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NEW DELHI : Cars priced above 10 lakh sold significantly more than those in lower-priced segments in FY22, as the wedge between income sentiments widened in the aftermath of the covid-19 pandemic.

An analysis by ratings agency Crisil showed that FY22 sales of cars priced above 10 lakh, or the so-called premium segment consisting mostly of utility vehicles (UVs), grew 38% from the previous year, whereas cars priced lower grew at a modest 7% during the same period.

This trend points towards a sharp shift in customer preference towards premium vehicle offerings, a trend in the making for quite some time, but hastened by covid-19. Premium cars now make up 30% of the total automotive market compared to 25% in FY21, the Crisil analysis showed.

“Key reasons for this shift were a stark difference in income sentiment of the respective target consumers, a sharper rise in the prices of lower-end cars, fewer options (some manufacturers exited the segment), and a slew of new launches that have increased the preference for higher-priced cars," Pushan Sharma, director, Crisil, said.

First-time buyers are also increasingly looking to buy a bigger pre-owned car that fit their budgets, than a new small car, it said. There is also a tendency among buyers to prefer new models in the SUV body style to a well-established hatch, the report added.

To be sure, car prices have also gone up in tandem with rising inflation. “ There has been a 15-20% cumulative increase in the sticker price of lower-end cars over the past four fiscals due to increased stringency of safety regulations and the transition to BS-VI norms," said Sharma in the report.

“A car is a discretionary purchase, and negative sentiments have a disproportionate effect on the car-buying decision", Shashank Srivastava, executive director, Maruti Suzuki, told Mint in a recent interview. “Of course, the design sentiments of the Indian customers have shown a preference for SUVs that have good road presence, high ground clearance, and good stance. Entry-level SUVs overlap with premium hatch and entry-level sedans and, hence, cost- wise also, preferred by Indian customers," Srivastava said.

The trend holds for the two-wheeler market as well. “Over the past 5-6 fiscals, two-wheelers priced over 70,000 have consistently sold more than those that cost less. The reasons for this are a 40- 45% increase in the cost of ownership and a 50-55% increase in the cost of acquisition since fiscal 2015. The cost of ownership has risen significantly because of tighter regulatory norms and price hikes by vehicle makers to offset higher input costs. This has materially dampened consumer sentiment and offtake of lower-priced two-wheelers," Sharma said.

“There is a structural issue when it comes to two-wheeler and three-wheeler demand. Economic recovery is not evenly spread across lower income groups which constitutes most of our customers. 70% of customers earn less than 40,000 per month and 60-65% do not have an income proof. That is the type of customer we are talking about. And the continued underperformance of the two-wheeler segment demonstrates that this class of customers has been significantly weakened after covid-19," Rakesh Sharma, executive director, Bajaj Auto, said in a post-Q4 earnings conference call.

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