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BW Businessworld

The New Arrival

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Driving along the Chennai-Bangalore highway or the Mumbai-Pune highway, you may chance upon a cloaked small car going through the grind. Well camouflaged from bumper-to-bumper, with pronounced distortions in its black cloak to conceal the car's contours, this is Hyundai's surprise small car — codenamed ‘HA' — being road-tested for a possible launch in November 2011.

Its three-cylinder 800-cc petrol engine and contemporary styling is aimed directly at India's largest-selling small car — Maruti Suzuki's Alto. In its current avatar, Alto is a 13-year-old car on a 12-year-old platform. It is another matter that Alto is going through a redesign and Maruti, too, is believed to have a few aces up its sleeve. But this will be Hyundai's first offering and the most ambitious bet in the Rs 2.5-lakh segment, which generated nearly 30 per cent of India's total hatchback volumes in 2010-11. The company plans to spend Rs 200 crore on advertising in the next three years for all new launches (it had invested Rs 10,000 crore in  India till 2010).

Hyundai says it has done its homework. "We have customer data that gives us an insight into what kind of cars should be made here," says Arvind Saxena, director of sales and marketing at Hyundai Motor India. For the past three years, the company has analysed responses from over 2 million people and concluded that customers are more clued into styling and fuel efficiency in India than in any other country. "The fluidic Verna was a part of this story and the same will be applied to all upcoming facelifts and new launches," says Saxena.

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Importantly, the HA will skip the ultra-low cost car market of Tata Nano and will be positioned between Nano and hatchbacks such as Wagon R, Santro, Beat, etc. It has also learnt from the mistakes of Nano — wrong target audience, improper marketing and distribution, and quirky product design. "Auto makers have understood that the Indian consumer wants a good looking, friendly-on-the-pocket vehicle, and not a low-cost car," says Kapil Arora, head of the automobile practice at Ernst & Young.

From Small To Smaller
Though Hyundai has not revealed specific details of HA, it is understood that besides the three-cylinder, 800-cc petrol engine (Alto has a four-cylinder 800-cc petrol engine and the Nano has a two-cylinder 623-cc petrol engine), a 1,000-cc diesel engine variant will be introduced by 2013. The aim is to compete in the Alto segment, but offer a higher style-quotient and gadgets. For instance, all models except the base model of HA may have power steering. Only the top-end Alto model has this feature (optional for mid-level model).

I-SPY: A sneak shot of a camouflaged HA during a test drive (Photograph: Tarun Samuel)

In 2010-11, Alto sold 225,000 units — that is, 28 per cent of the 808,552 hatchbacks sold by Maruti Suzuki (Ritz, Swift, Alto, Eeco, Estillo, Wagon R and A-Star). Hyundai, in contrast, sold 323,538 hatchbacks (Santro, i10 and i20).

"We need to move into smaller cities for volume," says Saxena. Company sources say over the past five years, car sales in Tier-3 towns has increased from 11 per cent to 30 per cent. "It is important that we create a network that aligns with our volumes strategy for the next five years," adds Saxena. Hyundai, though, is moving slowly — by this year-end, it will add 20 dealers to the 320 it already has. Of these, 4-5 will be in Tier-3 towns. The number of access points will go up to over 2,000 from 1,500. But this will still be much lower than Maruti Suzuki's 810 dealerships and 2,700 service points. "They need dealers across India to sell the small car and by virtue of being the second largest in the market, they can ramp up," says Hormazd Sorabjee, editor of Autocar India. He adds that Hyundai has built a brand name over the past 15 years, and is well placed to meet distribution challenges.

Besides this, Hyundai will also have to increase production. By the end of 2011, it plans to increase capacity to 670,000 units from 600,000 now. Further, it has been steadily decreasing exports — from 285,000 cars two years ago to 233,000 last year and 225,000 this year. This leaves the company with a domestic set-up of almost 440,000 units — an increase of 80,000 units — to support the small car.

Placed Right
Though the HA will not compete in the ultra-low-cost car market, it will still have to be priced competitively. Industry sources believe HA could be priced in the Rs 2.1-2.4 lakh range, and the diesel variant about a lakh more. Alto petrol costs Rs 2.3-3.4 lakh (Alto does not have a diesel variant).

Meanwhile, Alto itself is going through a revamp. Maruti is developing a 600-cc petrol engine codenamed YE3. The cars it powers may be priced in the Rs 1.75-2.75 lakh range. HA also has to contend with the Nano diesel — considered to be the killer from the Tata stable. Expected next year, it may cost less than Rs 3 lakh.

The other rivals are Chevrolet Beat diesel (Rs 4.3 lakh) and 1.4-litre Ford Figo (Rs 3.4-4 lakh). Maruti Suzuki could also surprise, perhaps with a diesel Alto. But HA's low pricing could well make it the cheapest car after Nano.

"We delayed manufacturing our diesel engines locally because none of us expected the price differential between petrol and diesel to be so high," says Saxena. The company is investing Rs 400 crore on a new diesel plant and the first engine will be on-road by mid-2013. "It will be critical to manufacture their diesel engines soon because the American cars could have a two-year advantage," says Shrawan Raja, managing editor of He adds that HA's petrol engine could be taken from Santro's four-cylinder engine.

Hyundai is also keen on bringing its own 1.13-cylinder U-engine to fit the small car as Maruti Suzuki is yet to launch a low-displacement diesel car in the Alto series. "Currently, we work on Fiat engines, but globally we have options for low displacement engines that can be brought into India," says I.V. Rao, executive director of Maruti Suzuki in Delhi.

Apart from Maruti Suzuki, Hyundai also has to watch out for Toyota and Volkswagen. Over the past six months, Toyota's sales have risen 94 per cent over 2010-11, while Volkswagen's sales have grown over 100 per cent over the last year. Both have also invested heavily to ramp up production. Hyundai, meanwhile, is watching its India operations closely as it accounts for 8 per cent of its 3.6 million global sales. Between India and China, Hyundai manufactures 1.3 million vehicles. And if these numbers have to grow, HA will have to be the pivot that it has been searching for in its India journey.


(This story was published in Businessworld Issue Dated 05-09-2011)