Maruti Suzuki's One-Off SUV Success Is Hurting

Maruti Suzuki India Ltd. briefly unseated Mahindra & Mahindra Ltd. as the nation’s largest sport utility vehicle maker in 2017 with the Vitara Brezza. While that was a runaway success, lack of a full-fledged SUV pipeline remains a gap in India’s biggest carmaker’s portfolio.“SUV is clearly the area where we need to better our performance and not just in the entry or the compact segments, but also in the mid segment,” Shashank Srivastava, executive director, sales and marketing at the maker of the Swift and the Baleno, told BloombergQuint. Maruti Suzuki's share across passenger vehicles, he said, declined 500 basis points over the last year to 43% on account of its weak mid-SUV offerings.Peers are ahead. Hyundai Motor India Ltd., MG Motor India Pvt., Tata Motors Ltd., M&M and Kia India Pvt., among others, have churned out new models as they tap into Indians’ growing demand for bigger, roomier cars. Over 22 new SUVs, according to data shared by Jato Dynamics, have been launched in the last three years. The market share for such vehicles has grown from 22.9% in FY18 to 39.9% now. In the July-September sales, they outnumbered hatchbacks and sedans combined.Hyundai gets more than half its volumes from SUVs—Venue, Creta, Alcazar and Tucson. M&M aims to introduce 13 new models in the category by 2027, of which eight will be electric. Tata Motors, too, is turning around. But Maruti Suzuki hasn’t launched anything beyond the Brezza and the S-Cross. And that’s hurting.Indian automakers’ business was on the decline in the years leading to the Covid-19 outbreak. And production was stalled last year after a complete lockdown to contain the pandemic. Demand bounced back as the restrictions were eased. But a global shortage of semiconductors—the brains of electronic components inside cars that control everything from steering to emissions—hurt the ability to keep up with the rising demand. Maruti Suzuki had cut output in September and October—a month that marks the start of the festive period, considered auspicious for new purchases and crucial for making up for sales lost after the second wave of Covid-19.Srivastava said the company's market share continues to grow in all segments, except SUVs, because of an increase in competition and the chip shortage. “If there was a good [chip] supply, then probably our market share could have been much higher,” Srivastava said. The automaker has 2.8-lakh pending deliveries.Not everyone agrees. The chip shortage, instead, saved Maruti Suzuki, according to Puneet Gupta, director of automotive sales forecasting, advisory and product planning at IHS Markit. “It helped them sail through the last two years as peers were super aggressive and brought their best in terms of product, strategy and technology.”The shift towards personal mobility during the pandemic also helped Maruti Suzuki, Gupta said. That lifted sales of its hatchbacks—Maruti Suzuki’s bread and butter. “If not, the company would have been in a bigger mess.”Earlier this month, CLSA downgraded the company from ‘underperform’ to ‘sell’, citing the loss in market share in the highly profitable SUV segment and a weak launch pipeline..Compact SUV RulesThe compact or sub-four metre is the largest and fastest-growing SUV segment. And the most competitive too. Maruti Suzuki’s Brezza and Ford’s EcoSport were among the early hits in this segment, offering buyers an upright driving position and road presence.As demand for sedans wanes, the share of compact SUVs in overall car sales for the entire market has grown from 11% in FY18 to nearly 21%. Maruti Suzuki’s slice in this pie, according to the company data, has fallen from 30% in FY20 to 20%.Mid-SUVs account for 17.70% of overall car sales in India, with demand surging in the last three years. Maruti Suzuki just has 4% of this market, Srivastava said.“Mid-SUV as a segment is of concern to us as we only have the S-Cross, which hasn’t done well [compared to] the Seltos, Creta and Hector,” Srivastava said. “There clearly is a scope for improvement.".The HeftMaruti Suzuki, Srivastava said, has an aggressive plan to claw back its SUV share.“We would be looking to strengthen the SUV portfolio and improve the current offering to sell as much as S-cross we can,” he said. The new products will reflect the changing customer preference, he said.He didn’t specify how many new models the company plans to launch. A person aware of the plan told BloombergQuint on the condition of anonymity that it’s working on four new SUVs in each of the popular segments, starting 2022. Maruti Suzuki didn’t respond to queries on this.According to Ashwin Patil, Equity research analyst tracking automobile and auto ancillary sector of LKP Securities, Maruti Suzuki makes products suitable for Indian users and it “knows the pulse of the market”. There’s also a “probability that it can amass market share at a good speed when it launches good products”.Agrees Ravi Bhatia, president at JATO Dynamics. Maruti Suzuki now knows what its peers offer and has the war chest to take them on, he said. A large customer base of the company is waiting to upgrade, according to Bhatia, and its ability to target them "is unparalleled”. Given its heft, India's largest carmaker can also bargain better terms with suppliers with the kind of volumes it promises..Not That EasyStill, the company will have to time its SUV push appropriately and come up "with something new”, Bhatia said. "With the segment already crowded, a new model will face the challenge to garner share quickly."According to Patil, Maruti Suzuki won't just have to just spend more on marketing and advertising. “Customers are seeing the competitors’ products in terms of looks, engineering, and technology."There will be expectations from the market leader, he said, and it should be able to match up..At M&M, A Return To Form And Substance

Maruti Suzuki's One-Off SUV Success Is Hurting

While Vitara Brezza was a runaway success, lack of a full-fledged SUV pipeline is a gap in Maruti Suzuki's portfolio.

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