With The Rise Of SUV Class, Can Maruti Change Its DNA To Defend Its Turf?

It is rare to find an Indian company holding close to 50 per cent market share in an industry that has close to a half-dozen foreign players. Maruti Suzuki, a joint venture between Japan’s Suzuki and India's Maruti, has dominated the Indian passenger car market for several decades. In FY19, the firm, led by RC Bhargava, controlled 51.22 per cent of the passenger car market in the country. The ride, however, got bumpy for the automaker during the pandemic when the average Maruti customer, the Indian middle-class citizen, struggled to stay afloat. The result? A punctured market share of 43 per cent in FY22—an eight-year low.

Interestingly, while its overall market share dipped, Maruti’s share in the non-SUV segment still stood tall at 67 per cent, indicating its stronghold over the small cars segment. However, that segment itself is under threat today. The share of small cars in the overall domestic passenger vehicle segment declined from 65 per cent in fiscal 2012 to 45 per cent in the first nine months of fiscal 2022, said a March 2022 CRISIL report titled 'UV thrust - India shedding its small-car skew, embracing utility vehicles'.

Maruti, the market leader, has felt the tremors as well. The brand’s compact segment cars, which include its bestsellers like Swift, Alto, WagonR, Dzire and Baleno, reported a massive decline in sales with the company selling 59,184 compact cars in April 2022 as against 72,318 cars in the same month last year. As compared to FY19, when Maruti’s hatchback segment sales touched 15.5 lakh units, the same stood at 11.5 lakh units in FY22.

While announcing the financial results in April, Chairman RC Bhargava had said, "What has happened is that the small cars used to be the bread and butter (but) I am afraid, the butter has gone away, now it is only bread. There is no butter left in the small car market anymore." He had also spoken cautiously about the likelihood of it reversing substantially in the near term and placed the onus on regulatory changes, taxes by state governments and an increase in prices of commodities for the downward trend in the segment.  

Automakers are also being cautious—some rethinking their strategy, the others rethinking their existence in India. Last month, following the discontinuation of its Polo model, Volkswagen announced that it will not launch small cars in India as the current regulations for availing lower GST rate are restrictive and "prohibitive" in nature. Even Hyundai had to pull the plug on its popular entry-level car Santro, which was launched in 1998 and was the only car that allowed Hyundai to compete with Maruti in the segment, due to low demand and rising input costs.

While the small cars are jostling to find takers, there is one segment that has emerged as a favorite among the Indian customers over the last couple of years—the SUVs. The CRISIL report said that it expected the share of the utility vehicle market to increase gradually to 51-53 per cent in FY26 from approximately 39 per cent in FY21—an uptick set to be majorly driven by SUVs. The share of SUVs in India's passenger vehicles sales has more than doubled in the last five years, as per data from research firm Jato Dynamics.

Capitalising on the SUV surge, a relatively smaller player like Tata Motors has managed to become the third-largest automaker in India after Maruti and Hyundai as its growth majorly comes from its SUV cars like Nexon, Punch, Harrier and Safari. In FY22, Tata Motors witnessed an ascent after it doubled its market share to over 12 per cent as compared to 6.8 per cent in FY19. Rajan Amba, vice president, sales, marketing & customer care, Tata Motors passenger vehicles, told a publication in February that by selling 67,975 SUVs in Q3FY22, the automaker had become the top SUV player in the country with average monthly sales going up from 10,000 in Q1FY22 and 13,500 in Q2FY22 to over 22,000 in Q3FY22. In January 2022, Tata had sold 28,108 SUVs which made up 69 per cent of its total passenger vehicle sales of 40,777 units. 

Mitul Shah, head of research, Reliance Securities, says that in the passenger car segment, Maruti has enjoyed leadership for so many years mainly because of its strong product portfolio and the fact that its network is reasonably strong—referring to the over 4,000 service outlets that cover 1,989 towns and cities across the country.

“Even today, their network is vast and deeply penetrated. That has been helping them to proudly maintain market share despite limited new product launches compared to its competitors like Tata Motors, Mahindra and Mahindra, Kia, etc., particularly in SUVs,” he says.  

Shah says that the overall market dynamics and market pattern will remain more or less the same wherein players like Kia, Mahindra and Tata, that have received success in the last two years and gained market share, would continue to keep gaining. “While Maruti has not lost much, it would not be able to get too much in near term. Probably its new products would help it trap the market share fall but gaining sizable market share will remain a challenge for Maruti due to intensifying competition,” he says.  

As the likes of Tata wait for the right opportunity to hijack Maruti’s market share, one thing is clear: India’s largest automaker has some introspection to do to regain ground and stay ahead of the pack.

Speed Bumps On Maruti’s Road 

As the automaker grapples with a plummeting market share, rising consumer inflation in recent months has not helped its cause. The ones feeling the heat of inflation the most are the middle-class citizens, Maruti’s target audience, who are now waiting it out till inflation comes under control.

Partially to offset the sharp rise in input costs, Maruti has also continued to hike the prices of its cars steeply. In January this year, it had announced a price hike across its portfolio, including small cars, with WagonR, one of its bestsellers, taking the biggest hit and becoming Rs 30,000 dearer. 

Mahesh Bendre, senior research analyst at IDBI Capital, explains how that could become an issue: the weighted average on-road price of an entry-level model went up by 42 per cent—from Rs 3,39,221 in FY17 to Rs 5,57,332 at the end of FY22—making it tough for first-time buyers to purchase a car. In this case, those who can buy a Rs 15-16 lakh car would not mind paying a bit more. The ones who will shy away are those looking to buy a WagonR or a Celerio.

Bendre compares Maruti’s situation with that of the country’s two-wheeler industry which shows the direct impact of a price hike. With the average price of a two-wheeler going up to nearly Rs 90,000 due to shift to BS-VI from BS-IV, high insurance prices and other factors, the industry has not been recovering for the last two-three years. "It is likely to be the (same) case with Maruti Suzuki cars," he says, adding that the majority of Maruti Suzuki's business, which comes from cars costing less than Rs 10 lakh, belongs to a very price-sensitive band.

Another thing that can hinder Maruti’s ambitions is the proposed airbag rule. Earlier this year, the Centre announced that it is working on a proposal to make six airbags mandatory in all passenger vehicles, including the entry-level compact cars. While several manufacturers have pointed out how the move would make cars more expensive, the loudest voice emanating for that camp is that of Maruti which recently urged the government to reconsider the proposal which is likely to come into effect from October this year.

Gaurav Vangaal, Associate Director, S&P Global Mobility, says while the proposal to make six airbags mandatory in passenger vehicles has been introduced from a safety perspective, there will be an impact on the cost of the cars as well as the demand once it comes into effect, adding that the country is already struggling with low demand in the two-wheeler segment. 

"Likewise, the demand for small or entry-level cars will also be impacted by the price rise. If the cost of the cars goes up, then it gets passed on to the consumers. It remains to be seen what the overall impact in the long term will be," says Vangaal.

Vangaal also believes that some carmakers might just discontinue their entry-level cars if the cost margin does not work for them. "With the airbags proposal, carmakers will have to do engineering changes. There are some companies that are unable to sell vehicles in the country and they may not invest in R&D to make changes in the cars. So, they may just discontinue their offerings," he says.

It is unlikely that Maruti would take that route, feels Bendre, alluding to the margin pressure. He also adds that if the commodity prices come down in the future, it will start making a profit in that category as well.

In terms of investing in new technologies and the budding EV space, Maruti has not been too enthusiastic. Shah feels that it is because it is still a small space which would remain much below the sizable volume and will become sizable probably in the next five to 10 years—just what Maruti has indicated indirectly. 

“They do not want to enter a segment, which is small and loss-making, before it becomes big enough for every player to have a sizable volume. I am of the view that Maruti has a strong database of clients, customer preference, what the customers want, what their affordability is and the pricing at which the product can get success. Considering all these parameters, its product should meet all the requirements of the consumer going forward, (something) that has been the winning key for it over the years,” he says. 

About competition, Shah says that we may see Tata remaining number one, continuing to gain share and creating a brand on the EV platform but that does not mean that people will continue to enjoy only Tata even after two-three years when the market becomes bigger for players and when new products from Maruti or Hyundai are launched at affordable prices. “They will definitely shift their preference to Maruti or other brands—whichever offers quality products at affordable pricing with all the technological parameters like charge per kilometre, charging efficiency, etc. Here, we do not believe that anybody who has a first-mover advantage will continue enjoying that for a longer term,” he opines. 

Maruti will gain market share from the other existing players if its product is strong. While its network is definitely very strong, in EV, the network and other things do not work as technology and pricing play more important roles, Shah says. 

The SUV Race 

In March 2012, the top four cars in India as per sales volume—Alto, Swift, Dzire and WagonR (all small cars)—belonged to Maruti. Hyundai’s Eon, also a hatchback, stood at number five. A decade later, in March 2022, Maruti still had four out of the top five cars sold with WagonR leading the pack and Dzire, Baleno and Swift holding the second, third and fifth spots, respectively. However, the entry of Tata’s Nexon on the fourth spot indicates the arrival of the SUV era. 

Reliance Securities’ Shah acknowledges the growth opportunity in the SUV segment. Within the segment, he says compact SUVs like Creta (Hyundai), Sonet (Kia) or Nexon (Tata) are growing with new products coming from Kia, Tata, Mahindra and Hyundai. Unfortunately, Maruti is missing out on this category with only one model at present, Shah adds.  

“The other three players have gained market share from Hyundai as well as Maruti. In other categories, Maruti is still gaining market share but the SUV segment has been its biggest laggard for the past two years,” he explains. 

In the SUV segment, the automaker struggles with a measly share of 12 per cent. Speaking with a publication in April, Shashank Srivastava, senior executive director (marketing and sales), Maruti Suzuki India, had acknowledged that it was the brand’s lack of products in the fast-growing SUV segment that dented its overall market share. He even gave the example of how S-Cross’ mellow sales had cost it its growth in the booming mid-SUV space.  

Having said that, Srivastava also said that the automaker is now making efforts to bolster its presence and is looking to bring in multiple SUV products with an eye on new technologies. 

Shah seems to be optimistic, too. Referring to Maruti’s indication of its product line being very strong and that it is going to launch new products in all categories, he says, “We believe it will launch something totally new in terms of styling, features as well as affordability in the compact SUV segment which will help it gain the market share.”  Until then, Maruti sure has its work cut out for itself.