Hyundai Struggles to Shore Up Flagging India Fortunes

MUMBAI – Hyundai India is rethinking its strategy before sales slow any further.

After deliveries jumped 26.1% from 2008 through 2010, the auto maker saw 2011 sales tail off to a lackluster 4.2% to 372,259 units in 2011, according to WardsAutodata.

Hyundai has been exploring several routes to regain lost volume, but so far has been unable to shape a viable and successful strategy:

The new Eon 5-door hatchback, planned as a replacement for the Santro, has a 0.8L 3-cyl. engine that achieves best-in-class fuel efficiency of 49.6 mpg (4.74 L/100 km). But its ride and engineering fall short of what the Maruti Suzuki Alto and Chevrolet Spark offer, and its starting price of Rs300,000 ($5,555) is relatively high.

An investment in a diesel engine plant has been postponed once again, despite diesels’ growing popularity. The auto maker has no diesel model in the small entry-level segment.

The auto maker’s strength is in export markets, with 40% of its Indian production going to 122 countries. But the Eon has struggled to fully supplant the Santro.

It lacks an entry-level small SUV/multipurpose vehicle in the price range of Rs600,000-1,000,000 ($11,100-$18,500).

Hyundai’s rise in India over the past 15 years has been based on a series of small, affordable entry-level hatchbacks such as the Santro, followed by the i10and i20, and the even smaller Eon. But it has exhausted its small-car reservoir.

The auto maker has had measured success with its new fluidic-sculpture design philosophy found in the midsize Verna, Elantra sedan and Sonata luxury car. Hyundai tallied 262,408 sales from January-August, up 8.7% from like-2011. But the brand’s appeal traditionally has been based on small cars offering affordable performance.

Hyundai arrived in India in 1997 and had an immediate hit with the oddly shaped Santro entry-level compact hatchback. It had ambitions of closing in on Maruti Suzuki, known as Maruti Udyog at the time, and within five years the Santro was outselling Maruti’s highly regarded Zen.

With the Santro’s lifespan winding down, Hyundai has drawn its strength in the domestic market from the i10, i20 and Eon. The three compacts were among India’s 10 best sellers in June with combined sales of 20,403, up 3.4% from a year earlier, according to Society of Indian Automobile Manufacturers data.

Nevertheless, Hyundai’s market share slipped to 12% last year after peaking at 14% in 2009.

The auto maker’s research and development center in Hyderabad is developing an entry-level car for domestic and export markets that is even smaller than the Santro. It may be priced at about Rs200,000 ($3,700), compared with the Rs275,000 ($5,200) Santro and Rs230,000 ($4,300) Alto.

Hyundai’s latest entry in the SUV category is the midsize Santa Fe, but it is too soon to tell whether it will succeed or go the way of the failed Terracan and Tucson.

Although it remains India’s second-biggest auto maker, Hyundai has made little headway against Maruti Suzuki and is being outsold not only by Mahindra & Mahindra, Ford, General Motors, Toyota and Honda but even by newcomers Nissan and Volkswagen.

The auto maker’s inability to maintain both volumes and sustained excitement stem from its relatively few diesel offerings, spacious but car-like entry-level utilities and new launches that mostly have been remakes. Indeed, Hyundai reported first-half gross revenues grew just 3.0% to Rs126 billion ($2.3 billion).

For five years, Hyundai has relied on expensive diesel-engine imports rather than invest in a local plant. Other auto makers are investing heavily in diesel plants, but the Korean auto maker has postponed its plans while waiting for the government to more clearly define its  diesel policy and tax structure.

Hyundai has installed capacity for 630,000 cars and its utilization rate is between 90% and 95%. Yet after 15 years in India, the auto maker offers just eight models with 60 variants,  many of which have outlived their novelty, compared with No.1 Maruti’s 15 brands with 150 variants. Even No.5 Mahindra offers 15 models with 80 variants.

The Eon has made a good initial impact, ranking eighth in year-to-date sales after finishing 2011 in 26^th place. But it cannot reinvigorate Hyundai on its own.