Is Maruti's attempt to become a premium brand succeeding?

From the humble Maruti-800 to Wagon-R, most of the hits delivered by Maruti Suzuki in India catered to the middle-income group. Since its inception in India in 1983, the company had its ear to the ground. It knew what a common man wants -- an affordable car with good mileage coupled with low maintenance. It explains why Maruti gets 43% of its sales from non-metro cities.

The company has been equally focussed on urban markets too, which too has mixed segments and a greater appetite for high-end cars.  

As part of its strategy, the company had in 2015 launched Nexa dealership. Its premium models like Ciaz, Baleno and SUVs such as the new Ertiga and the XL-6, all sold through Nexa. Since its inception, over 1.6 million cars have been sold cumulatively across 400+ Nexa outlets as of FY22.

The premium focus is also reflected in the average selling price now. According to a company official, the average selling price of Maruti’s models has gone up to Rs 7.12 lakh from Rs 6 lakh three years back.

Start of bumpy road for Maruti

For decades, Maruti commanded premium market share in the passenger vehicle segment. But then, the road turned bumpy. Stiff competition squeezed its sales and its market share started to fall.

From a peak of over 51 per cent in FY19, Maruti Suzuki’s market share in the personal vehicle segment fell to 43 per cent in FY22.

The management acknowledged this loud wake up call. Maruti Chairman RC Bhargava in a recent post earnings call said that small cars, which used to be the bread and butter for the company, lost the butter. So what went wrong with the company?  

The fate of Maruti was clearly tied to small budget cars. And the rise of SUV pushed the sedans to margins. According to a CRISIL report, the share of small cars in the passenger vehicle segment declined from 65 per cent in FY12 to 45 per cent in the first nine months of FY22. Meanwhile, the share of SUVs has shot up to 40 per cent in FY22 from just 18% in FY16.

Speaking to Business Standard, Puneet Gupta, Director, S&P Global Mobility says, Maruti is still struggling in segment priced between Rs 10-20 lakh. The company is trying to rework its SUV strategy. With competition heating up, the company is trying to capture Rs 15-20 lakh market. 

Did Maruti miss the boat?

Maruti has been a painfully late entrant to the SUVs, a segment which other carmakers capitalised. Maruti’s share in the UV segment has shrunk from 28 per cent in FY19 to 19 per cent in FY22, mainly due to its fewer products in this space.

Currently, this category is dominated by Hyundai, and the likes of Kia, Tata and Mahindra have also gained significant share on their SUV models. On top of this, Maruti has seen a 25% decline in the market for hatchbacks in the last four years. This category was most affected by rising costs.

But RC Bhargava is not a man known for quitting easily. The 88-year-old chairman of Maruti said the company will not “walk away”, but fight to get back to its market share.

While retaining its core base of appealing to smaller cities and rural areas, the company has launched or lined up multiple premium models in the SUV segment for urban India. In the non-SUV space of hatchbacks and sedans, the company is planning to bring new features and technology.

In the non-SUV segment, Maruti still has a significant market share of 65 per cent. In the entry level SUV segment, its share is 20 per cent. The company has only recently ventured into the mid-SUV segment with the launch of Grand Vitara. Hyundai Creta and Kia Seltos currently lead the mid-SUV segment.

Maruti is still a marginal player in the mid-size plus premium segment with just a market share of 4 per cent as of FY22. However, the demand for its new SUV offerings is encouraging. Maruti Suzuki India has an order book of 130,000 units of the Brezza and 43 per cent of the it is for top-end variant. For Vitara, it has received pre-bookings of 57,000. Demand for top variants is likely to increase the average selling price for the carmaker.  

On that note, let us hear from Ravi Bhatia, an auto expert from Jato Dynamics. Bhatia says it is difficult to sustain to channels with products. Maruti has a share of 23% share in Rs 10-15 lakh car market. It is pushing far aggressively in higher-end segment. 

If we take the August sales, Maruti’s utility vehicle portfolio was up nearly 16 per cent, while the mini and compact segments declined 11 per cent.

According to Emkay research, sales will likely improve in the coming quarters with the start of deliveries of Vitara and ramp-up in production of existing models. Meanwhile,  analysts at Kotak Institutional Equities Research believe that Maruti may face challenges to make a turnaround in the SUV segment and regain market share due to its lagging performance and the severe competition that exists.

Interestingly, in electric vehicles, another segment which is fast growing, Maruti is still cautious and is focusing on hybrid technologies. However, in collaboration with Toyota for EV technologies, Maruti said it will launch the first range of EVs in FY25.

Despite the challenges, Maruti is still a trusted brand for the common man. Given its strength in distribution and dealership network, it can always up the game in the higher-end segment. Recent launches and the upcoming product mix is testament to that fact.​