MUMBAI -- While Indian sport utility vehicle leader Mahindra & Mahindra debuted a makeover of its premium XUV500 on Wednesday, it plans to beef up its compact SUV lineup as the segment is booming.
The new XUV500 starts at a price of 1.23 million rupees ($18,770). The passenger utility vehicle has been a successful model for Mahindra, with about 232,000 on Indian roads since 2011.
Mahindra is expected to bring in a compact SUV, the S201, this year to rival Hyundai Motor's Creta, while also pitching the U321 multipurpose vehicle against Toyota Motor's Innova. It is also gearing up to launch the XUV700 in the super premium segment to compete with the Jeep Compass and Toyota Fortuner.
Suzuki Motor unit Maruti Suzuki India, long the leading seller of small cars and the market leader overall, is rapidly capturing buyers of compact SUVs, which have become the biggest battleground for automakers in India. The Vitara Brezza, Ertiga and S-Cross boosted Maruti Suzuki's sales of utility vehicles by 29.6% to 253,759 units during the year ended in March.
Sales of new passenger vehicles in India increased 8% to 3.28 million units for fiscal 2017, the Society of Indian Automobile Manufacturers said last week. SUV sales jumped 21% to around 920,000, compared with a 3% uptick for compacts and sedans, and the tally may top 1 million in fiscal 2018. SUV sales have climbed by about 70% from three years earlier, when the market share totaled only around 20%.
Rising incomes and the emergence of options especially in compact SUVs have created competition as never before. Economical compacts held an overwhelming presence in the market for decades, but recent years have seen a surge in consumers seeking more stylish and pricier autos, such as SUVs with higher seating positions and more spacious cabins.
"Sales of traditional SUVs are flattening. It is the new generation of SUVs where the new growth has come," said Deepesh Rathore, director of consultancy Emerging Markets Automotive Advisors. "Features such as smaller size, good fuel efficiency, practicality, higher ground clearance and more space are working out for car buyers."
Compact SUVs typically are targeted at city drivers, while Mahindra focuses more on rural and semi-urban customers, he said.
Rathore reckons the new segment of compact SUVs attracts India's urban drivers who previously had few choices in upgrading from hatchback cars.
Rashmi A., a 30-year-old communications professional who recently switched from a Maruti Alto hatchback to Ford Motor's compact SUV EcoSport, says she found the SUV much more comfortable in terms of driving and cabin space. The small price difference versus sedans, compared with the features of an SUV, influenced her decision.
"We have also been able to drive [long distances] smoothly, something that was difficult with our small car," she said.
Banking on this rising interest in SUVs, automaker have big lineups set for the year. Hyundai brings a face-lift of its hot-selling Creta while BMW and makers of premium SUVs such as Audi plan to introduce more products in the space.
Rajan Wadhera, president of Mahindra's automotive sector, expects a 25% increase in sales from the new XUV500.
"The XUV500 was the creator of the premium SUV segment ... in India and continues to be the front-runner in this segment when it comes to setting new trends and pushing new boundaries," Wadhera said. "With the introduction of the plush new XUV500, we have strengthened its value proposition further by creating new benchmarks in luxury and styling."
Nikkei staff writer Akira Hayakawa in Mumbai contributed to this article.