Hyundai India outlines rural strategy, compact SUV in development

Thanks to an aggressive product launch schedule undertaken over the last year, Hyundai India has been able to beat the widespread weakness seen in the Indian automotive market. This schedule includes introduction of the next-generation i10 (sold as Grand in India) last year, and the i10-based Xcent compact sedan earlier this year. IHS Automotive recently interviewed Rakesh Srivastava, Hyundai Motor India Ltd's senior vice-president of sales and marketing, and asked him about topics ranging from the automaker's future plans to government policies.

Here are excerpts of the interview:

IHS Automotive: What is the potential in compact vehicle segments, such as sedans and SUVs?

Srivastava: The future trends show that customers will be graduating from compact to low-mid and SUVs. We are focusing to capture the "New Elite" and "High Rural" class in the near future. The New Elite class is basically in the mid-30's and above INR1.5 million (USD25,684) annual income, whereas the High Rural class are the traditional leaders in rural areas. We are not present in the compact SUV segment, and the trend shows the compact SUV segment has witnessed considerable growth from the last two years. We are working to bring in new products in the SUV segment.

IHS Automotive: What are the company's plans of growing sales in rural markets?

Srivastava: The car penetration rate into the rural market is growing steadily since purchasing power in the rural market has been increasing. We have around 321 Rural Sales Outlets (RSOs) across India, and we are receiving good volumes from these areas. Our target is to increase these outlets in the future. Our compact models, like the Santro, Eon, and i10, are doing well in these markets. Rural markets are a key part of Hyundai's sales strategy. Rural market customers have a very stable income and positive cash-flow. The customers of these brands have a strong preference for brands that are tried and tested. HMIL scores well in these markets as it connects with rural customers owing to strong brands like the Santro, Eon, i10, and i20; these brands offer low cost of acquisition and low cost of ownership with a strong assurance of higher resale values. Hyundai is focusing on the rural markets (beyond the top 110 cities) to increase sales by increasing the number of RSOs. Currently, there are 321 RSOs and the plan is to increase this to 350 by the end of this year, supported by a strong service network. Rural sales outlets are built in tier-three cities to achieve the maximum penetration. In the last two years, there has been a noticeable upward sales trend. The rural markets are growing on account of growing income and changes in lifestyle.

IHS Automotive: How is Hyundai marketing its products in these new markets?

Srivastava: Hyundai is continuously working to penetrate into the rural markets like tehsils, blocks, and villages. HMIL is mapping tehsils and villages by appointing "Hyundai Champions". Hyundai Champions are people from local villages who promote the HMIL range of cars to prospective buyers. The appointment of Hyundai Champions is another step by HMIL to create job opportunities in rural areas while creating a connection with the customers. In the festival season, special customised schemes for farmers, traders, panchayat members, Gramin Bank customers, etc are being introduced. HMIL has tied up with Gramin Banks to facilitate easier finance options for a convenient buying process. In 2011, around 15% of sales came from the rural and semi-urban markets. In 2012, it grew to 16.9%; in 2013, sales grew to 18.7%; and we expect it will increase to over 20% by end of 2014.

IHS Automotive: What are Hyundai's export plans to South-east Asian and other markets?

Srivastava: HMIL has been the largest exporter (from India) for the last nine years. We are exporting to 120 countries worldwide … [and] to Asian countries, mainly to Vietnam, Indonesia, and Philippines. Grand is doing well in these countries as about 60% of exports to Asia come from Grand. Apart from Asia, we export to non-European markets like the Middle East and Latin America. Our focus is on the domestic market while continuing our leadership position in exports. We have plans to export the Xcent compact sedan to Latin America and Middle East markets.

Outlook and implications

Hyundai's focus on emerging segments and relatively fast model introduction programme has helped the automaker to stay ahead of the competition. Although it was not the first automaker to launch a compact sedan shorter than four metres and remains a late mover by some accounts, Hyundai's performance in the segment underlines its successful approach of almost never competing on pricing, and offering a unique blend of comfort and safety features at affordable price points (see India: 15 April 2014: Hyundai receives 11,000 bookings for Xcent compact sedan, projects better sales outlook for 2014). Hyundai is one of the few automakers in India to have posted growth in sales volumes during the first four months (see India: 12 May 2014: Indian passenger vehicle sales decline again in April).

The focus on rural markets is expected to drive sales for Hyundai in the coming years while it explores newer segments, such as SUVs shorter than four metres. Hyundai plans to launch its B-segment crossover in the second half of 2015. The crossover will be based on the PB platform that also underpins Hyundai's i20 hatchback and Verna sedan. In line with its better sales outlook for 2014, IHS Automotive projects that the automaker will be able to post 11.1% y/y growth in vehicle sales in India to 420,600 units during the current year.