for Isuzu as late as April 2016.
Summary
In summary, the pertinent trends
in the Indian passenger vehicle market are:
-
Cost is still king and price rules. Localization is very important in this regard, and cracking the localization has yielded huge market share gains for the Renault–Nissan Alliance, that had eluded the multinationals except Hyundai, until now.
-
Aspects of customer satisfaction such as product innovations including novelty of features and design, quality of service, dealer network and dealer relations, and resale value of the vehicles are important aspects that need to be ensured. The confluence of these factors can be said the be the cause for Maruti having a greater market share than all the other OEMs put together.
-
Non-Indian companies which tried to reverse engineer existing products to fit the Indian markets have failed to gain market share and been incurring losses. This is because they usually price themselves above the domestic companies and in return offer features which don’t connect with the mass market in India. Hence they have not been able to gain market share due to the lax traction among the Indian consumers who focus on more utilitarian traits of the brand and the products.
-
Having made losses over the course of their existence in India, many MNC brands are not able to invest further and don’t have a clear strategy to expand their market share in the domestic market.
