Multi-utility vehicles -- Making tracks

Raghuvir Srinivasan

MULTI-UTILITY vehicles (MUV) are the poor cousins of passenger cars.

Neither did they get much attention from the customers nor have they tried to do so. About the only attention they have got is from the government, and that has not always been of the good kind. But all this is changing now with the MUVs suddenly catching the fancy of the market and manufacturers, including global majors.

Till the mid-1990s, MUVs were synonymous with the Jeep of M&M (Mahindra & Mahindra). There were others, such as the Trekker from Hindustan Motors, the Town and Country from Bajaj Tempo and the Gypsy from Maruti Udyog. But M&M ruled the market till Tata Engineering decided to enter the segment through the Sumo in 1995. The launch of the Sumo not only brought in the much-needed competition but also expanded the MUVs' market, which till then was rather small. The good old MUV started acquiring a new status, along with the glamorous looks, to market itself as a personal vehicle in the urban market.

With the entry of the Sumo, there was a scramble for the market, with the M&M's Armada and the Armada Grand slugging it out with the Trekker and the Town and Country. The Gypsy, being the only petrol-engine driven MUV, never really made a mark in the market and it was also low down MUL's priority. Toyota's recent entry with the Qualis added a new dimension to the industry.

Rural orientation

The MUVs have traditionally been viewed as off-the-road, rural vehicles designed mainly for the hinterland. This put a cap on the growth volumes given the purchasing power in the rural areas. The rural orientation was also another reason why M&M never really tried to improve the looks of its vehicles or make them driver-friendly. This is unlike in the developed countries where the MUVs are as much a city vehicle as a rural one. They would typically be used for week-end camping expeditions, picnic trips and so on where the entire family had to travel with considerable gear. Such a concept has till now been non-existent in India.

Of course, the Sumo and the Armada to a large extent gave the MUV a city orientation for both passenger and light goods movement. But it is the Qualis that is most likely to turn the MUV into a city vehicle. Of course, it has not really got full marks on the looks, which is perceived to be outdated. But the Toyota brand equity may overcome this handicap and the Qualis could prove to be a major threat in the urban market to the existing players.

The Qualis' positioning is rather interesting. Toyota has priced the vehicle tantalisingly close to that of a mid-sized car and the company has admitted that it could be equally targetting the prospective car buyer. It would like the Qualis to be perceived as a premium car which immediately increases the size of its market potential. Government policy

Governments appear to be fond of tinkering with the duty structure for the MUVs which have been treated distinctly from cars for this purpose. A complex duty structure existed till 1993-94. MUVs with carrying capacity of more than nine persons suffered a duty of 40 per cent while those with gross vehicle weight of less than 2,700 kg at 15 per cent. From 1996-97, this complex classification was simplified and all MUVs were charged a single duty of 20 per cent. However, in the next two years, the government hiked duties reaching a maximum of 30 per cent. The re-organisation of excise duty slabs in the latest Budget further raised the impost 2 per cent to 32 per cent.

The logic for such frequent change of rates is not clear but it has certainly impacted on the demand for the MUVs. Ideally, MUV duty rates ought to be closer to that on commercial vehicles rather than to passenger cars, which is now the case. The government ought to promote the usage of the MUVs as a rural transportation vehicle. Given the road conditions in the hinterland, the MUVs offer a simple solution as a goods-cum-people mover and more cost-effectively than a commercial vehicle.

The fact that the share of the MUVs in total passenger car sales has actually dipped from a high of 24 per cent in 1996-97 to 18.40 per cent now sums up how the industry has missed the growth curve in the last few years. While one reason could be the invasion of the market by new car models and the lack of similar choice in the MUVs, the fact remains that the high duty structure has pushed up prices and suppressed demand artificially.

Road ahead

The MUV segment is just revving up and placed just as the passenger car segment was in the mid-1990s. This segment could be the next focus of the global players; with incomes rising the rural market has become attractive. Hyundai is said to be toying with the idea of entering this segment and the possibility of DaimlerChrysler introducing a model from the Mitsubishi stable in the near future cannot be ruled out.

The entry of global players into this segment could also develop the nascent market for sports utility vehicles (SUVs) which is actually a part of the MUV segment worldwide. Considering their high costs and limited utility, SUVs have not caught on in the country till now.

M&M's much-awaited MUVs from the Scorpio platform are to hit the market in the next one year. They are expected to redraw the lines of competition and also transform the image of M&M from that of a Jeep manufacturer to a true MUV producer. MUL can be expected to push the Gypsy further down its priority list as it concentrates on holding on to its leadership position in the passenger car segment. Bajaj Tempo has been plugging away with average volumes of about 5,000 vehicles per annum. The one to watch would be Tata Engineering which has its hands full with the car project. The company needs to come out with newer models if it is to retain its position in the MUV segment.

Overall, the industry demand can be expected to be stable in the next couple of years with growth being driven by supply rather than the other way round.