The Economic Times daily newspaper is available online now.

    SUVs have become classier. But here is the big bump on the road: Rising fuel prices

    Synopsis

    Industry watchers are observing how SUV sales may take a hit with diesel becoming a dirty word globally and how the beasts may lose momentum to rising oil prices.

    SUV
    For now, though, consumers and automakers can’t get enough of SUVs.
    Smita Ranjan Keron, 45, fell in love with sports utility vehicles (SUVs) in another era. An army officer in the 1990s, she got initiated into that world with a Maruti Gypsy, Jonga and the good old Mahindra Jeep. They were rugged off-roaders with few creature comforts. More beastly than beautiful. “They gave me my first taste of a powerful vehicle with higher road clearance,” she says.

    To her, it was freedom on four wheels. “I could go anywhere, any terrain in my 4x4 (four-wheel drive) without the fear of getting stuck.” Keron resigned from the army in 2000 but her love for SUVs lingered. She earlier had a Captiva and now drives a Hyundai Santa Fe, and has done many offroad trips, including through some of the toughest terrains in the Himalayas. Driving on city roads has been another story, though. In Delhi, she has experienced covert road rage in multiple ways — cold stares, deliberate grazing, cornering on the road and much more. “Perhaps, a big macho vehicle and a woman driver don’t go together,” she says with a laugh. “Women in SUVs are still not that common. But they aren’t that rare either now. It is getting better.”
    Untitled-4


    Inspired by Keron, her cousin Nandita Misra, 40, booked her first SUV, a Tata Nexon (automatic), earlier this month. Ground clearance, road presence, better feel, more control, boot space, leg space and high seats are among the reasons for her decision. “We are fond of road trips but I have never driven on highways. With an SUV, I now want to. Wish these kinds of cars were available earlier,” she says.
    Untitled-5


    On the back of such robust demand, India is witnessing an SUV rush. In 2017-18, even as passenger vehicle (PV) sales grew 8% to 3.28 million units, SUV sales growth sizzled at 21%, crossing 9 lakh units (sales of compacts and sedans grew at 3%). In the pricier segment (`12-40 lakh), three of four cars sold in India are SUVs. From 14% in 2009-10, the percentage share of SUVs in PV sales has risen to 30%.
    Untitled-6

    Rising incomes and aspirations have made consumers go from small cars to SUVs. On the supply side, a new generation of SUVs (Maruti Brezza and Hyundai Creta, among others) that are smaller, fuel efficient, spacious and practical is luring buyers from other segments, says Deepesh Rathore, cofounder, Emerging Markets Automotive Advisors. With over 40 utility vehicles (UVs) on road, Indian players are readying over 35 new UV models for launch in three years. Newcomers like Kia Motors and MG Rover might pitch in with half a dozen more. The biggest action will be in the B-segment (`7-15 lakh) with over two dozen new launches.

    Untitled-7

    India is not alone. An SUV wave is sweeping the world, too. “The SUV boom is more than a short-term trend. It started in the US in the ’90s, spread to Europe and China next and, more recently, to developing countries like India and Brazil,” says Felipe Munoz, global automotive analyst, JATO, a global supplier of automotive business intelligence.
    Untitled-8

    Untitled-9

    Untitled-10

    Untitled-11


    SUVs have outpaced industry sales in virtually every market. Between 2012 and 2017, SUV sales in the US notched a compound annual growth rate of 10.5%, against market overall of 3.5%. The story was similar in Europe. In China, the share of SUVs jumped from 13.6% to around 39% in the period. Almost all global auto majors are shuffling their portfolios, laying thrust on SUVs.

    Untitled-12

    Ford recently announced it would no longer make traditional sedans like Fusion and Fiesta but would focus on SUVs. Fiat Chrysler Automobiles (FCA) has rolled out an SUV centered strategy, globally as well as in India, riding on its Jeep brand. Seeing insatiable demand, LMC Automotive, a market intelligence services provider, forecasts that by 2023 there will be 90 mainstream SUV and crossover models in the US. “SUVs, especially crossovers — which I think of as mini-SUVs without the burden of poor fuel economy — make them more attractive than traditional sedans,” says Willy C Shih, Robert and Jane Cizik Professor of Management Practice in Business Administration at Harvard.
    Untitled-13

    Untitled-14

    Untitled-15

    Untitled-16


    A LONG DRIVE
    What a dramatic makeover SUVs have undergone. A century ago, SUVs began its journey as military vehicles that were tough, durable 4-wheel drives that could carry soldiers through rough terrain. Willys Jeep was the world’s first SUV. In the 1970s, its sales got a big boost when the Corporate Average Fuel Economy standards in the US classified station wagons as passenger cars, subjecting them to more stringent fuel economy norms. Sales of minivans and SUVs, classified as light trucks, surged as they had fewer emission controls. Detroit carmakers pushing gas-hogging SUVs had a great run with fat profits until the 1990s, when Japanese rivals Honda and Toyota arrived with fuelefficient low-margin cars that became popular.
    Untitled-17


    Around 2008, ahead of the global economic crisis, SUVs suffered from an image crisis as crude oil prices soared well past $100 a barrel. With Hummer, the gas-guzzling vehicle of the rich, as its poster boy, traditional SUVs were scorned. The vehicles were targeted by ecowarriors and governments for fuel inefficiency and safety issues.
    Untitled-18


    Earlier, SUVs were macho, rugged, uncomfortable to ride and were gas guzzlers with maintenance nightmares. Today, SUVs are refined, stylised and aesthetic product with a sedan’s operational cost. “It is this convergence of DNA between category association of sportiness of an SUV and the refinement of a sedan that is really finding appeal with customers today,” says Mohit Arora, partner, Mondriaan Group. That trend is now coming a full circle. Fiat is going full throttle on SUVs, hoping its Jeep will revive the company’s fortunes. In China, Toyota is planning to launch a low-cost electric SUV, GAC-Toyota ix4, under the badge of its Chinese partner GAC.

    Premium car makers such as Mercedes and Audi are expanding their SUV plants, even as luxury automakers such as Porsche, Bentley and Lamborghini have made high-performance SUVs. Even Fiat’s Maserati, once known for low-slung sports cars, is looking at SUVs. This is playing out in India, too. Fiat Chrysler’s Jeep Compass, launched in August 2016, has already found 20,000 buyers here.

    Honda is readying two new SUVs for India market. Nissan India will bring its SUV Kicks, says Hardeep Singh Brar, director (sales & network development), Nissan India. BMW expects 50% of sales in India to come from SUVs under its X series. New entrant Kia Motor Corporation will make its debut in 2019 with an SUV codenamed SP2. Over 35 new launches have been planned in the segment over the next three to four years, with industry leaders Maruti and Hyundai alone bringing in 8-10 models. Says R S Kalsi, senior executive director (marketing & sales), of Maruti Suzuki: “We have brought disruption in the segment. Our share in the UV segment has touched 27.53% during 2017-18. As a market leader, we are not just expanding our customer base, but the entire segment.”

    BEAST IS BEAUTIFUL
    “The SUV boom is more than a short-term trend and signals a big change for the car industry,” says Munoz AT JATO. The global domination of SUVs is happening at different stages depending on the region, but there is a common theme: consumers around the world love SUVs because of a higher driving position and a more aggressive look. “The difference with previous trends seen in other segments is that SUV makers have been able to adapt their products to the continuous changes in consumer needs and government regulations,” says Munoz.

    Preferences of models depend on the region. SUV consumers in developed countries like larger and more expensive SUVs, including premium brands. Consumers in Europe and China prefer compact and premium ones. Small SUVs have also found clients in developing countries. India, Brazil, Argentina, South East Asia are among those markets falling in love with the small and affordable SUVs.

    Emission norms and improvements in technology have ensured that SUVs remain fuel efficient without losing much power, says Rakesh Batra, national leader (automotive sector), EY. “SUVs are considered very functional for India because of the topography and (uneven) road conditions.”

    SUVs were traditionally manufactured on body-on-frame type. Now, they have monocoque chassis, making it easy to manoeuvre. This also gives a more stable, carlike driving experience. With the advent of safety features such as electronic brake distribution, anti-lock brake system, electronic stability control, Batra says, newer SUVs can handle emergency situations with unexpected grace.

    CAR FOR DIGITAL GENERATION
    In many ways, SUVs represent the digital era well. Marked by informality, this generation lives and works 24/7. “Digital era is about expressing your individuality. Pleasure, quest of power and purpose of life have been the three expressions of human behaviour,” says Batra. SUVs represent these well. The vehicles are good for a ride to the office and equally apt for an adventure-filled weekend drive to the hills, unlike the more formal sedans. “The image of the SUV appears to fit a population that does not want to be perceived as older, sedentary, or lacking vitality,” says David Blanke, professor of history, Texas A&M University-Corpus Christi.

    Look at smartphones, a defining product of the era. A multipurpose, versatile gadget that can multi-task and be a phone, camera, calculator, TV and what-not rolled into one. “I call SUVs the new MTV — multi-tasking vehicle. We expect our vehicles to have the same level of multi-functionality as our phones,” says Rebecca Lindland, senior director, executive analyst, Kelley Blue Book, a vehicle valuation and automotive research company.

    The SUV provides an option for consumers who want cargo room but do not want to be labelled “older” or “sedentary”, as is assumed of those driving minivans. “The SUV is perfect evidence of the hyper-reality of a post-modern society. Few who own an SUV ever require the added power and space that the vehicle provides. But SUVs offer a powerful public statement about the selfexpressed values of the driver. The perception of driving a large armoured vehicle also plays into this,” Blanke says. Shanghai-based Bevin Jacob, partner, Automobility, says: “The SUVs are ideal to build a moving living space to consume digital services and opens up a totally new field of design flexibilities. The vehicle becomes a comfort zone.”

    THE FUTURE DRIVE
    For automakers, the big SUV push has meant more money. SUVs are relatively more profitable, say experts. Many car companies have developed both sedan and SUV versions on the same platform. “SUVs are almost always priced at least 10% higher than the sedan version,” says Munoz.

    For now, though, industry watchers are asking two questions. Diesel has fuelled SUV growth. Now, as diesel is becoming a dirty word globally, what impact will this have on SUV sales? The second question is, what will happen when oil prices shoot through the roof, given that these large vehicles had lost sales momentum when oil prices had gone up? The situation is slightly different this time, answer experts. For one, SUVs have evolved into becoming fuel-efficient vehicles when compared with their ancestors. This should not be as big a dampener as in the past when crude oil prices rose. On the diesel question, it is true that by 2020, when Euro-VI emission norms kick in, diesel will face the heat in Motown. The rules will further widen the price gap between a diesel and petrol variant, which currently stands at around Rs 1 lakh. This will make the diesel variant less attractive. Already, more and more carmakers are — and will — lean towards petrol variants, say experts. According to the Society of Indian Automobile Manufactures, the share of diesel in total passenger car sales has come to 23% in 2017-18 against 47% in 2012-13. This dip also shows up among SUVs, where the share of diesel has come down from 97% in 2012-13 to 84% now.

    Further, experts say, expect companies to explore hybrid and electric options. Companies such as Volvo and BMW already provide hybrid engine options. At the auto expo in Delhi this year, this thrust was visible. For example, Hyundai’s to-be-launched Kona SUV will be the company’s first electric car in India. Mercedes-Benz showcased the Concept EQ electric vehicle range, based on its GLC mid-size SUV. Tata Motors’ off-roaders H5X and 45X will have electric versions. M&M displayed an electric version of KUV100.

    Does this mean an endless run for SUVs? “No. Not in terms of current numbers,” says John Heitmann, professor of history, University of Dayton. “If energy prices increase substantially, a correction will occur. Station wagons were once very popular. You rarely see them today. So were convertibles.”

    For now, though, consumers and automakers can’t get enough of SUVs.


    (You can now subscribe to our Economic Times WhatsApp channel)
    ( Originally published on May 26, 2018 )
    (Catch all the Business News, Breaking News Budget 2024 News, Budget 2024 Live Coverage, Events and Latest News Updates on The Economic Times.)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    ...more

    (You can now subscribe to our Economic Times WhatsApp channel)
    (Catch all the Business News, Breaking News Budget 2024 News, Budget 2024 Live Coverage, Events and Latest News Updates on The Economic Times.)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    ...more
    The Economic Times

    Stories you might be interested in