Amidst declining volumes of passenger vehicles, new model launches would provide only limited, short-term respite to original equipment manufacturers (OEMs), while increased vehicle launches along with the entry of new players in the utility vehicles (UVs) segment, would intensify competition, leading to a gradual change in the market share of incumbent OEMs over the medium-to-long term, says a research note.
In the report, India Ratings and Research (Ind-Ra) says, demand for new launches typically drops after two-to-three months thus broad-based revival remains elusive.
"The initial pick-up in volumes could be the result of launch offers and/or customers’ penchant to migrate to the latest optimal choice in the market. The subsequent fall in sales suggests that the demand arises from a small segment of the consumer base, and it loses momentum with time, reaffirming our view that the sector is yet to witness broad-based revival. Unless the sector recovers, upcoming launches would be only marginally beneficial for OEMs and would not result in any meaningful improvement in the overall sales volumes," it added.
From the beginning of 2019, OEMs have launched approximately 25 new models under different categories such as utility vehicles (UV), sedan, and hatchback with an average of two models launched each month.
Ind-Ra’s study shows that the sales of these new vehicles were strong in the initial two-to-three months post the launch, but declined in the subsequent months. For example, the volumes of TATA Harrier, launched in March 2019, have declined on an average by 24% on a month-on-month basis. A similar trend was observed in the case of Honda Civic (2019), Mahindra Alturas G4 and Hyundai Venue.
According to the ratings agency, new launches could help OEMs remain competitive in the market. It says, "The multiple vehicle launches by OEMs could be partly attributed to the considerable investments made by these companies in previous two-to-three years in the designing and commercial development of these cars. We believe that, amidst a slowdown in the sales volumes, the new launches could enable OEMs to remain competitive and also monetise their investments to some extent."
Ind-Ra study also reveals that increased number of customers are preferring UVs, where competition is intensifying.
Since the beginning of 2019, the UV segment has displayed greater resilience to de-growth compared to passenger cars, signalling growing customer preference for the former. Out of the 25 new launches in YTD 2019, 61% were UVs and 14% were crossovers. According to industry sources, over the remaining portion of 2019 till 2021, OEMs plan to launch over hundred new models, more than half of which would be UVs.
Earlier, only few OEMs such as Toyota, Mahindra & Mahindra and Tata Motors had UV models. However, Ind-Ra says, since 2016, OEMs such as Hyundai, Maruti Suzuki and foreign players such as Jeep, MG Hector, and Kia have also entered this space. Therefore, competition in the segment has increased multi-fold, while the life-cycle of UVs has shortened.
“Hence, we believe the market shares of OEMs in the UV segment are likely to change in the medium-to-long term, especially in case of incumbents. For instance, during April-August 2019, the market share of Maruti Suzuki, Honda Cars, Toyoto, Mahindra & Mahindra and Tata Motors declined by an average of 1.47% yoy, while that of Hyundai Motors increased by 7%," it concluded.