Maruti plans to make an Innova rival by 2017 - Livemint

Almost seven of every 10 passenger vehicles sold in India are small cars, but Maruti would dearly love to succeed in the utility vehicle segment that grew by 52% last year—a year the overall market grew just 2.15%. Photo: Ramesh Pathania/Mint

New Delhi: India's best-selling multi-utility vehicle Innova, made by Toyota Kirloskar Motor Pvt. Ltd, may face competition from a new vehicle that car market leader Maruti Suzuki India Ltd plans to launch in 2017.

Maruti is developing the vehicle, code-named RX, to take on the Innova, according to a company document reviewed by Mint and four people familiar with the development.

The Innova, launched in 2005, is akin to a mini-van of the sort popular with soccer moms in the US and has found favour with both taxi operators and families. Toyota sold 430,000 units of the vehicles till October, with the latest models priced between Rs.12.45 lakh and Rs.15.06 lakh, ex-showroom Delhi.

The Innova is the market leader in its category, easily holding its own against rivals such as Mahindra and Mahindra Ltd's Xylo and XUV 500, and General Motors India Pvt. Ltd's Tavera, and has a 31% share of the category.

"In India, you have joint families and the vehicle came at a time when there was virtually nothing for an entire family to travel together," Abdul Majeed, automotive practice leader at consulting firm PricewaterhouseCoopers, said about the reasons for Innova's success.

"So, it worked well for families as well as fleet operators. It is durable and it meets the needs of end-customers," Majeed added. "Moreover, I think that the segment has become so important none of the original equipment manufacturers could afford to ignore it."

Maruti, which sells a little less than half the 1.8 million cars sold in the country, is a small-car specialist. None of its larger vehicles has really made an impact on the market.

Almost seven of every 10 passenger vehicles sold in India are small cars, but Maruti would dearly love to succeed in the utility vehicle segment that grew by 52% last year—a year the overall market grew just 2.15%.

A fifth of the 2.68 million passenger vehicles sold in 2012-13 were multi-utility vehicles, according to industry lobby Society of Indian Automobile Manufacturers.

The company's management approved the development of the new product in January, according to component suppliers to Maruti.

The RX has been conceived as an eight-seater vehicle with a high-capacity diesel engine (the Innova has a 2,400 cc one) that is currently being developed by parent Suzuki Motor Corp.'s engineers in Japan.

Mint first reported Suzuki's plans to develop the diesel engine in August 2011. The five-year project, which started in early 2010, is expected to roll out its first diesel engine in the second half of 2014-15.

The project has been kept under the wraps. An 30 April internal note by Maruti announced the appointment of C.V. Raman, executive officer (engineering), as chief engineer for the multi-utility vehicle project. The note re-designated Raman as executive officer (engineering).

"Mr Raman will hold the additional responsibility of chief engineer of the new model RX," the note, signed by Maruti's chief operating officer (human resources and administration) S.Y. Siddiqui,read. Mint has reviewed a copy of the note.

A Maruti Suzuki spokesperson declined to comment.

"We do not comment on future models," the spokesperson said. Raman too declined comment.

Three component suppliers to Maruti and an industry executive confirmed that the RX is a multi-utility vehicle although they said the company is yet to discuss the specifics of the model with suppliers.

"RX is still some time away and a lot of details are still at discussion stage. The company is tight-lipped about it," said one of the vendors familiar with the company's plans. None of the three wished to be identified.

The vehicle is expected to be launched in the second half of 2016-17 and positioned above the Ertiga, the company's current offering in the multi-utility segment.

The industry executive familiar with the development said that although small cars will continue to be a focus area for the company, it cannot afford to overlook other fast-growing segments.

"The MPV (multi purpose vehicle) segment has grown beyond expectations... with a CAGR (compound annual growth rate) of 18% over the last 2-3 years and the company cannot afford to ignore the segment," added the industry executive, who also asked not to be identified.

This person also said that the firm is discussing whether the new vehicle should be a crossover utility vehicle or a proper utility vehicle. A crossover utility vehicle is built on a car platform and is lighter than a traditional multi-utility vehicle.

The Indian subsidiary of the Japanese auto maker entered the multi-purpose vehicle segment with the Ertiga in April last year, when it also showcased the concept of a compact sports utility vehicle, the XA-Alpha.

According to a yet-to-be published report on the Indian auto industry by global automotive consulting firm IHS Automotive, the utility vehicle category will grow at the fastest pace among passenger vehicles until 2020.

While the overall market (passenger and light commercial vehicles) will grow at a CAGR of 8.05% to touch 6 million units by 2020, the sports utility vehicle segment will grow at 17.64% and will account for 11% of the total market.

IHS has not taken multi-utility vehicles into account but its senior research analyst Anil Sharma said that inclusion of this category would push up the CAGR.

An analyst said he was surprised by Maruti's move to launch a full-sized utility vehicle to take on the Innova.

"They (Maruti) did a superb job with Ertiga to undercut Innova," said Joseph George, sector analyst at Mumbai-based brokerage IIFL Ltd.

The Ertiga, priced between Rs.6.6 lakh and Rs.8.77 lakh ex-showroom Delhi is a low-cost compact utility vehicle—a model that will drive growth in the utility vehicle segment, he said.

Indeed, several car makers have launched or plan to launch compact utility vehicles. Ford Motor Co. introduced its EcoSport model this year, after Renault India Pvt. Ltd tasted success with the Duster. Honda Cars India Ltd plans to introduce a Mobilio compact multi-utility vehicle in the first half of 2014. Mahindra and Mahindra has a model, Quanto, that competes in the segment.

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