Automakers hitch a ride on SUVs as buyers dump hatchbacks and sedans

India’s top automakers such as Maruti Suzuki, Hyundai Motor India, Tata Motors, Mahindra & Mahindra (M&M), etc., are poised to introduce a range of sports utility vehicles (SUVs) in the next six to nine months to meet growing aspirational demand for this category of cars.

Eight new SUV models were launched in the mass segment this year and nine more are on the anvil in the next calendar year, according to auto intelligence firm JATO Dynamics. Models launched recently include Tata Punch, Mahindra XUV700, Skoda Kushaq and Volkswagen Taigun.

Personal mobility demand in India has been increasing and SUV sales have grown in the past five years, even during the pandemic, as prospective buyers increasingly spurn hatchbacks and sedans. Experts said this trend will continue the coming years as customers aspire for SUVs, which are sturdy and spacious and offer superior driving dynamics, offroad capability, and safety features.

Maruti Suzuki India Limited (MSIL), the market leader, is said to be launching a new Vitara Brezza in the second quarter of 2022. The company will likely introduce a mid-size SUV, being developed jointly with Toyota, in the third quarter of 2022 to take on the Hyundai Creta and Kia Seltos, people aware of the company’s plans said.

“Although we cannot talk about our future product plans, what I can indicate is there will be quite a few launches in the SUV segment straddling across multiple price points,” said Shashank Srivastava, senior executive director for marketing and sales at Maruti Suzuki.

Fuel factor

Srivastava said the cost of running a vehicle is an extremely important factor in India’s market, irrespective of the segment. Car manufacturers have to focus on fuel efficiency if the true potential of SUV demand is to be realized, he said.

“Fuel efficiency is going to play a very important role in SUV demand, especially with the high fuel prices prevalent today,” Srivastava said.

His thoughts are seconded by Nissan Motor India MD Rakesh Srivasatava (also former Hyundai India Sales and Marketing head), who believes that the cost of ownership is calculated by various factors including cost of maintenance, amongst other factors.

In his words, “The overall cost of ownership has gone up for the industry, owing to factors including the rise in fuel prices, however, considering now that we have organized sectors for selling used cars, the consumers are better off.”

Hyundai Motor India Limited (HMIL) is gearing up to roll out a new version of its Venue by next June. It will introduce the fourth-generation Tucson during the second half of the calendar year, which will be positioned above the Alcazar in its SUV portfolio and will be pitted against models such as the Jeep Compass, Citroen C5 Aircross, MG Hector, Tata Harrier, MG XUV700, and Volkswagen Tiguan.

Mahindra & Mahindra recently revealed the name of its much-awaited SUV that was codenamed Z101 as the Scorpio-N. The Mumbai-based company said the existing Scorpio model will continue as the Scorpio Classic. M&M plans to introduce 13 SUVs by 2027, expecting the market share of this category of vehicles to remain healthy even with the entry of electric vehicles.

“In a post-Covid world, people either individually or in groups want to reboot their lives and a big way is venturing out to the great outdoors for which SUVs are the natural choice,” said Veejay Nakra, president of M&M’s automotive division. “With this increasing trend of tourism with road travel, we have seen an increase in customers buying an SUV as their first vehicle.”

Honda Cars India Limited (HCIL) also plans to launch an India-specific SUV by next year.  "We are very confident that the new model will be well accepted by our customers in the same way as our strong models City and Amaze are doing in the sedan market,” says Yuichi Murata, Director, Marketing and Sales, HCIL.

Tata Motors, which launched a series of SUVs in 2021, is set to expand its range. While one of them is said to be the Tata Blackbird, which is being positioned as a premium, midsize coupe SUV, the other is likely to be the midsize SUV Sierra EV, whose concept version was unveiled at the 2020 Auto Expo. The company’s Safari SUV may also get a petrol variant. The company spokesperson, when contacted, maintained that it will share details closer to launch.

India’s SUV market has grown at a faster pace than the industry average and this category accounted for 50 percent of passenger vehicle sales in FY22 compared with 21 percent in 2015, according to industry estimates. SUV sales increased 12 percent in FY22, while sales of other passenger vehicles fell 2 percent.

Consumer preferences

Demand for SUVs has remained strong even in the midst of disruptions caused by two waves of Covid-19, the semiconductor crisis, skyrocketing fuel prices and a steep increase in commodity prices.

“This indicates a strong shift in customer preference to SUVs from other body types,” said Nakra of M&M, which brought in utility vehicles such as the Bolero and Scorpio more than two decades ago. “Demand continues to be strong for SUVs in both rural and urban markets.”

Nakra said there is pent-up SUV demand, which the auto industry has not been able to meet because of supply-chain disruptions and the global semiconductor shortage. He said while rising fuel prices may have some impact on utilisation of SUVs, the need to own a personal SUV remains strong.

About 10.60 lakh SUVs were sold in India in FY22 compared with about 639,000 units in FY18, according to TechSci Research.   The volumes were quite close to the hatchback segment at 11 lakh units . (See table below)

Model launches and availability have been key factors driving SUV sales. The number of small car models in the market has remained at 26-27 since FY10, while the model count in utility vehicles increased to 58 in FY22 from 36 in FY10, according to Crisil.

Its research estimates that the employee cost of large and medium companies – a proxy for income sentiment among affluent buyers of higher-priced cars – increased by 20-25 percent since FY19, faster than the 0-10 percent in small and medium-sized companies, which typically account for a larger proportion of lower-priced car buyers.

According to Pushan Sharma, director of Crisil Research, first-time buyers, too, prefer to buy a used utility vehicle than spend an equivalent amount on similar-priced small cars. He added that even the price increases of SUVs have been comparatively lower.

“Price hikes for SUVs didn’t dampen buyer sentiment as their income had been stable during the pandemic, unlike the small car buyers, who have seen a significant impact on income amid the pandemic,” Sharma said.

Karan Chechi, director of TechSci Research, said long-distance travel is more comfortable in an SUV than in a hatchback or sedan because they are more spacious and have better ground clearance.

“A lot of advanced safety features like terrain response system, hill start assist, hill descent control, and dynamic stability control have contributed to this shift in preferences,” Chechi said.

Going electric

TechSci Research said the SUV segment is set to grow at about 10 percent in each of the next five years. JATO Dynamics is of the view that SUV sales are expected to increase at about 9 percent in each of the next seven years to exceed 2.16 million units by 2028.

A new trend in India’s SUV market is the increasing adoption of electric vehicles such as Mercedes Benz EQC, Hyundai Kona Electric, MG ZS EV, and Tata Nexon.

According to TechSci Research, Tata Motors sold 15,198 electric passenger cars in FY22, with the Nexon accounting for about 94 percent of sales. MG sold 2,045 units of its ZS EV last year.

“The growth of SUVs in the forecast years is attributed to the increasing portfolio of electric SUVs, improving lifestyle of consumers, growing interest in weekend traveling, advanced safety features, and enhanced comfort,” Chechi from TechSci Research said.