EON threatening many small cars of A, B and B+ segments

Normally this date is considered inauspicious i.e. 13th. Still Hyundai went ahead with its global premiere of EON. The car as per the company has been created with Indian customers in mind and then it will be globally introduced. The car is having great features in this segment. We can place this in B segment but with its agressive pricing, it will be easier for it to attract customers of A segment and B+ segment as well.

Hence it is a potential threat to all the cars in these three segments. The car is having fluidic body and is definitely capable to turn heads around. Interiors are way ahead of others giving you the feel of being in C-segment car. Another plus in favour of this car is the average which company claims it is having 21 kmpl. My company MD with 6 feet plus height was able to accomodate himself with small discomfort on the rear seats.

Maruti will be definitely facing the biggest threat to its not only Alto, but also for other models llike Estilo, Maruti 800 and even Santro itself facing threat of cannabilization. Hyundai is currently facing capacity constraint with its numbers fixed at 630,000 cars per annum. It is already running at almost full utilization will be left with only one option to sacrifice exports over domestic demand to win market share.

Why Auto OEM’s are not passing commodity increases to the market?

Very simple they don’t want to lose market share to their competitors. They are ready to see poorer bottom lines but not willing to accede a small pie to other players. Marketing is a war and here you win by outshining your competitors – a famous saying by Al Ries and Jack Trout.

But is the Government also accepting the OEM’s methodology of increasing the demand by either themselves artificially absorbing the increased cost of commodities or by making their suppliers absorb the same.

Government has realized one thing that they cannot allow growth to happen at the cost of inflation. If inflation is high, they will keep increasing the interest rates and that will apply the brakes on the growth. Auto OEM’s are crying foul due to less takers available in the market to get their cars financed at a higher cost.

OEMs could have got their bottom lines also improved had they passed on the increasing commodities prices to their customers and artificially inflated demand would have also gone down.

Capacity Ahead of Demand

What a nice vendor conference we had at Cummins today. I can't resist the tempetation of posting in my blog so that the various takeaways get permanently printed in my memory.

The theme of the conference was build your "Capacity Ahead of Demand".

We were presented with a great deal of information by the MD of Cummins - Mr. Anant Taulikar - who explained that how Cummins focus shifted from the "Technology obsessed company" to "Right technology at right cost". He also presented how North America dominance is ending in Cummins business and action is shifting towards India and China.

Kudos to their leadership also for targetting to keep 1-1.5% of their earnings parked for education and social justice for the community.

He also captured the following Macro Trends in the automotive industry:-

a. Emission Standards - Getting stringent and stringent
b. Energy Availability - Getting scarce & scarce and hence fuel efficiency will always be in great demand
c. Globalization
d. Infrastucture Growth

He related how all these above trends throw opportunities for their company but the same is true for all the players of auto industry. He focussed on bringing Acceleration to:-

- Growth mindset
- Opportunities abound
- Be ready for future
- Execute well
- "what we have been" to "what we will be"

He forecasted that in India their growth will be at CAGR of 22% from 2010-2015. Minor hiccups will be there but the overall scenario will be like this. Hence there is an urgent need to make the capacities of vendors in line with the growth demand. Mr. Ignacio also highlighted that invest in capacity and capability. Further everyone said that capacities need to be calculated on 5 days/week basis. Sweating the assets is not desired.

Their CFO - Mr. Ravi Batra presented few very interesting slides that how Indian Economy growth is going to be in region of 9.0-9.2% from 2012 to 2017. He concluded that "Business is not entitled to anyone, but has to be earned"

As expected the panel discussion was the icing on the cake, in which the favourite topic was foundry industry to expand due to its wafer thin margins, long gestation periods, high rejections, highly uncertain business environment etc.

Mr. John Flintham of Amtek highlighted the challenges in expanding the capacities ahead of demand due to high cost of finance; high inflation; uncertainity; manpower availability; power shortage etc. People also suggested some kind of partnership between the company and vendors, but as expected no customer will be willing to come forward and share the business risk of the suppliers.

Lot of learning for Auto Guys.

Who is threatening Ëtios now ...

Suddenly competition is now shifting from the "compacts" segment of automobile industry to "Mid Size" segment.

Compact segment has witnessed high decibel noise from its major players like Maruti, Hyundai, GM and lately Ford and Nissan are also able to get themselves listed into the consideration set of the potential buyers. Volkswagen Polo is also knocking on the doors with its premium image in the market.

However it seems now the action is drifting towards the Mid-size segment. This segment was dominated by Honda City, which seems to be losing in a big way in this FY2010-11. From last year share of 16.44% (till Feb'10), it has gone down to 13.29%. Maruti with its Dezire and SX4 (and now Diesel version as well) has been able to just retain its share.

Major gainers are Toyota and Tata. Toyota with its newly launched Etios is already running much behind in its production capacity to meet the demand. But the real surprise is Tata, who had been able to revive the interest of the buyers with its Manza and able to achieve growth rate of 64% y.o.y (till Feb'2011). Toyota has been able to position itself nicely this time with Etios with the best price-value equation.

Now the biggest challenge is going to come from the biggest loser in this market i.e. Ford. Loss of market share was >5% (till Feb'11). Ikon was too old to catch the fancy of buyers and similarly Fiesta was the lone fighter from Ford stable and customers were too tired of this model also. Today customers want constant thrill, excitement, new featurers, high noise etc. and this was no more in Fiesta (even though its Diesel version is offering best mileage). Hence Ford decided to re-launch this model somewhere in the mid of current year.

Danger will be to Maruti, Tata and Toyota who are definitely going to lose share to Ford. Ford has taken more than 12 years to understand the Indian buying behaviour. Now it seems with Figo like positioning they can become the real threat. Let us watch out the fun in this segment....