Mini cars stall as some can't afford them, some want more

Maruti believes that as income levels rise, first-time buyers will eventually return to play a more significant role in the market. (Photo: PTI)
Maruti believes that as income levels rise, first-time buyers will eventually return to play a more significant role in the market. (Photo: PTI)

Summary

  • Sales of entry-level two-wheelers are still recovering three years after the covid blow, and hatchbacks may follow a similar revival curve. Meanwhile, aspirational Indians are asking for more.

Mini cars that opened doors to four-wheeled transport for many Indians may be in for an extended downturn, as the country's largest carmaker awaits a revival in affordability, and rivals back-pedal on the segment as a whole.

Upgrades and model refreshes will raise prices of small cars which many buyers already perceive as unaffordable, said a top official at Maruti Suzuki India Ltd, which sells nearly seven out of ten hatchbacks in India. Instead, the company, which sells Alto, Celerio and S-Presso in the segment, will wait until the target market can afford them.

Sales of entry-level two-wheelers are still recovering from the covid blow three years ago, and hatchbacks will follow a similar revival curve, said Partho Banerjee, senior executive officer, marketing & sales, Maruti Suzuki. Maruti believes that as income levels rise, first-time buyers will eventually return to play a more significant role in the market. This also means the Alto, Celerio and S-Presso, which make up the entry-level hatchback segment, will not see any major upgrades or refreshes till then.

Also read: Car sales cooling in March may be just a sign of things to come

"Affordability in the entry-hatch segment is a big challenge. Anything new that we bring in will further increase the cost. With further price increases, the buyer may not be able to buy the car. So, let them come to that level first. So, we have to wait," Banerjee said.

Over the last 13 years, India's entry-level hatchback market has shrunk to a mere third of its size, from close to 478,000 in FY11, to just above 160,000 in FY24. While one set of potential buyers find them increasingly unaffordable, the other has moved up to higher models. 

To be sure, most of Maruti Suzuki's rivals vacated the entry-hatch market when the BS-VI emissions norms substantially pushed up their prices. As a result, Maruti's share of the overall hatchback segment stands at a whopping 68%.

The entry level has shifted to entry SUVs, said Tarun Garg, chief executive officer, Hyundai Motor India Ltd. "Customers want six airbags as standard, sunroof, dashcam functionality -- all the frills. So, aspiration has taken over functionality even in that segment. We see first-time buyers are shifting to not only the Exter segment, which is a micro-SUV, but to Venue, and even Creta. Over the last 4-5 years, hatches are giving way to SUVs, which for us is 65% of our total sales now. Even in rural areas, what we find is the preference for SUVs has gone up. For Hyundai Motor India, rural and urban SUV penetration is the same now."

Maruti, which aims to sell 3 million vehicles by 2030, will launch many models to serve a variety of customers, Banerjee said. The company launched the new premium hatchback Swift with six airbags as standard and a new Z-series engine last week. "In hatches also, there is an entry, mid and premium hatch. In SUVs, there is entry, mid and premium SUV. The entry-level SUV has many players. Now, there is a micro-SUV segment which we are studying", indicating that the company's new product development focus will lie in diversifying beyond SUVs. 

Also read: SUV allure lifts passenger vehicle sales past 4 million in 2023

Still, according to Hyundai's Garg, "you cannot ignore the hatchback" since every one in four passenger cars sold in India is one. "But here, the i20-Baleno segment of premium hatches has the biggest contribution, then comes the compact segment, and the entry-hatch is the smallest, and is becoming smaller. When the Exter was launched in the beginning of 2023, the entry-SUV segment was 10,000 units a month, now it is already 25,000 units and from 3% of the market, the segment now accounts for 7.5% of the market. In our opinion, there is still demand for cars in the sub- 10 lakh bracket, but the product has to be right."

Banerjee said Maruti has "made significant investments" in the entry-segment too, like upgrading the K10B engine to K10C, which powers the Alto K10 and Celerio models. “If many of our competitors feel SUVs is the bigger segment, we feel there is an opportunity in hatchbacks also as India's economy grows", he said.

Hatchbacks fetched 45% to Maruti's overall sales in FY24, and nearly 50% in April this year. Banerjee said this contribution may eventually fall and settle at a lower level, but its overall volumes should continue to grow.

Also read: In race with Thar, Jimny now faces an uphill task

Many entry-level buyers weren't in a position to buy, and only SUV buyers were in the market which skewed this split over the last few years, Banerjee added. "If after two years now, when the hatchback buyer comes to the market, their contribution may come back. Car penetration in India is at 32 per thousand, while in mature markets it is over 600. The next decade is of India, and its growth will increase car penetration. There is a huge chunk of people sitting in the two-wheeler user base who will enter the four-wheeler market. Everyone can aspire to large SUVs, but will need a stepping stone - and that stepping stone will be a hatch," Banerjee said.

Over the last few years, the entry price point of first-time buyers has moved up due to improving consumer aspirations, said Jay Kale, senior vice-president, Elara Capital. "New model launches in a segment help triggering a consumer purchase decision. We expect first-time car buyers growth to have bottomed out here and expect the growth trajectory to improve going forward. Now, whether it comes to the mini segment or the compact hatch/ micro SUV/ premium hatchback segment will also depend on the velocity of new launches and refreshes in the segment", Kale said.

Gaurav Vangaal, associate director, S&P Mobility agreed that the entry-level segment has been gradually shifting. "Young people are increasingly drawn to entry-level crossover vehicles like the Hyundai Exter and Tata Punch. Moreover, we do not see much product development action happening for entry-level hatchbacks in the coming years. As a result, the case for the revival of entry hatches appears to be growing bleaker day by day. Hence, we may see creation of new entry point between 5-6 lakh", Vangaal said.

Also read: Rural India drives passenger vehicle sales record in FY24

Meanwhile, Maruti Suzuki's parent Suzuki Motor Corp on Monday said it will continue to promote the expansion of its SUV models and aim to recover its market share. "In India, both the overall market and Suzuki have reached an all-time high in retail and wholesale sales. The mix was also improved by the expansion of SUVs and UVs. Following last year, we have continued to aggressively introduce SUV models in this period (FY24), resulting in a market share of 20.8% in the SUV segment. By expanding our share in the SUV segment, which accounts for 50% of the Indian passenger car market, we aim to recover our overall passenger car share," the company said in its earnings announcement.

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