During FY22, sales of premium cars grew by 38% year-on-year, while sales of low-cost cars grew by nearly 7%
During FY22, sales of premium cars grew by 38% year-on-year, while sales of low-cost cars grew by nearly 7%
The entry-level hatchback market in India has shrunk significantly over the years as rising prices coupled with relative economic woes to deter consumers in the ‘low-cost vehicle’ buying segment, while at the same time high market share According to industry executives and analysts in the automobile sector, under-priced cars continue to climb due to ‘flexible earnings’ and less sensitivity to price hikes among ‘affluent buyers’.
CRISIL Research said in a note that cars priced at over 10 lakh, falling in the premium segment, were sold five times faster than the low sticker prices in the last fiscal, accounting for nearly 30% of the passenger vehicle market, in FY19. above 24%. , During the last financial year ended March 2022, sales of premium cars grew by 38% year-on-year, while sales of low-cost cars grew by nearly 7%.
“The major reasons for this were the huge gap in the income sentiment of the respective target consumers, sharp rise in the prices of low-end cars, fewer choices (some manufacturers exited the segment), and several new launches which have led to higher prices of cars. priority,” Crisil Research observed.
first time user
In India, which is known as the small car market, sales of the entry-level hatchback segment are largely driven by first time users. Due to the pandemic’s impact on earnings sentiment for entry-level car buyers, purchases and upgrades are getting postponed.
According to estimates by Crisil Research, employee costs of large and medium companies – a proxy for income sentiment among affluent buyers of high-priced cars – have increased by about 20%-25%, compared to those of small and medium-sized companies. companies (0 -10%), which generally accounts for a large proportion of low-priced car buyers.
RC Bhargava, chairman, Maruti Suzuki, said, “The market is at a low level in the last three years… This market is shrinking significantly for people who use two-wheelers or small hatchbacks, which is worrying.”
Pointing out that only 11.5 lakh units of the hatchback were sold in India in the last financial year, almost 25% less than the 15.5 lakh units sold in 2018-19, Mr Bhargava said that due to regulatory changes, taxes from the state governments would be levied. prices have increased. The prices of commodities, at the lower end of the market, had risen to such an extent that a large section of the population could not afford four-wheeled transport. “These are the people who are on the margins. They are upgrading from two-wheelers… they take loans to cover more than 80% of their cost of the car,” he said.
For Maruti Suzuki, which is the country’s largest carmaker, the price of its entry-level Alto has increased by around 20%, while mid-level hatchbacks such as the Celerio and Swift have seen a price hike of around 38%. In contrast, the prices of entry-level SUVs have gone up by 13.5% and that of mid-level SUVs by around 20%.
Ashim Sharma, Senior Partner and Group Head, Nomura Research Institute, said that pre-COVID income segment was seen moving a bit higher and hence people were opting for bigger cars. However, there was a lot of churn due to the pandemic. “COVID started in urban centres, leading to job losses and salary cuts. So, a large segment of the population, who used to buy entry-level cars and two wheelers, fell because of it. Then as the virus spread to rural India, the same thing happened there too,” Mr Sharma said.
He added that the pandemic also coincided with the implementation of new BS6 emission norms, which made vehicles more expensive. “Car prices also started rising and the segment is very sensitive to price hikes, hence there was some reduction in demand for entry-level vehicles. Therefore, the economic stress that came to society due to job losses as well as pay cuts and a cumulative rise in car prices are due to the decline in the amount of entry-level cars. ,
Rohan Kanwar Gupta, Vice President and Sector Head, Corporate Ratings, ICRA Ltd said the generally accepted definition of the entry level segment – in both the two-wheeler and passenger vehicle categories – has undergone a paradigm shift in the last two or three years.
“One of the key criteria to identify a vehicle as an entry segment is the selling price. However, due to the significant increase in the prices of vehicles in the last few years, definitions have had to evolve,” said Mr. Gupta.
For entry-level two-wheelers, which are below 110cc, the ex-showroom price has come down from ₹50,000 in October 2018 to ₹70,000 now, while for entry-level cars, the segment’s price range is Rs. The price has gone up. Around ₹2.8 Lakh- ₹3.5 Lakh to ₹3.5 Lakh- ₹4.5 Lakh.
Going forward, CRISIL expects the share of high priced cars to remain over 30%, from 25% earlier, and higher priced two-wheelers due to “flexible income from affluent buyers and traction for new models”. The market share remains above 40%.