Utility vehicle sales hit a speed breaker

MUMBAI: Sales of utility vehicles (UV) hit speed bumps in FY19 with sub-optimal 2% growth after two straight years of high double-digit rates of expansion, raising question marks on the immediate prospects of a market segment where up to 36 new models are planned in the next couple of years.

Growth was tepid despite eight new mainstream vehicle launches and two product facelifts. The launches, however, helped the segment expand even as persistent increases in fuel prices and financing costs caused other segments of the auto market to shrink.

Around 9.4 lakh UVs were sold in FY19 versus 9.2 lakh units in FY18. Growth rates in two fiscal years before the last were 29.9% and 21%, respectively.


Kevin Flynn, MD of FCA India, told ET that conversion of enquiries into sales is taking time.

"Increased fuel and insurance cost are definitely having an impact. I do not think the upcoming new BS VI and safety regulations have had an effect on demand as yet…, but this will influence market behaviour later in the year," said Flynn.

Slow growth could hurt the plans of new entrants such as Kia, Morris Garages and PSA, manufacturers that stayed away from the traditional hatchback and sedan segments to harness the popularity of UVs.

Experts also attribute this drop to the lack of new launches in the segment and waning novelty of products introduced earlier. Even high-profile launches — Mahindra Marazzo, XUV 300 and the Tata Harrier — came only in the latter half of FY19. Hence, the impact of these models on sales charts would likely be seen from the second half of FY20.

Avik Chattopadhyay, founder at consultancy firm Expereal, said the SUV purchase decision is made more from the heart than the mind. In difficult times, decisions “made by the heart” are often deferred, he said.

India has lately been riding the SUV wave, much like evolved markets in the world’s richer neighbourhoods, and UVs now account for about 28% of the local passenger vehicle industry.

To be sure, many carmakers have deferred lifecycle changes to their successful products until April 2020 so that the upgrades coincide with the new emission norms. Separately, between 24 and 36 new UVs are scheduled to be launched in the next two-three years, starting this May. Hyundai Venue, a compact SUV, kicks off the series of new launches, followed by products from the likes of Morris Garages, Kia, and Groupe PSA.

Gaurav Vangaal, country head for production forecasting at IHS Markit, said growth over the past few years was driven by the entry of Maruti and Hyundai into the fast-growing segment. Full-year impacts of Mahindra's new launches Marazzo and XUV 300 and mainstream launches from Hyundai and Kia should help revive momentum, he said.

“I expect the segment to revive in FY20 with high single-digit growth, led by all the new launches including Hyundai Venue, Kia and MG SUVs, which were strategically timed to coincide with the introduction of the BS VI norms,” added Vangaal.

Flynn, meanwhile, expects sales to pick up closer to the festive season.

“We can all hope the outcome of the general elections will bring some energy and positivity back into the market," added the head of Jeep.