Interview with Arvind Saxena, Director (Marketing and Sales) Member of Board, HMIL

Company Description: Hyundai Motor India Limited (HMIL) is a wholly owned subsidiary of Hyundai Motor Company (HMC), South Korea and is the largest passenger car exporter and the second largest car manufacturer in India. HMIL presently markets 7 models of passenger cars across segments. The A2 segment includes the Santro, i10 and the i20, the A3 segment includes the Accent and the Verna Transform, the A5 segment includes the Sonata Transform and the SUV segment includes the Santa Fe.

HMIL’s fully integrated state-of-the-art manufacturing plant near Chennai boasts of the most advanced production, quality and testing capabilities in the country. To cater to rising demand, HMIL commissioned its second plant in February 2008, which produces an additional 300,000 units per annum, raising HMIL’s total production capacity to 600,000 units per annum.

HMIL has set up a modern multi-million dollar research and development facility in the cyber city of Hyderabad. It aims to become a centre of excellence for automobile engineering and ensure quick turnaround time to changing consumer needs.

As HMC’s global export hub for compact cars, HMIL is the first automotive company in India to achieve the export of 10 lakh cars in just over a decade.

Let’s start with the most talked about topic these days. It’s cricket.  And you have been part of that as the ICC official car partner for the World cup. What was the response you got?

I would say cricket has always been a preferred sport in India. For a brand like ours, globally, we are very much into sports. We are with FIFA for the last 3 World Cups; we are with them for the next 3 World Cups too. Even Kia, in its own way, has been with Australian Open. Being the ICC Car Partner during the World Cup was one thing. During the season of ICC World Cup we gave out a cricket kit to all our customers. Then apart from that, we did something called first ball tour. The first opening ball which was to be handed over to the umpires was taken to all the main cities. And the same balls were displayed at all our dealerships. People came to our dealerships and wrote down their wishes for the Indian team. And we also did the last ball tour. These balls were picked and given in Mumbai for the finals.

Another activity we did was the Hyundai Fan Park, which I think was very successful for connecting to our consumers.  We created a kind of small area in T3 airport, and also 1D, and at Great India Place in Noida and one in Orbit Mall in Mumbai and one in Chennai. We did big screening of the matches. When India played there was huge excitement.

Now coming to the real world of business, there is a lot of buzz that Hyundai’s sister company Kia is planning to enter the Indian market. Do you anticipate more competition?

 One, clearly these are two companies. We work absolutely as an independent organisation, except for the ownership, which of course at the top is common. But otherwise, operations are totally independent. That’s how it is happening world over, wherever we are selling Kia and Hyundai are two different entities. Like other countries, we will also compete with them here.  If you really ask me, I have no idea. When are they coming, how are they coming, I really have no idea. 

Has your plant in Chennai reached full capacity utilisation levels? Is this alarming?

We are able to stretch our capacity to almost about 6.5-6.6 lakh units per annum. I think in a given situation this is quite reasonable for another one year or two years. We don’t see that as a problem. And secondly, I think, some moderation in our flexibility of production would again make it easier for us to cater to market. The capacity cannot be tight-fit. So if you have a little flexibility between two plants that also will give us a fair amount of better utilisation of our models next year. I don’t see any problem as of now. Even in a situation where we see more domestic demand, clearly our first priority would be to cater to the domestic market. That, in any case, we will do. So the market will not suffer. With the flexibility and certain improvement in our processes that 6.7 lakh or so is a reasonable capacity.

What about the changing ratio of exports and domestic production? It’s more of domestic sales now.

That’s because the demand has been much stronger in the domestic market. And exports, particularly what Europe has gone through, I think the demand is slightly moderated. Secondly, to cater to the domestic market, we’ve also moved part of our i20 production to Turkey plant. So that has given us an additional capacity of 40,000 to 50,000 cars for the domestic market.

You’ve also been doing a feasibility study on a diesel engine plant. What has been the outcome?

We have finalised the plan for a diesel engine plant. We would manufacture all diesel engine requirement in India itself. I think by the second half of 2013 we should have a diesel engine being manufactured here.  The location will be finalised soon. We have still not taken a final call. Evaluation is being done for the site. We should soon decide on that.

Have the recent CKD norms created any flutter at your end?

We really have not been affected. I think the intention of doing that is very clear. The government definitely wants to encourage the manufacturers who are investing heavily in this country and creating large job opportunities. Hyundai has been one of the frontrunners and right from the time when we started off we made huge investments here in the country. And frankly, we are not shying away from making further investments. And investments also are of two kinds---Firstly, what is directly invested by us and secondly what we channelise that’s through our vendors. We have brought in large vendor communities from Korea. That itself is another investment that we have got. So I think our commitment to this market is far greater. And we have clearly been following whatever norms have been set by the government. Localisation levels in cars like i10, and the Santro are almost in excess of about 95pc. There are a very few components that we get from outside.

As for the proposed EU-FTA agreement, do you see your small cars being exported in a big way to Europe? Will there be some advantage with this agreement?

When we export today, we are at a little disadvantage. Because our cost is about 3.5 pc odd higher than let’s say what is being done in Turkey because of regulations. And that 3.5 pc is a sizeable amount when you are competing in a competitive market. So to that extent, if any FTA is done, and successively reduces the gap between these additional charges, it would definitely be helpful for us.

What are your expectations from the new soon-to-be launched Verna? Do you see increased demand vis-à-vis current Verna?

Definitely, I see an increased demand for the new Verna. And I think, more than that, the new Verna is absolutely a new vehicle. We are carrying only the brand of Verna so to say because that represents our presence in certain segments. But product wise, it’s a first of the offering we have for the fluidic culture form of styling that we have created. That is one of the first one that we are putting in India. We have other models which will be following this form of styling and they are very stylish. If you really look at the exterior styling of the car, the way the character lines are drawn, they are very prominent. They have a very nice flow of styling. In addition to that, even technology wise, we are putting up more engines.  We are putting 2 petrol and 2 diesel engines. And we have also the automatic transmission option in both engines. And in addition, the interiors are very luxurious. Hyundai has always been giving the Indian consumers a new technology and new features. 

I’m very sure that new Verna would add to our volumes and also to our brand image. I think the kind of package we have been able to create with this car, it should definitely add to that.

These are badged as the Accent abroad?

In some places, yes, depending on the  market preferences. In India, both the Accent and the Verna co-existed very well for the last so many years . While many people had this apprehension what will happen to the Accent, and what will happen to the Verna. Effectively, it has added volumes for us. Now, that’s one of the reasons that we’ll have both the brands co-existing in this market. While in some markets, the approach has been different, they have badged it as Accent in those markets.

What about the Accent?  Will it continue its run here?

We’ll continue with it.  We have just refurbished it again. We have made some styling changes on that to make it slightly more desirable than what it is. And it’s doing very well in that segment.

What about a diesel engine for that?

We don’t have a diesel engine for the Accent and it doesn’t work for that. We have alternate fuel variants like LPG, CNG etc for the Accent, in addition to gasoline.

How is your pre-owned car business ‘Hyundai Advantage’ doing in the market?

Well, we are now quite well spread out. I think we have about 180 dealerships across the country. And by the end of this year, more than 100 such dealers will be entering into the certified car business. There are two things which are happening. One is that the certified cars are promoted by our dealers---buying cars, refurbishing it, and selling it with warranties. And the other is of course facilitating the car exchange. As of now, almost about 15pc of our exchange is done through Hyundai Advantage. I think we are growing very well and I think customers who are buying these refurbished and certified cars are very happy.

Coming to your R&D centre in Hyderabad which has 500 employees, does it have some synergy with the Namyang R&D centre in Korea? Do you see this centre growing into a global product development centre and conceiving bigger projects?

Eventually, it will move to that direction. But I think the first important direction would be is that it’s truly helping our global R&D centres, which is Namyang and some of the other European and American centres. We do a lot of data analysis and CAD analysis for them. But the next stage that we are doing is they are helping in localistion of components. Some of the many components of the car that are being imported are localised through this R&D centre. They play a very important role in that. I would say, before they help our global R&D centre, the first would be to help Indian operations. Because India being a very specific market, the needs are very specific and in a product lifecycle, we have a time where we also facelift the models, we refurbish the models. Some of the first activities would be tackled by them. The vision is to be able to design a car. That would be a long time away.

Would the team be enhanced, in terms of numbers, for this?

Yes, definitely. We are trying to enhance the role. Like I said, first was only supporting the operations abroad, and the next is localistion and third stage would be even designing of the components. That’s how gradually they will develop because product designing is not very easy. Especially, India has to go a long way to reach that level of designing. People need to be trained for those operations. And I guess it will take time. We are clear that will keep on enhancing the role of this R&D centre.

How difficult is it to get a market share in the passenger car premium segment?

If you look at Hyundai as a brand globally for the last two years, I think it has moved very positively, whether it is premium cars or otherwise. Apart from India, everywhere else we have truly an image of midsize and above cars. So our range has been fully refurbished if you look at our global presence today whether it is the Sonata, or the Elantra, even the Santa Fe or the Tucson, Ix35, i30 etc.  They are totally a new range of cars that we have, including the i40 which we launched in Geneva. All that I think has a bearing of an image of brand in that segment. And I think we will benefit out of that global image of Hyundai. I think there would be an introduction of many more models in due course of time.

But with the range that we have today, we are very sure that our presence in the premium segment and luxury segment will improve. We have started off with the Santa Fe last year. It has met with a very good success I would say. In two weeks, we could finish off what we had projected for the whole year. So that’s been very well received and people are very happy about those. So going forward, we’ll have more introductions and we will bring in more new models.

Why did the Getz not do well here?

It’s not the question of the Getz doing well or not doing well. I think sometimes the product has to be timed well. Getz was very much, I would say, early in its time, while i20 came just at the right time. I think the market was just looking at something like that. See when we had so much of huge population of small car owners, who have owned cars for a long time, they definitely needed something to give them the luxury of bigger cars, and yet at the size of a compact car.  If you really look at the i20 or a Getz, only the timing was very different. It came at a time when the market was mature and was looking for something like that. Even before the i20 launch, no other model in that segment was doing so well. Others were offering volumes of 500-600. Today, we are almost doing 7,500 i20s a month. And yet unfortunately we have a waiting period for it. So I think, product wise, Getz was a little early in time..

You also manufacture the 1.0 litre Kappa version (in the i10) in the European markets. It’s manufactured here in India? Why is it not available here?

Frankly speaking, it’s not required. Because, I think the conditions are very different. The reason why the 1.0 litre Kappa is given in Europe is to meet certain emission standards, which is a major thing in Europe. Now if I create that engine here, I don’t get any advantage because in terms of cost, it doesn’t give me any big benefit.

The 1.2 Kappa is a better fit for this market than the 1.0 litre Kappa. If I don’t get a cost benefit, why should somebody buy a 1.0 litre Kappa. In Europe, as I said, it gives lower emission standards which are required for that market. Otherwise, there is no reason for someone to really go for it. So, it’s a typical market requirement which forced us to create a 1.0 litre kappa version car.

Do you have any plans to bring in a finance arm or are you satisfied with the way things are going?

No, though we did consider in between. Hyundai Capital is one of the big NBFCs that we have in Korea. But, the laws don’t easily allow a foreign entity to come here or do some kind of financing operations. Lending money through NBFCs is very expensive and its non-competitive. And fortunately in India, I think the banking is fairly well- developed. And there are agencies like SBI, HDFC, Kotak, etc. I think they are fairly well-entrenched in the market. And distribution is not a problem. We don’t see any problem as far as financing is concerned. So unless it becomes attractive for us to look it as a business proposition, there is no point just bringing it in. We have tie-ups and MOUs will all the major banks. So there is no limitation

for us.

The Indian auto exposition is a few months away.  So is your small car codenamed ‘HA’ expected to be unveiled at that time?

No, it will not be unveiled. It’s too early for us. It may be. The expo would have some other unveiling, not the HA unveiling. The HA is on course I can say. I’m only saying that the unveiling may not happen. Something else will get unveiled. We will make it again exciting. We will bring in some other concept cars; we’ll bring in some of the future models which we will like to evaluate here.

How would you define a small car? What should it offer?

I think the small car from our point of view is clearly a car which should be a small family car. We can’t have cars being used individually or just for two people. Because India a different society. We also need a car with an engine of a reasonable size and performance which should take care of the road conditions and the temperature changes that we have. And in addition to that, it should have space to cater to that family. So frankly, we thought a car like the Santro was an ideal car. But anything which is just slightly smaller than the Santro could also be very useful. But with it, it should be reasonable, with a good package of size and engine and also safety. Because I think Indian conditions are changing, we are getting more highways now, and more expressways. People tend to also drive at a little higher speed than earlier, especially outside cities. So safety is another element which, I would say, the people are slowly looking into. And that’s where, I think, Hyundai has a very strong focus. Because any car that we are introducing here, we are able to meet most of the global standards of safety. We are not truly making a car, I would say, only for the Indian market, which may have a much lesser safety. Most of the cars that we have are having the highest ratings. And we will continue to do it so.  Even in case like the Verna, which are bringing, it meets all the European and American safety standards.

So your upcoming small car will also meet all these standards?

Yes, definitely it will meet those standards.