Production of Hyundai Santro and Chevrolet Spark to hit end of the road

Hyundai Motor will soon stop producing the Santro, the South Korean automaker's launch model in India that has become a synonym for the company and earned the country the label of a small-car manufacturing hub. Another hatchback that was once popular in the local market, the Chevrolet Spark, is also nearing the end of its life cycle. The final batch of Santros will roll out of the assembly line in the last week of November, while GM is expected to end production of the Spark in December, said people with knowledge of their plans.

The Santro and, to a lesser extent, the Spark in its previous avatar as the Daewoo Matiz were the first to challenge the hegemony of Maruti Suzuki (then Maruti Udyog) cars in the Indian market. With their manufacturers now planning to pull the plug on these models, the entire first generation of entry-level cars will be gone. Maruti stopped producing the M800, its first model, and the Zen that competed directly with the Santro and Matiz some time ago. Since its launch in October 1998, Hyundai has sold more than 1.36 million Santros in India and exported another 5,35,000.

GM has sold over 1,65,000 units of the Spark in seven years since taking over the car portfolio of Daewoo. "We affirm Santro is in production and is a part of our portfolio of 10 brands and is available at all dealerships for sale and has strong fan following," a Hyundai Motor India spokesman said when asked whether it is going to stop production of the model in November. GM India vice-president P Balendran said the company hasn't made a decision yet.

Sources said the companies now believe that the models have reached the end of their life cycle. Hyundai is looking to also free up capacity to manufacture more units of its newer models, said people with knowledge of the company's plans. Despite its portfolio getting expanded, the Santro is one of the strong brands in Hyundai Motor India's portfolio still, selling an average 2,900 units a month.

"The versatility of the Indian market is unmatched, where newly launched vehicles trail off volumes rapidly and a decade-old vehicle churns out strong numbers," said Gaurav Vangaal, senior analyst, forecasting, at consultancy firm IHS Automotive. "The life cycles of all these vehicles are longer than expected due to strong demand forces. If the vehicle proves its worth in the eyes of the consumer, the consumer demand forces the manufacturer to continue with the vehicle."

While the likes of Ford Motor, Honda Motor and General Motors entered India more or less at the same time, it was Hyundai which posed any real threat to Maruti. At a time when the Santro was launched, the market had also seen high-profile launches of the Daewoo Matiz and Tata Indica. The demand for the Santro was so high that Hyundai started making cash profits within seven months of launch, said BVR Subbu, one of the key architects in establishing the brand in India.

"It has never happened before (an automaker breaking into profit in seven months) and it will never happen ever again," said Subbu, who left the company in 2006 as its India president and is now an industry consultant. "The management would have been happy with 1,00,000 volumes in five years, whereas Hyundai sold over a million vehicles in seven years."

If the Maruti 800 started the automobile revolution in India in the 1980s, industry experts say the Hyundai Santro had taken it to another level. Hyundai adopted the strategy of sourcing one part from one vendor, instead of relying on multiple suppliers for a single component. That allowed the company to extract firm commitments from vendors on volumes — there was a clause of compensation in case they failed to meet the commitment. At the time of the Santro launch, each of Hyundai dealerships was equipped with a quality paintshop, which was a rarity among competition at the time, to ensure better services to customers.

Santro was the first car to make its global launch in India. Hyundai exported it to the markets of South Korea, Europe and the US from India. The launch of the Santro in India had come at a critical juncture for Hyundai. South Korea was going through one of the deepest economic crises, and the company's endeavour to make an entry into Canadian market did not go as desired. In India, banks were not willing to lend to the company and advertising agencies were not forthcoming.

KV Kamath, then head of ICICI, visited the company's factory before making adecision on lending funds, Subbu said. Hyundai got the loan, but at 7.5 percentage points higher than the market rate. Tata Motors around the same time secured funding at just half a percentage point over the market rate.