'The 5-seat campaign is not about advertising'

Q&A: B V R Subbu

B V R Subbu

While the eight-year-old Hyundai Motor India Limited (HMIL) is already a significant player in the compact car segment, and the company is planning to double capacity to half a million post-2007, it's been in the news recently for its ad campaign seemingly making the point that the Santro is a five-seater while several well-known competing models are not. HMIL's president, B V R Subbu, in an interview with Business Standard, spoke at length about the company's plans, strategies and its recent ad campaign, all the while insisting this was not aimed at market leader Maruti Udyog. Excerpts:

Your recent ad campaigns project the Santro as a five-seater car and some of the other competing models as only four-seaters. Have the results already started showing on the sales?

This campaign has been understood completely out of context. As a corporate entity we need to have a sense of responsibility. It started in that way. Since the government has pro-actively mandated seatbelts, we have focused on seatbelts.

In that case, why hasn't the Society of Indian Automobile Manufacturers (SIAM) come out with such a campaign?

SIAM could have done this, but it has not. I don't know why SIAM hasn't done it. But I would imagine that the media could have. It was the responsibility of the media to focus on these issues. In fact, after Hyundai came out with these ads, automobile journalists started saying that they should have focused on these issues.

They've gone and spoken to the police about this [safety issues]. Similarly, the automobile industry should have done something about emissions on its own. I would imagine that someone has to take the lead somewhere and then we can take it forward.

When we took up this five-seater campaign, it was seen as though we are positioning our models vis-à-vis that of Maruti. But when the Automotive Research Association of India [ARAI] said that the ads have to clearly state which are the five-seater and which are the four-seater cars, it was then we came with this Kissa Kursi Ka campaign, where we have clearly stated which are the five-seater cars and which are the four-seater cars in the compact car segment.

I believe that educating consumers on the safety aspects should be an integral part of advertisement and some portion of the budget has to go towards that.

So the current campaign is a small budget one?

Yes, there is only one ad on this. One big ad that explains it all to put things in perspective. Thereafter, we are only using it at our dealership network. I cannot say that I care for my consumer and provide cars that do not meet international safety standards. It is important to educate consumers.

How do cars available in India compare with those available in the US or Europe in terms of safety features...particularly in the compact segment?

The cars in the B segment that are exported today are all those that match the safety standards in Europe. With this you can figure out which are the models in India that match the safety standards of Europe.

Is Hyundai completely driven by the Santro?

Hyundai's bread and butter comes from the Santro and the Accent. Unless there is a Santro it is not possible to offer any other car. Having said that I must add that we do not cross-subsidise any of our products.

Including the Getz?

Including the Getz.

Where does the Accent stand in the C segment today?

There are some cars that are bunched around Rs 4-5 lakh price band "" which are the Tata Indigo, Maruti Esteem and the Ford Ikon "" and then there are some in the Rs 5-7 lakh band "" the Hyundai Accent and Honda City.

In terms of volumes, the former accounts for the predominant share of the market.... I would imagine that between these the Indigo, Esteem and Ikon account for 70,000 units per annum, and 60,000 between Honda City and Hyundai Accent. Accent's capacity is about 36,000 cars a year for both exports and domestic market.

There is an export obligation of 8,000 units for the Accent and whatever balance is there will be for the domestic market. It is important for us to meet our export commitments...while there is no issue in terms of quality, we had to really work very hard to convince our distributors in Europe on the reliability of the supplies from India in terms of the delivery schedules.

This year our total production will be raised to 2,60,000 units, and hence, there will not be any constraints. Last year in April, May and June, as many as 14,000 customers had to take back the advances because of delivery constraints and as many did not put down the advance money, because of delivery schedules were late and walked away.

You say, Hyundai is a very bottomline-driven company and also that exports will receive top priority. Does that mean that profits from exports are far greater than that from domestic sales?

[Laughs] Yes. Let me not say anything more...We don't have trucks to compensate for our car or any other income such as interest income. We have managed to fund all our expansion from internal accruals. We have been consistent in our payment of the dividend and technology fees to our parent company and significant income tax payers in the automobile industry.

Don't you think there is gap in your portfolio between the Santro and the Accent?

I don't think so. We have the Getz, which in terms of size is larger than the Esteem or the Ikon. In terms of length, it might be a B-segment car, but in terms of inside space, it compares very favourably with the so called C-segment cars like the Esteem or the Ikon.

Why does a bottomline-driven company like Hyundai want to be in segments with products such as the Terracan or the Tucson?

Essentially to show our technology capabilities...they are flag bearer products. To ensure that the consumers are able to move up the scale within the family and also to meet certain image needs.

How much of life is left in the Santro?

How much of life is left in a 18- or 20-year-old car in the country? [The reference is to the Maruti 800]. We are the only company that bring out significant changes to our cars compared to all our competitors.

People actually add fog lamps or change bumpers and call it a new model. If your see the original Santro and the Xing today, you will see significant differences, including the engine. These are questions better directed at our competition.

The Santro Xing has been there for the past three years. Isn't there a certain level of fatigue setting in for this model?

I wouldn't say there is a fatigue setting in for the Santro Xing, but we have been looking at a new evolution of the Xing from 2007 or 2008, by which time there will be a completely new Santro.

How much of product development for Hyundai happen in India?

At this stage very little. I would imagine that if a significant portion of the value-addition is done in India, it may be enough. As long as the whole process is managed by an Indian management team.

Once the expansion to 4,00,000 cars is completed, how much will be for the Indian market and how much for exports?

Between 30-35 per cent of our production will be earmarked for exports...that is the broad thumb-rule.

Given the ups and downs we have seen in the past few months can we expected a 20-25 per cent growth in the coming year?

Don't go by the March sales. We are working on a 15 per cent growth rate for the industry.

How do you propose to fund the expansion plans?

The entire expansion of $ 500 million will funded from internal accruals. And this will be fully from HMIL.