When Hyundai Motor India Ltd. launched the Santro small car in September 1998, Managing Director Kim Yang-Soo vowed that the Korean automaker would become a strong No. 2 to market leader Maruti Udyog Ltd.
Kim's prediction was prophetic: From a standing start, the 1.0-liter Santro has propelled Hyundai into the No. 2 spot behind Maruti on a volume through August of 33,835 units.
True, the sales gap with Maruti is enormous and, realistically, will probably never be closed. But Hyundai last month took another step to firm up its market position in India by launching the mid-sized Accent at prices ranging from $12,440 to $13,600.
Hyundai expects to sell 6,000 Accents through the end of its fiscal year, March 31, and about 15,000 a year thereafter.
'Just as the Santro created a new segment of 1.0-liter cars, the Accent will also create a segment of 1.5-liter cars,' Hyundai India President A.P. Gandhi tells Staff Correspondent Sadananda Mukherjee in an extensive interview.
The 61-year-old Gandhi, a mechanical engineer who joined Hyundai from Telco, India's biggest truckmaker, met with Mukherjee at Hyundai's manufacturing complex in Chennai.
Edited excerpts follow.
GM, Ford, Daewoo, Daimler-Benz, Honda and others entered India through joint ventures with Indian partners. Why did Hyundai decide to go on its own?
Hyundai considered that possibility but thought a partner might delay decision making. Hyundai believes in fast decisions.
Does Hyundai have any plan to offer its shares to Indian investors?
Yes, once the Indian company becomes profitable. Then we will look for minor participation from the Indian public, the Indian financial institutions or some of the Indian promoters. But it will be a while before we reach that stage.
What has been your investment so far, and what will it be in the future?
To date, the investment is $614 million. Another $300 million to $400 million will be invested in the next few years. What you see today is Phase 1, and we have built up a capacity of 120,000 vehicles. We could produce that number today if we had the manpower.
We are simultaneously gearing up our own vendors to come up to that level. In two shifts, our production is around 7,000 per month. Once we achieve 80,000 to 85,000, we will put on a third shift and raise production over 100,000.
Hyundai originally planned to enter the market with a mid-sized car, but later decided in favor of a small car. Why did the strategy change?
All the multinationals that came to India went wrong on two accounts. First, they did not make the right product as far as size was concerned, and second, they did not bring their companies' newest products.
They probably thought Indians were not ready to absorb the latest technology. So the multinationals that came between 1991 and 1994 brought their time-tested models so that they could bring their old plants, put up with low investment and give this country a car that was big for the consumers. But India is still a poor country, and the people cannot afford to buy a car priced at more than half a million rupees.
Hyundai also wanted to come with a big car, but once it did the research to determine the public perception, we could see the right product for India was something around 1.0 liter, and not 1.3 or 1.5 or the premium segment. That is why we changed our stand, and we feel that is where we succeeded.
Which segments will dominate the market?
By and by, people will graduate to 1.0 liter, and this segment will grow. The market under 1.0 liter will go down because people from the two-wheeler segment will take 0.8-liter cars. It will, therefore, be a replacement market. And there will be the 1.2- to 1.5-liter segment. These will be the two predominant segments in the next five years. Later on, when India has a better standard of living, there will be cars with bigger engines, and the sports vehicles and multiutility vehicles will come up.
Are you satisfied with the performance of the Santro?
We feel that our customers are satisfied and speak well of the car. We used the technology of the next century, we had an engine management system that was electronically controlled, we met emissions and fuel efficiency standards. In other words, we made a car ideally suited for India.
What is your current level of localization?
Eighty-five percent, and we hope to achieve 90 percent in the next few months. Beyond that, we will have to see. If volumes are not large, it may not be economical.
The mid segment, with so many global players in it, is already overcrowded. Why are you launching a car in that segment?
Before we came, there was a low segment of 800cc to 1.0 liter, another of 1.3 liters and above, and the luxury segment with Mercedes-Benz. By introducing the Santro, we created a segment that is 1.0 liter.
Similarly, as we launch the new Accent, we are sure we will create another segment, and that segment will be between 1.2 and 1.5 liters. The market, in fact, will define the new segment between 1.2 and 1.5 liters, but what we define will be based on pricing, capability and features. And I am sure that once we create that segment, it will also grow.
How many versions and variants does the new Accent have?
There are three trim levels for the gasoline-powered model: one standard and two deluxe. In diesel, the variants will be one standard and one deluxe. Both the gasoline and diesel engines are 1.5 liters.
What are the car's special features?
I think the most important things in India are fuel efficiency, riding comfort and safety features. We are sure these features will satisfy Indian customers.
What will be the percentage of local content in the Accent?
Seventy percent from day one, and it will increase progressively.
How many vendors from South Korea are working for Hyundai?
South Korean companies have formed 14 joint ventures with Indian partners. Besides, there are a couple of Korean companies working exclusively for us.
What are your export plans?
We started exports from the very first year, though we were not required to do that. Last year, we exported engine components; this year, we are supplying body parts to the parent company. Once the Accent goes into full production, we plan to export body parts to Europe and also transmission lines.
As far as fully built cars are concerned, at the moment, the domestic demand is very high, and we have a huge backlog. Once we are comfortable in the domestic market, we will export our cars to neighboring countries such as Nepal and Sri Lanka.
What about your market share?
We have about one-third of the small-car segment with Santro, and we hope to maintain that. With the Accent, we hope to capture 25 to 30 percent of the mid-segment in the first full year of operation.
When do you hope to achieve breakeven and profit?
We will achieve breakeven in 2001, and if we can make that happen earlier, we may make some profit in 2001. Otherwise, at the latest, by 2002 we will start making profits.
Other foreign automakers have installed huge capacities in India. What will happen to that?
These companies are going to incur losses for a long time, because investment in the auto industry is huge. Some of the existing companies will either merge or leave. To make a project profitable, you need volume, and volume will come when you have the right product at the right price. The moment the volumes increase, things will be different.
What is the current size of the car market? What will be the size in five years and in 10 years?
Recession in the industry continued for a long time, but things have changed for the better. The current size is between 400,000 and 425,000 units a year. We expect a growth of 12 to 15 percent this year.
In five years, the annual demand will grow to between 700,000 and 750,000 units. Meanwhile, there will be many new types of vehicles coming - small vehicles, sports vehicles, multiutility vehicles - and the market will grow. Seven to 10 percent annual growth will be there for the next seven to 10 years. In 10 years, the demand will exceed a million units. The future is bright.
What about taxes?
The tax structure has to come down to 30 to 40 percent from the current level of 60 to 70 percent.
If taxes are low and competition is there, Indian people will get better vehicles at lower cost. I think that is where the growth will start.