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Skoda Auto, a Volkswagen subsidiary, plans to launch a mini-sports utility vehicle priced below Rs 10 lakh (Rs 1 million).

This is the first time a global company is looking to introduce an SUV in this price segment.

Big international companies such as Mitsubishi, Toyota, General Motors, Hyundai and Skoda sell SUVs in India, but at prices above Rs 15 lakh (Rs 1.5 million).

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The Skoda product will directly challenge Indian companies, which offer cheaper options.

Mahindra & Mahindra's Scorpio is priced between Rs 743,000 and Rs 12.39 lakh (Rs 1.23 million), while Tata Motors' Safari Dicor costs between Rs 800,000 and Rs 13 lakh (Rs 1.3 million).

Skoda's new SUV could also pose a challenge in the luxury mid-sized sedan market, which includes Honda City, Volkswagen Vento and Hyundai Verna.

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Thomas Kuehl, a member of the board in charge of sales and marketing, Skoda Auto India, said: "The SUV segment is not growing as fast as was expected. We have to go down and are looking at a product priced below Rs 10 lakh."

Kuehl, however, did not say by when the model would be launched.

"We have over 25 per cent share in the D segment with Superb and 16.5 per cent share in the segment that has Laura. We are working to increase our presence in the SUV category," said Kuehl.

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Segment growth

Abdul Majeed, leader, automotive practice, PricewaterhouseCoopers, said, "In India, original equipment manufacturers are looking to develop sub-segments and SUVs to suit more pockets.

Given the large families in India and the value proposition of sports utility vehicles at the lower end, sales have been rising over the last couple of years."

Close to 324,000 SUVs were sold in India in 2010-11, a 19 per cent rise over the 272,000 units sold in 2009-10.

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The segment has been clocking annual growth of 15-20 per cent a year for the last four years.

Nearly half the sales came from Mahindra & Mahindra, which sold 170,000 SUVs last year.

Toyota came second with Fortuner, which is priced considerably higher at Rs 20 lakh or Rs 2 million) and above (ex-showroom, Delhi).

Skoda was targeting 20 per cent SUV market with the launch of Yeti in November last year. It was priced between Rs 15.35 lakh (Rs 1.53 million) and Rs 16.73 lakh or Rs 1.67 million (ex-showroom, Delhi).

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Market experts say the price tag has kept away consumers. Kuehl said the company had sold 900 units of Yeti so far and was gearing up to launch a variant, with a smaller diesel engine, this year. A petrol version is also on the cards.

The company is also looking to introduce an entry-level sedan by the end of the year.

To be priced between Rs 600,000 and Rs 10 lakh, it will compete with Maruti's Swift Dzire, Mahindra Logan and Indigo Manza.

Skoda is also developing a small car that will be positioned below Fabia.

The company expects to double sales to over 40,000 units this year. It sold 22,969 units in 2010-11, a growth rate of 31.24 per cent over 2009-10.