The Hindu Business Line : Hyundai in a hurry

IT's a sweltering morning, the kind that makes the dust devils prance in the heat, when a motley group of media persons gather at Hyundai Motor India's test track in its factory at Sriperumbudur, an hour's drive from Chennai. Lined up at the end of the track cheek-by-jowl are Hyundai's beauties, all yet to be unleashed on Indian roads. There's the Elantra, an 1800 cc, 16-valve engine sedan, Matrix, a 1500 cc CRDi diesel multi-purpose vehicle, the Tuscani, a muscular low-slung 2,700 cc sports coupe, an Accent 1500 cc CRDi, a 2700 cc Sonata Gold, auto transmission and an Accent 5 door semi-notchback. All waiting to be driven.

Soon the stupor is shattered with the roar of engines as men and machines tear down the test track at speeds of 120 kph and above in an awesome display of speed and power. Sweating profusely in the mid-morning heat and watching like a proud parent of his charge is the feisty 48-year-old President of Hyundai Motor, B.V.R. Subbu. As each car is put through the paces, Subbu is anxious to have first-hand feedback on each car's performance and feel. The responses will give Subbu a sense of how potential customers of the cars will react as some of these cars find their way onto Indian roads.

Later this year, Hyundai will launch the Accent CRDi or the common rail direct injection diesel engine, a far superior diesel engine vehicle which will replace its current Accent diesel offering and will be positioned just below its 1600 cc petrol Accent Tornado. Also on the cards is an automatic transmission version of the Santro as well as the auto transmission Sonata, which will be imported. As Subbu says, the entire portfolio of Hyundai vehicles is constantly being evaluated in Indian road conditions and a launch will be timed depending on market conditions. Hence, the impending launch of the 2500 cc sports utility vehicle, the Terracan, a 4-wheel drive, has been put off the moment and as Subbu confirmed to Catalyst, the company will instead look at the smaller Carens, a five-six seater multiutility vehicle with a "car-like attitude and feel" from the stable of its sister carmaker, Kia. As Subbu explains, the market is ready for a reasonably priced "family recreation vehicle" and the Carens, with its pricing, a notch above the existing MUVs, can take on the Qualis, the Sumos and the Scorpios. Carens in South Korea features an 1800 cc petrol engine, but as a Hyundai spokesman says, the company has a host of engine options in various capacities today, including a CRDi engine. The price could be tentatively pegged in the Rs 7-8 lakh bracket. But, as a Hyundai dealer observes, the market for MUVs will be small and may not have the depth to sustain great numbers.

Currently, Hyundai operates in three distinct segments with the Santro in the B segment, Accent in the mid-size and Sonata in the luxury car segment, with no overlaps and cannibalisation of any of these segments.

Now, Hyundai is looking to plug the gaps in its portfolio with brands like the Carens. Next year too will see the launch of the `super-mini' car, the Getz, which was launched at the Frankfurt motor show recently. This will be positioned in the upper B segment between the Santro and Accent. Comments Shapur Kotwal, Deputy Editor of motoring magazine Autocar India, "As long as Hyundai keeps giving the Indian customer fresh new products at competitive prices and builds excitement around them like they have successfully done, they can sustain their good run so far.

They have good products in the pipeline and these should make it possible to stay in the hunt."

Success, so far

Hyundai's Indian odyssey so far has undoubtedly been a runaway success since it launched the Santro in late 1998, a car which caught the imagination of Indian drivers and redefined the B segment. Four years later, Hyundai has emerged as the country's second largest car maker behind Maruti. It's rolled out three lakh cars so far and earned revenues of Rs 3,403 crore. Plans are on to undertake a $200-250 million expansion of the plant's capacity to two lakh units a year. The Sriperumbudur facility will also emerge as a global export hub for Hyundai's small cars. In the Indian car sweepstakes, all three Hyundai models, the Santro, Accent and the Sonata, continue to lead their respective segments. However, the Santro had to concede leadership to Tata Engineering's Indica in the second half of 2001-02. Currently, the Santro has a 25 per cent share of the B segment in year-till-date January to May 2002, competing against the likes of Zen, Wagon R, Alto, Palio and Indica. Similarly, in the mid-size segment, the Accent leads with a market share of 27 per cent, pitted against the likes of Ikon, Honda City, Corsa, Esteem and the Lancer. In the luxury D segment, its Sonata has seized a 52 per cent share in a market where the Honda Accord, Mondeo and Mercedes Benz C Class are present.

A dream run so far, but there could be a spanner in the works. Gautam Sen, Editor of Auto Motor & Sport, a Delhi-based auto magazine, points out that India has been a relatively protected market so far and Hyundai, he says, has had spectacular success because of its marketing savvy. "Hyundai is well placed to grow but perhaps not as fast; the rate of growth may come down. The Santro was a runaway success; its only competition earlier was the Matiz but that folded up. But now with the Palio coming on strongly and with Indica also making inroads, the Santro has lost some of its sheen. Then there's the Zen diesel which is priced competitively and the Palio too is planning a diesel version." The Palio, as Subbu admits, must have taken away at least 5,000 cars from the Santro's sales so the threat is real. But, the flip side to that is that the A segment, dominated by a sole car, the Maruti 800, is shrinking and is expected to be about one lakh cars this year. Many first time buyers are moving straight into the B segment or graduating to it, a positive sign for car makers like Hyundai.

Competition undoubtedly is going to get a lot stiffer as other car makers gird their loins. As Autocar's Kotwal points <147,1,0>out, "Under a new management, Suzuki should strike back with the Ignis. They make amongst the best small cars and a product like the Liana, a possible Esteem replacement, should be competitive, depending on how they position their products. Maruti needs to get its act together as far as marketing and product planning is concerned." It's not going to be easy. Says U. Venkatesh, Managing Director of Kun Hyundai, Chennai, one of the company's largest dealers, "Hyundai has a new generation of dealers with a modern outlook, whereas Maruti's dealers still have an old mindset and cannot react fast enough to the changing market."

There's the other small matter too that the overall pie for passenger cars is not growing at the heady levels of last year and the year before. According to Society of Indian Automobile Manufacturers' figures, domestic sales in April-May 2002 have dropped by almost nine per cent over the same period in 2001. The silver lining is that the B segment sales have fallen only by 1.6 per cent in this period.

Hyundai itself has announced a smart recovery in sales in June, recording a 13.4 per cent increase over May 2002 (8,078 units) and an 8.08 per cent increase over June 2001 (8,472 units). Hyundai hopes to sharpen its export focus to balance the sluggish domestic demand and expects export sales to be a good percentage of total sales eventually. Exports currently account for 6.43 per cent of total sales, up from 3.92 per cent in May 2002.

Marketing savvy

Auto experts acknowledge that it's Hyundai's marketing savvy and quick thinking that has got it this far. They point to the master stroke of roping in film star Shah Rukh Khan to endorse a virtually unknown South Korean brand. (Today, Khan sometimes drives a Santro to drop his child in school, says Subbu!) And the critical reversal of its decision to enter the mid-size segment and launch the Santro instead. The rest, as they say, is history. Technologically, as Auto Motor's Sen points out, Hyundai is not superior to anybody else but is an almost independent car maker, maybe just a small step behind the Japanese and American car makers. Adds Autocar's Kotwal, "Though still a babe, its technical tie-ups with partners like Mitsubishi and Detroit Diesel (which has developed the CRDi engine) make it very competitive. Its own products are also getting stronger every day."

Sure enough, the Hyundai marketing machine will be working overtime. As Subbu says, technologically most cars in the B or C segment may be comparable, but it's the brand that makes a difference. "We look to corner mindspace in a consumer," he says. For example, Hyundai will shortly unveil a campaign for CRDi, a patented technology. That's it. It won't be called a diesel car but the ad will tout the superiority of CRDi technology and seek to differentiate between a diesel and a CRDi engine, though the latter is essentially a diesel engine too. It will seek a superior positioning platform for CRDi vehicles, and thereby strengthen the Hyundai case.

Or, take a forthcoming campaign that Hyundai plans for second-hand cars, even though it's not operating in that market as of now. This, says Subbu, will take a similar `educative' plank that initial advertising for the Santro took, using the motif of Dr Sheer Genius in an ad which talked about the benefits of multipoint fuel injection engines. The forthcoming campaign will look at simply conveying the message that `If you're buying second hand, buy MPFI... ' and talk about the benefits of fuel injection engines. "Immediately, we can create a stronger market for our cars as a buyer will realise that a car with MPFI can fetch a stronger price in the second-hand car market," elaborates Subbu. Comments an industry observer, "Hyundai's biggest advantage is that it is able to think Indian. In its early days in the country, it was able to recognise that Indian consumers were not looking for price propositions but value propositions." That thinking helped the company pack its cars with lots of value-added features giving consumers the impression that they were getting more bang for buck. It will be a quality that should stand Hyundai in good stead as the competition gets bloodier.

Service with a smile

HYUNDAI Motor's President, B.V.R. Subbu, recounts this anecdote to explain the Hyundai commitment to service. At a certain dealership in northern India, a young Army officer brought in a badly bashed up Santro asking the dealer to repair it. Then he disappeared for over eight months, presumably on a forward area posting. Meanwhile, the dealer, not having any insurance papers signed, kept the car in a corner without repairing it. When the Army officer turned up suddenly after many months and found his car was not repaired he raised hell, a matter which reached Subbu's ears. "I told the dealer that we would settle insurance later but to get that car repaired in a couple of days flat and give it to the customer," says Subbu. The dealer took a loss on that car, defrayed a bit by discounted spares by the company. "It may look like we took a loss on that car, but look what a powerful word-of-mouth advocate we got in that customer," he says.

In another instance, Subbu was talking to an elderly customer whose third and last free service had just been completed. Subbu asked him whether he was going to come back for his next service. Not really, the customer said, as his experience had been that soon after the warranty expires, new cars invariably develop problems which the service station refuses to rectify without charges. Subbu's reaction: gave the elderly gentleman a second year extended warranty on the car on the spot. "We believe in our cars enough to give that second year warranty and this was extended to all Santros with retrospective effect," elaborates Subbu.

When Hyundai forayed into the Indian market it moved quickly to set up a network of dealers and service stations - it has close to 260 of the latter. Service was identified as a powerful differentiator to the way things were done and word of mouth did the rest. "It was one of the ways to keep the Hyundai customer within our fold. Also, these are advanced cars which can't be repaired by a corner mechanic," adds Subbu. Says Kun Hyundai's Venkatesh, "Hyundai offers service for less, it's easily reachable and allows flexibility and customers appreciate that." If the customer is king, his vehicle is a golden chariot!

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