Hyundai’s New Santro Takes the Country Road to Challenge Maruti Suzuki

On Tuesday Hyundai Motor Co. brought back the entry-level Santro small car to India two decades after it was first introduced as the South Korean carmaker mounts one of its strongest-ever efforts to challenge the domination of Maruti Suzuki India Ltd in rural markets and small towns.

The re-launch of Santro car, however, comes at a time when high auto fuel prices, increased loan rates, and worsening macroeconomic factors have crimped consumer demand. Hyundai generates about 20% of its total sales from rural and semi-urban areas.

In comparison, Maruti Suzuki garners about 30%-35% of its sales volume from such regions because of its range of fuel-efficient, small cars such as the Alto, WagonR and Celerio and a vast retail network.

Y.K. Koo, managing director of Hyundai Motor India Ltd, said the new Santro will be pushed more in the semi-urban and rural markets as the company would try to attract more first-time car buyers.

“For Santro, the priority market is rural and the first-time buyers, and whatever the number of customers we get from the metro cities will be additional. This is the right product to attract the rural as well as the semi-urban markets as the Santro has the lowest cost of maintenance among its competitors,” said Koo.

Despite having a fairly popular product in the Santro when it was introduced in 1998, Hyundai remained a distant No. 2 in India as it could not offer much of a challenge to Maruti Suzuki’s wide range of small cars, especially in the hinterlands.

The Santro was discontinued in 2014, and barring the Eon, Hyundai did not have any affordable small car in the Indian market, leading most consumers to opt for Maruti Suzuki.

Hyundai will discontinue the Eon by December, two people with direct knowledge of the matter said in August. The i10, Hyundai’s other small car in the sub-₹5 lakh bracket, was discontinued in early 2017.

Hyundai’s plan to target the rural market comes at a time when three consecutive years of abundant rains and the Union government’s focus on improving rural infrastructure and benefits like loan waivers to farmers is leading to a revival in the rural economy.

Hyundai’s market share has been stagnant at 15% to 16% over the last few years mainly because of capacity constraints at its factory in Chennai and lack of new products.

Maruti has about a 51% market share. The new Santro will help Hyundai reach a market share of 17%, Koo said earlier this month.

“The share of ‘A’ segment hatchbacks has decreased in urban markets as customers are looking to go for products at the higher price points. The rural markets also have been performing well as the purchasing power of the populace has increased.

Hence, this is the right strategy for Hyundai as the number of individuals who will look to upgrade to a car will be more in the smaller towns and rural markets,” said Puneet Gupta, associate director at global information provider IHS Markit.

Despite prevailing weak consumer sentiments, Koo believes it is the right time to launch the Santro as it is affordable and has low maintenance cost.

This will also push demand in semi-urban rural markets, he said, adding that in urban areas the new Santro will be purchased by a consumer as a replacement for an existing car.

“This product will be very strong in the rural markets where demand has recovered and the buying power in the semi urban and rural markets are growing. So, this is the right product to attract the rural as well as the semi-urban markets,” said Koo.

“This vehicle has the potential to be the preferred choice of the first-time customer in the rural and semi-urban markets,” said a senior Hyundai official, requesting anonymity. “We lacked an affordable compact car in the last few years and now that has been addressed,” the official said.