Market Share Trends in the Indian Passenger Vehicles Market

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 10^th 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:

1. 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.
2. 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.
3. 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.
4. 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.