War cry for 50%: Maruti's rise to number 1 in SUVs is the result of rejig

The chief executive officer (CEO) of a healthcare service provider recently travelled from Mumbai to Goa and back in his six-year-old sedan. His 12-year-old daughter was with him. Soon after returning to Mumbai, the CEO traded in his sedan for a sports utility vehicle (SUV) rated five stars on safety.

Apart from the rating, he feels the SUV’s higher stance would ensure more safety, especially because the daughter insists on sitting in the front passenger seat. It would also provide a more comfortable ride because of the higher ground clearance; even the best road trips involve a bit of rough and tumble. Then there is the expandable boot space.
 

Now that the CEO intends to do more road trips, these things matter more. What matters just as much is that all the daughter’s friends move around in SUVs. That settled it.
 

The Indian passenger vehicle market is indeed in a sweet spot for SUVs. An ever-increasing mass of car buyers is opting for SUVs for the factors that swayed the healthcare CEO. Several are lured by the perception that SUVs can be “statement” vehicles, indicating that you have arrived in life.
 

This shows up in the sales numbers. Four years ago, SUVs were just about 26 per cent of the passenger vehicle market; now they are 47 per cent. This, amid rapidly increasing overall sales. Naturally, the country’s largest maker of passenger vehicles, Maruti Suzuki, could not stand by and watch the others drive away with the market.
 

“Our war cry is to have a 50 per cent share of the passenger vehicle market. In the non-SUV space, we enjoy a 65 per cent share. In utility vehicles, we have been number one for the last six years, with the Ertiga and the XL6. But our SUV market share was 12.5 per cent at the end of FY23,” says Shashank Srivastava, senior executive officer, marketing and sales, with Maruti.

With the share of SUVs in the overall market nearing 50 per cent, Maruti had to increase its presence in this segment to realise its ambition of owning half the passenger vehicle market, says Srivastava.
 

The latest figures would have reassured him that the war cry was not sounding hollow. Maruti’s share of the SUV market has grown from a modest 8.5 per cent share in the first quarter of FY23 to almost 21.7 per cent in the second quarter of the current financial year. In the process, it has overtaken the entrenched SUV warriors, such as Mahindra and Mahindra (21.4 per cent), Hyundai Motors India (18.6 per cent), and Tata Motors (17.2 per cent), to become the largest in the segment.
 

Motilal Oswal, the brokerage, noted in a September report: “MSIL reinforced its SUV product portfolio with the launch of the Brezza and Grand Vitara. Further, the recently launched Jimny and Fronx will help MSIL expand its presence in the SUV segment.”
 

A new language
 

The Grand Vitara has sold more than 100,000 units since its launch in September 2022. It symbolises the results of a concerted plan that was put in motion four years ago, when Maruti was still perceived to be a big small car company appealing to the value-conscious customer. One of its most famous advertising campaigns was the one in which someone asked, “Kitna deti hai”, or how many kilometres to a litre of fuel.
 

“We had our ears on the ground. We showcased the Brezza, an entry-level SUV, at the 2010 Auto Expo. It took us time to build the portfolio and get our products in the market,” says Srivastava.
 

An MSIL dealer, however, has a different view. “Maruti continued to believe in the strategy of dominating the small-car market and felt the Indian consumer would never really move away from buying entry-level cars as their first,” says the dealer, who has been selling Maruti cars for more than a decade.

Nevertheless, the turnaround has been remarkable and the rise in Maruti’s market share has shown that consumers may have been waiting for a strong SUV play from Maruti.

KRChoksey Research says that as the semiconductor situation improves further, Maruti will be able to sell more SUVs that have a long wait list, leading to improvements in the mix and realisation.

The shift was not easy; it cannot be if you are repositioning a large company.

“Earlier, people went for functionality, and our communication was targeted at that. With the Nexa range of outlets, the communication became aspirational, more edgy,” says Srivastava. Along the way came a new design DNA (more contemporary) and features (360-degree cameras, sunroofs, etc). Indeed, Maruti is now seen to be speaking in a different language with its consumers.

“The Vitara buyer is a slightly mature individual, already a car-owner and a replacement buyer,” says Srivastava. The 

Brezza owner matches the profile of a Tata Nexon buyer; Brezza is the first car for 31 per cent of its buyers.

Small is still beautiful

It is not that Maruti is moving away from small cars completely.

“Our strategy is clear: Dominate the entry-level hatch (Alto, Celerio, SPresso), consolidate in the mid-segment (Baleno, Dzire), and nibble away from the top (SUVs),” says Srivastava.
 

Hatchbacks still constitute 30 per cent of the passenger vehicle market. The top three cars in India are still small cars: Swift, Baleno and WagonR. Incidentally, all three are Maruti models. The company has a 90 per cent share of entry-level hatches. Other players exited the segment as it became unviable for them.

“About 45 to 47 per cent of car buyers in India are still first-time buyers, and this ratio has not changed in the last 20 years,” says Srivastava.

Analysts say changing the game plan would require Maruti to change its manufacturing strategy. Motilal Oswal points out that unlike the double-digit growth in the Chinese passenger vehicle market in the past, Maruti expects a 6 per cent compound annual growth rate until FY31 for the Indian passenger vehicle industry. It adds that Maruti, which is looking to nearly double its capacity to 4 million units by FY31, is restructuring its production facilities to conform to the new realities (read lower growth).

KRChoksey Research says the product mix is set to improve with the easing of semiconductor supply, leading to more production of the high-in-demand utility vehicles. “A stable commodity cost environment, along with mix improvement, improved realisations, and cost reduction efforts, will lead to margin expansion over the next two years,” it says.

Played well, the SUV game is likely to improve Maruti’s average price realisation.

That said, price is no longer the thing that defines the company.