Renault SA (RNO) has found the Goldilocks spot for India’s rising middle classes with its Duster compact SUV: just big enough, safe enough and cheap enough to send sales in the South Asian country surging.
In the seven months since it began selling the sport-utility vehicle in July, Renault shipped 27,285 of the autos in India, compared with 3,964 for all its other models for the year ended March. The Duster’s beefed-up hatchback look, priced in the reach of India’s aspiring yet cost-conscious consumers, helped narrow the gap with Volkswagen AG (VOW) as SUV demand growth outpaces that for other cars in Asia’s third-largest auto market.
The French automaker in November said it expects India to become one of its top 10 markets this year, helping counter slumping sales in Europe.
“The Duster has created a niche for Renault,” said Deepesh Rathore, India managing director for IHS Automotive in New Delhi. “The SUV segment has been growing and Volkswagen doesn’t have a model to compete.”
Volkswagen’s Touareg starts from 5.85 million rupees ($110,000) -- 64 times the median household income in the country and almost seven times more than the Duster. That’s pegged the Wolfsburg, Germany-based company’s sale of the model to 50 units between April and January.
Indian car buyers bought 57 percent more SUVs in the first 10 months of the fiscal year, Society of Indian Automobile Manufacturers data show, spurring carmakers to rush new models to showrooms. Total car sales, excluding SUVs and vans, fell 1.8 percent in the period. Almost one in 10 fatal road accidents happen in India, according to the World Health Organization, making the second-most populous country the most dangerous for driving.
“SUV buyers feel that they offer better protection on the poor roads,” said Rathore.
Renault, which only reentered the Indian market in 2011, sold 37,508 vehicles in total in the 10-month period. Sales at Volkswagen, Europe’s biggest carmaker, slumped 16 percent to 53,149 as demand for its Polo, Vento and Jetta cars remains tepid amid high interest rates and a slowing economy.
Shares of Renault fell as much as 2.1 percent in Paris and were down 1.4 percent at 42.99 euros as of 10:29 a.m. local time. That pared the stock’s gain this year to 5.7 percent.
Renault’s success with the Duster and the lead enjoyed by former partner Mahindra & Mahindra Ltd. (MM), India’s biggest SUV maker, is triggering a flurry of utility vehicle introductions.
Ford Motor Co., bidding to stem an 11 percent decline in the first 10 months of the year ending in March, will introduce its EcoSport compact SUV this year and Maruti Suzuki India Ltd. (MSIL), the country’s biggest carmaker, may add a similar small model next year.
Fiat SpA (F), which has seen car sales plummet in India to lower than those of Bayerische Motoren Werke AG and Volkswagen’s Audi, said in December it plans to introduce its Jeep brand to help achieve 5 percent market share in the country. A small, so-called B-segment SUV will be offered in 2015, Enrico Atanasio, managing director for Fiat Group in India, said then. The new model will compete against the Duster and the EcoSport.
Suzuki Motor Corp. (7269)’s unit is working on a compact SUV model, based on the XA-Alpha concept that it showed at the New Delhi Auto Expo last year, according to Mayank Pareek, who heads sales at New Delhi-based Maruti. Pareek declined to elaborate on when the model will come on sale.
“A lot of customers who bought hatchbacks in the last few years are now looking to upgrade and don’t want to upgrade to sedans,” Pareek said in a telephone interview on Feb. 5.
India’s middle class is estimated to increase 10-fold to 583 million people by 2025, McKinsey & Co. said in a May 2007 report. Median household income in the 12 months ended March 2012 was estimated at 90,800 rupees, the Mumbai-based research company Centre for Monitoring Indian Economy Pvt. said in a July survey report on its website.
Industrywide SUV sales growth in India may accelerate to as much as 64 percent in the year ending March 31, India’s automakers’ group said last month. Local vehicle sales, including cars, will miss all sales growth targets this year, the group said today, after cutting its car sales forecast in January, the third time since April 1.
Mahindra, which introduced its XUV500 in September 2011, had a waiting list of three months on the model, Pawan Goenka, president of the Mumbai-based company’s automotive and farm-equipment division, said in October. The automaker said last month it had boosted production capacity for three of its models, including the XUV500 and Quanto compact SUVs, to meet increased demand. Renault didn’t respond to emails seeking details on the waiting time for the Duster.
Volkswagen, which is vying with General Motors Co. (GM) for the top spot in China, and its Skoda Auto AS unit have mostly focused on hatchbacks and compact sedans in India. High interest rates in a country where almost 80 percent of vehicle purchases are funded through loans and slowing economic growth have damped demand for cars in India.
India this month forecast the weakest economic growth in a decade as subdued investment and elevated inflation add pressure on Prime Minister Manmohan Singh to extend policy changes. Gross domestic product will rise 5 percent in the 12 months through March 2013, below last year’s 6.2 percent and the slowest pace since 4 percent in 2002-2003, a Central Statistical Office statement showed Feb. 7.
Volkswagen India declined to comment on the company’s plans to counter the sales slowdown.
Renault’s Duster-led performance in India contrasts with the carmaker’s 19 percent plunge in sales last year to 1.05 million cars in Europe, where industry wide shipments fell 7.8 percent. CEO Carlos Ghosn has said the European market may fall 3 percent in 2013 in its sixth straight annual decline.
Renault acquired Romanian automaker Dacia in 1999 in a bid to use cheap models to attract first-time buyers in Eastern Europe and other emerging markets. The Duster, which is one of five Dacia models, is sold in Western Europe under that brand. The company began exporting Dusters to the United Kingdom and Ireland in November, as part of a plan to use India as a hub for right-hand drive versions of the model, it said in a statement on Nov. 30.
The Duster is also the best-selling Renault model in Russia, where the French carmaker leads the market. The Boulogne-Billancourt-based company, which is scheduled to report 2012 earnings on Feb. 14, sold 189,852 cars in Russia last year, amounting to 7.3 percent of its global deliveries. A slowing car market in the third-largest among the so-called BRIC economies may damp Renault’s efforts to offset slumping demand in Europe, making its Indian sales more vital.
“Middle class customers are the folks who care most about value,” said Abdul Majeed, head of the automotive sector for India at PricewaterhouseCoopers in Chennai. If automakers offer an SUV for 500,000 rupees-700,000 rupees “suddenly people are able to realize the value the model offers.”
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