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Small cars are bread and butter to India’s leading automakers, such as Maruti Suzuki. Recently, the company’s chairman R.C. Bhargava said there was no more “butter" in this segment, with only bread left behind. Why are small car sales falling? Mint explains:

What role has inflation played in the matter?

The first thing to understand is that the entire ‘entry-level’ segment itself is getting reconstituted and redefined. Prices of vehicles have gone up by up by 15-20% in the last one year alone, as automakers passed on the costs of implementing new BS-VI emissions standards, of introducing additional features in cars, and of buying costlier raw materials and precious metals. The magnitude of this increase has been felt most sharply in the lower-priced models, which has made a new car fall out of budget for a lot of first-time buyers, who typically seek to buy an entry-level model.

Is it about income distress?

The economic recovery that India has seen after two devastating waves of covid-19 is unevenly spread. While income levels showed resilience at the top of the pyramid, populations at its bottom were rendered more vulnerable. “There is a different elasticity of demand in different segments. The entry-level segment is much more price-sensitive when the price of acquisition goes up," Shashank Srivastava, executive director, Maruti Suzuki, told Mint in an earlier interview, adding that negative sentiments among buyers have had a disproportionately negative effect on new purchases of big-ticket items such as cars.

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Is there a shift in aspiration?

Beyond matters of inflation and affordability, there is a sharp shift in customer preferences towards buying more feature-rich cars in more aspirational body styles such as SUVs. This bid to associate with affluence is also leading some buyers to defer purchases till their budgets can improve to accommodate their aspirations, or they’re simply choosing to buy a higher-spec used car.

How are automakers responding?

“The challenge carmakers face now is maintaining economy, while meeting aspirations of buyers," Ravi Bhatia, president, of JATO Dynamics India, an auto intelligence company, said, adding, “The mini-car and sub compact hatchback body styles still form the belly of the Indian car market with a combined 47% market share." As per a Crisil report, cars priced at 10 lakh and above grew 38% in FY22, while small cars grew 7% . So, carmakers are filling new white spaces with products such as sub-compact SUVs .

Will there be fewer options this year?

According to ratings agency Crisil, sales of best-selling low-priced vehicles such as Maruti Alto, Swift, and Baleno have been on the decline over the last three fiscal years. In fact, while JATO Dynamics says this year will see as many as nine new SUV launches, no new model is expected to be launched in the hatchback segment, barring two refreshes. Buyers will, therefore, have fewer options. However, Maruti Suzuki feels this unbuttered bread may still get toasted, going by healthy order book for cars like the Baleno.

 

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