Home / Industry / Manufacturing /  Car makers find novelty factor wearing off quickly

Mumbai: If ever a car has changed the fortunes of a company, albeit temporarily, it has to be the Duster.

Renault India Pvt. Ltd launched the small sport utility vehicle (SUV) in July 2012; sales peaked at 6,313 units in March 2013; by July this year, though, they were down to 2,821.

The company launched an all-wheel-drive version in October to rev up sales.

Mahindra and Mahindra Ltd launched the XUV 5OO, another SUV, in September 2011. Sales peaked at 4,237 units in November 2012, then touched a low of 1,377 units in June 2013. The company launched a new, stripped down variant (that costs significantly less), the W4, in November 2013.

Sales have steadied since then and Mahindra sold 3,035 units of the SUV in September 2014.

Car makers in India, and elsewhere, have known about the novelty factor for long. A new car ensures more sales. Indeed, over the past year or so, the car makers that have done well in India are those that launched new cars—such as Maruti Suzuki Ltd, Hyundai Motor India Ltd and Honda Cars India Ltd.

Yet, much to their consternation, the life of such new models (or, at least, the period in which they can generate more sales) is shrinking. A decade ago, it was between seven and 10 years, say experts and auto industry executives. Five years ago, it was between five and seven years. Now, it is between 18 and 24 months.

“The concern that most companies have to have in India is that there are very few products in the market that remain on the top for too long," says Pawan Goenka, executive director, and president for farm and automotive sectors at Mahindra & Mahindra.

India’s passenger car market shrank for the first time in a decade in 2013-14 in the face of slowing economic growth, rising inflation, and political uncertainty. They expanded for four months in a row between May and August before falling in September. Industry body Society of Indian Automobile Manufacturers (Siam) has yet to release October sales data.

Within this, though, there were smaller trends of ups and downs. For instance, an analysis of some best-selling new cars, from the time of their launch to September, highlights the ever shrinking benefit of the novelty factor.

Put simply, “car manufacturers have to struggle harder to roll out new products quickly," says Puneet Gupta, analyst at IHS Automotive, a sales forecasting and research firm. If they don’t, they run the risk of shrinking sales.

An analyst at a Mumbai brokerage who asked not to identified cites the example of Mahindra & Mahindra, which has seen its share of the utility vehicle market slip from 55% in 2012 to 33%.

But if they do launch new models quickly, it could “impact the return ratios (rate of return on the capital employed) of auto companies adversely," says Joseph George, analyst at IIFL Ltd. And companies have to start working towards a business model that factors in a break-even at lower volumes, adds IHS’s Gupta.

Companies are betting that refreshes (or makeovers) will have at least a fraction of the impact of an entirely new model. On average, say auto industry executives, a makeover could boost sales by up to 10%, or, at the least, ensure that sales of the model don’t fall.

“The efforts to keep up the sales momentum have quadrupled and so have the costs," says Raman.

Five years ago, car makers could get away with minor cosmetic changes. Now, makeovers are more intensive, and expensive. Raman declined to elaborate on the quadrupling of costs.

Mahindra & Mahindra has sold 6,000 units of the new Scorpio it launched on 25 September but Goenka is not sure as to how long the novelty will last.

“How long it will last? I don’t know," he says. “A new product launch brings excitement and traffic into the showroom, but after three months to a year the customer moves on to something else," he adds.

It doesn’t help that success is rapidly cloned.

Renault offered a value proposition (with the Duster) which was unique but in no time (at all) it was challenged by rivals," says an executive at a rival auto firm who asked not to be identified.

A Renault India spokesperson did not respond to calls and text messages seeking comment.

One model that competes with Duster is the FordEcoSport. This Ford India Pvt. Ltd product too has seen its lustre fade marginally. Its sales in July, August and September were lower than those in the same months a year ago. A Ford India spokesperson was not available for a comment.

Duster sales also took a a beating from the Terrano. The SUV, which shares the same platform as the Duster, was launched by Renault’s sister firm Nissan Motor India Pvt. Ltd in October 2013.

Some models last longer than others. Maruti Suzuki’s Dzire, for instance, has dominated the compact sedan segment since its launch in 2008, although the company went in for a radical remodelling and launched a shorter version in 2012. Dzire has also seen several small changes over the years. Then, it could well be that products that are in the right zone as far as price, functionality, service, and brand are concerned, simply last longer.

Usually, though, “one has to keep doing something or the other to keep up the excitement," says Jnaneswar Sen, senior vice-president, sales and marketing at Honda Cars.

Sales of Honda’s Amaze have been yo-yoing since its launch. They peaked at 9,198 units in August but came down to 3,138 units in September. Sen attributes the sharp fall to “operational reasons" which will be addressed once the company shifts production to Rajasthan from its existing Greater Noida plant. The Amaze was launched in April 2013.

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