In Times Of Auto Slowdown, Kia Motors Is Shaking Up India’s Utility Vehicles Market

With the Seltos SUV, Kia Motors has had a dream debut in India. But will it be a one-hit wonder like many of its peers?

The Kia Seltos SUV during AutoMobility LA ahead of the Los Angeles Auto Show in Los Angeles, California, U.S., on Nov. 20, 2019. (Photographer: Patrick T. Fallon/Bloomberg)
The Kia Seltos SUV during AutoMobility LA ahead of the Los Angeles Auto Show in Los Angeles, California, U.S., on Nov. 20, 2019. (Photographer: Patrick T. Fallon/Bloomberg)

At a time India’s carmakers are grappling with the worst auto slowdown in two decades, Kia Motors Corporation is having a dream debut.

In just four months, the South Korean company has sold more utility vehicles than rivals with its first India product, the Seltos SUV, being a runaway success. Combined with the volumes of parent Hyundai Motor India Pvt. Ltd., the group is now the nation’s No.1 maker of sports- and multi-utility vehicles—ahead of the largest carmaker Maruti Suzuki India Ltd.—as Indians now look for roomier cars.

The Seltos SUV’s launch couldn’t have come at a worse time, when Indians are buying fewer cars as incomes stagnate in a slowing economy. Every indicator, from consumer goods sales to fuel demand, indicates decline in consumption. But Kia Motors defied the gloom.

“We have seen initial euphoria around new car launches but this traction in just about four months is hard to come by,” Vinkesh Gulati, vice-president of the Federation of Automobile Dealers’ Association and a dealer of Kia Motors’ rival Mahindra and Mahindra Ltd., said. “Kia has definitely outperformed, and bombarded the market.”

Sales of the Kia Seltos SUV more than doubled since its August launch—from 6,236 units to 14,005 in November. Mahindra's dispatches rose only 8 percent during the period to 14,161 units. In November, Kia Seltos’ sales rose 9 percent over the previous month while Mahindra saw its volumes decline about 20 percent.

Mahindra, once the market leader in the utility segment, was already relegated to the third spot by Maruti Suzuki and Hyundai. It’s now battling to protect that spot as well.

The Kia Seltos SUV is pictured in an arranged photograph. (Photo: Kia Motors Corp.)
The Kia Seltos SUV is pictured in an arranged photograph. (Photo: Kia Motors Corp.)

Named after Celtos, the son of Hercules in Greek mythology, the model competes in a crowded market with Mahindra's XUV500, Scorpio and Marazzo; Ford EcoSport and Hyundai Creta.

“What’s ailing Mahindra is that the demand for crossover SUVs is rising even as traditional/rugged SUV segment where Mahindra is strong is declining,” Chirag Jain, lead automobile analyst at SBICAP Securities, said over the phone. New launches like the XUV 300 and the Marazzo, he said, have done well but much below expectations.

By contrast, according to Ashwin Patil, senior research analyst (auto sector) at LKP Securities, novelty and comfort that it is part of the Hyundai stable goes in Kia Motors’ favour. “The model is also priced competitively and has a lot of features.”

Gulati agreed. “Kia Motors has shown how to pack everything for customers at a very competitive price range of Rs 9-14 lakh,” he said. “With about 16 variants across that price segment, Kia has definitely cannibalised the buyer in that range.”

‘Sedan Taking A Beating’

The Seltos’ success in the world’s fourth-largest auto market comes at a time buyers are choosing sturdier and bigger cars over sedans and premium hatchbacks. That’s because of competitive pricing and creation of the so-called Compact SUV segment—utility vehicles shrunk to less than 4 metres in length to avoid higher taxes.

“Sedan has taken a beating in all this,” said Ashish Modani, vice president and co-head of corporate ratings at ICRA Ltd. “If you are getting a Creta or Kia at the price of Honda City, people will buy it.”

The share of utility vehicles, including vans, rose to 38 percent in April-October 2019 compared with 33 percent a year earlier. If small cars are excluded, Mahindra Managing Director Pawan Goenka said in a second-quarter investor call, the utility vehicle segment may be larger than passenger cars.

One Model Not Enough

Still, success for Kia Motors has come on the back of one model. And India is replete with stories of carmakers struggling to find takers for vehicles after one popular product. Ford India Pvt. Ltd. had a protracted lean period after the success of the Ikon, Renault India hasn’t replicated the success of the Renault Duster and Skoda hasn’t seen much demand after the Octavia.

While Kia has come out as a formidable competitor in the utility vehicle category, single launches won’t be enough, said Modani. “Will they be able to sustain this after six months is yet to be seen. Jeep Compass had the same problem. Kia will need to keep up the product excitement if it aims to maintain this.”

That’s why Maruti Suzuki is still better placed as it continues to launch successful vehicles, Patil said. Most of their launches are happening in the utility vehicle space, including the XL6 and mini SUV S-Presso. Hyundai too has been aggressive with its new Venue that, along with the Creta, has put it in the second place.

Kia is not oblivious to continuity. The Korean carmaker aims to launch one new product every six months in India, according to its statement. For next year, the company has already lined up a compact SUV and a premium multi-purpose vehicle.