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Mahindra shrinks the SUV

Built like an SUV but priced like a compact car, Mahindra & Mahindra's (M&M) newly launched KUV100 is blurring the lines in the Indian auto market. As the big car that does not leave too big a hole in the consumer's pocket, it is hoping to cash in on the aspiration among young urban professionals for a large car. (The standard KUV100, priced at sub Rs 5 lakh is a 5-seater, a 6-seater option costs more) And at the same time as the small big car, not as big as an SUV and yet bigger than the compact car, it is positioning itself firmly across both categories.

Vivek Nayer, chief marketing officer, M&M said, "We had done a survey according to which there were many young buyers who were interested in buying a compact SUV but were instead settling for hatchbacks because there was no SUV in that segment". And so M&M decided to step in.

Today, three in every five passenger vehicles sold in the country are in the compact and super compact segment, a category that has seen phenomenal growth in the past few years. Brands in lead roles in this category are Swift Dzire, Swift, Hyundai Grand i10 - all priced within the Rs 4.5-6 lakh band. Although these are not entry-level cars their buyers are mostly first time car owners. Growing disposable incomes and the aspiration to own a better looking and bigger car are pushing sales of compact cars over cheaper alternatives that were once staple entry level rides - namely the Maruti Alto, Hyundai Eon and the Datsun Go. The KUV (Kool Utility Vehicle) 100, which took M&M four years to develop and an investment of Rs 1,200 crore, is hoping to push up the aspiration levels among young buyers a notch higher by offering them an SUV within the same budget.

However there are big challenges to look out for. For one, consumer behaviour in the auto market is notoriously unpredictable. The KUV100 has to steer clear of the perception trap and appeal to the buyer's desire for a bigger car and not just a cheap version of a big car. Also with the KUV100, M&M has for the first time offered petrol engines for the domestic market. These engines have been developed internally as have, for the first time, sub-2-litre diesel engines. The size of the diesel engine on the KUV1OO is nearly half that on bigger M&M vehicles such as Bolero, Scorpio and XUV5OO. "Our research and development team took six months to get me convinced that it makes more sense for M&M to build its own petrol engines rather than buy them from outside", added Pawan Goenka, executive director, M&M. These engines will have to stand the test on Indian roads.

M&M however is convinced that the KUV100 will hit the right spot because it offers a comfortable ride at the right price. SUVs offer high seating stance, spacious interiors and strong road presence. But they come at a price, all SUVs cost more than Rs 7 lakh (ex-showroom). M&M has tried to fill this white space with the KUV1OO, with prices starting at Rs 4.42 lakh (ex-showroom, Pune) for the petrol version. Though it is smaller as compared to the hot-selling Swift (KUV's length is 3,675 mm while that of Swift stands at 3,850 mm) M&M has armed the mini SUV with several bells and whistles which it feels would excite a young buyer.

M&M is definitely excited by the promise shown by the sector. According to the Society of Indian Automobile Manufacturers (SIAM), Swift clocks average monthly sales of around 16,000 units, Swift Dzire around 18,000 units and Grand i10, 9,000 units. M&M's confidence is further buoyed by vehicle demand data that is skewed towards utility vehicles (UV), especially in the compact vehicle space. UV volumes have grown 51 per cent during the period 2011-12 to 2014-15. Their penetration into the overall passenger vehicle market currently stands at 23 per cent, up from 15 per cent over the same period.

Within the UV space, compact UVs commanded a share of 40 per cent by end of 2014-15. By end of last month the share was up to 45 per cent, according to data shared by M&M. According to an internal survey done by M&M, about 51 per cent of aspirational buyers preferred to be seen driving an SUV while only 16 per cent preferred a hatchback and 33 per cent a sedan.

M&M has packed the KUV with features that would appeal to young drivers - cubbyholes that can hold small things like bottles, cans, shoes, magazines and spectacles, twin driving modes (Eco and Power) are some examples. In addition, for the first time, the company has provided the safety feature of an airbag right from the base variant while the anti-lock braking system is standard across all the variants.

Though there is no immediate competition to the KUV100 as rivals would like to wait and watch just like they did for the Tata Nano, some auto companies are building SUVs that are priced slightly above the KUV100. Companies like Maruti Suzuki, Tata Motors, Renault, Datsun and General Motors are understood to be developing compact SUVs with prices expected to start from Rs 6 lakh. The options for the compact-SUV-KUV buyer are set to get wider.