Mahindra plans revamp of utility vehicles portfolio by 2015

Mahindra and Mahindra Ltd has drawn up a two-year plan to further strengthen its presence in the utility vehicle (UV) segment by replacing some of its ageing models with new ones, some of which it would jointly develop with its Korean subsidiary Mahindra SsangYong.

The first such model is likely to be launched by the middle of fiscal 2015, according to Pawan Goenka, president of farm equipment and automotive sectors at Mahindra and Mahindra.

The Mumbai-based firm commands two-thirds of the utility vehicle market in India where competition is intensifying. Utility vehicles accounted for 44% of the total domestic sales of Mahindra’s automotive sector in February.NextMAds

The maker of Bolero, Scorpio, Xylo, Quanto and XUV5OO models will also focus on introducing newer variants and refreshes of existing models, said Goenka, adding the strategy will include the launch of two variants of its best-selling XUV5OO—a more expensive and a cheaper one.

In the utility vehicle segment, Bolero is Mahindra’s cheapest vehicle while XUV 5OO variants are the most expensive. “There is no scope for one more product. If we launch a new product, we will be replacing an existing one, otherwise we are crowding it too much,” he said.

Goenka likens his strategy to “filling in the pipeline”. “Now that the pipeline is full, we are getting into the product lifecycle (the life term of any product).” He said most of Mahindra’s models are likely to follow a trajectory which would typically include a minor refresh in two years, a major one in four years and a complete change in eight years. Yet, he added, the company has not retired any product in eight years till date.fourthMAds

Unlike their global counterparts, Indian auto makers rarely phase out models even as they continue to add to the line-up.

This strategy can backfire in some cases such as that of rival Tata Motors Ltd which has seen its passenger vehicle sales plummet to historically low levels as buyers shun its older models and favour newer cars from Renault India Pvt. Ltd, Maruti Suzuki India Ltd and Toyota Kirloskar Motor India Pvt. Ltd.

On the other hand, Mahindra, which also continues to sell the older workhorses, albeit with major changes, alongside new ones, has been surging ahead.sixthMAds

For instance, the Bolero is 13 years old and still sells 10,000 units per month and figures among the top 10 automobile models in the country, according to Autocar India magazine.

Arun Malhotra, chief sales officer, automotive sector, Mahindra and Mahindra, said the rugged sports utility vehicle (SUV) that was developed keeping the rural buyers in mind, has gone against the so-called “conventional wisdom”. “It’s a lot younger than what it was six years ago.” Even the Scorpio, launched in 2002, has been selling 4,000 units a month and the brand enjoys a top-of-the-mind recall, said Malhotra.

The Bolero draws 70% of its buyers from villages and smaller towns, while half of Scorpio buyers are from urban centres. According to Malhotra, both models have been kept relevant by refreshes and changes in the engineering and interiors departments to retain the novelty. It requires continuous investment, he said.

The strategy of making major improvements to products and keeping the DNA of the model the same has worked well for the company—whether it’s the Bolero or Scorpio, said Goenka.

Unlike global auto makers, which have the benefit of scale, Mahindra sells fewer vehicles making frequent model changes expensive. Typically, the cost of developing the so-called body-in-white (shell of a car without parts fitted into it) is ₹ 250 crore. For a multinational, it may be a shade higher but bigger volume makes up for the increased cost, said Goenka.

Experts said Mahindra’s strong rural presence will help it since newer models like Ford Ecosport, Renault Duster are very urban-centric. “A low-cost of ownership will also swing buyers in Mahindra’s favour. However, the company will need to watch out for competition in cities,” said an analyst from a consulting firm on condition of anonymity.

In the 11 months to February, sales of UVs expanded 54.4% to 499,794 units compared to a year ago, according to data from Society of Indian Automobile Manufacturers or Siam. In the same period, sales of passenger cars fell 4.64% to 1.71 million units, the steepest decline in 12 years.

Sales of Mahindra’s passenger vehicles expanded 28% to 282,275 in the same period.

Fuelled by new models which include Renault Duster, Maruti
Suzuki Ertiga, Mahindra Quanto, analysts expect the body utility vehicle market to grow further.

The emergence of new sub-segments (compact SUVs/multi-purpose vehicles) and new price-points are driving growth in utility vehicles, Joseph George, an analyst at brokerage IIFL Ltd, said in an 8 March report.

“We expect outperformance of UVs against cars to continue in fiscal 2014,” the report said. It added that even the recent excise duty increase would impact only 40% of industry volumes (due to exemption for taxi UVs and engines less than 1,500cc) and is unlikely to be a dampener.