Can small car segment bounce back by 2026? Trends suggest otherwise

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The small car segment, which includes the hatchbacks, once ruled the Indian auto industry with nearly half the market share. After the surge of SUVs,

Maruti’s small cars seen parked at the Manesar facility. Maruti Suzuki claims that the small car segment in India will revive itself in another two years. (REUTERS)

The surge of SUVs in India has diverted car buyers from the more affordable entry-level small cars over the past few years. Bigger cars, loaded with features and bold road presence, have taken precedence over the more practical small cars mostly meant for city travels. Maruti Suzuki, India’s largest manufacturer of small cars and hatchbacks, thinks the segment will revive as soon as by 2026. However, a sharp drop of more than 20 per cent in market share in the last six years, suggests a different trend raising questions if small cars have lost the charm.

From the 1990s, small cars led by Maruti Suzuki and Hyundai Motor, were the backbone of the Indian auto industry. Car aspirants even in the early part of last decade preferred smaller cars or hatchbacks than any other body type. Consider this – the share of small cars in terms of sales had a market share of more than 47 per cent in Financial Year of 2017-18. It has gone down to around 27 per cent in the last Financial Year when India bought 12 lakh small cars out of around 40 lakh cars sold in a year. Maruti Suzuki still dominates the segment with 68 per cent market share by selling more than eight lakh small cars and hatchbacks.

The recent decline of small cars also reflects on Maruti Suzuki’s overall sales in recent times. In the last Financial Year, small cars and hatchbacks contributed to around 55 per cent of Maruti Suzuki’s overall sales. In the previous Financial Year, the share of small cars was more than 68 per cent. Within a span of 24 months, Maruti witnessed the sales of its popular models drop by 13 per cent. In April, the share dropped further to under 50 per cent. All of this happened when Indians bought a record number of cars in a year ever.

Maruti Suzuki did not hide its disappointment at customers moving away from entry-level cars. During the launch of the new Swift hatchback on May 9, Hisashi Takeuchi, Managing Director and CEO at Maruti Suzuki India, said, “So I am sad…India’s economy is growing and people will have different choices. In the past, there were not so many choices available and the buying power of people was also limited. But now people are growing, the economy is growing and more choices are available.”

The sale of Maruti Suzuki’s utility vehicles, including SUVs and MPVs, grew from a mere 22 per cent in FY2022-23 to more than 36 per cent in the last Financial Year. Overall, SUVs dominate the Indian auto industry with more than 50 per cent market share amid huge surge in demand. The list of top 10 cars sold every month in India was once dominated by Maruti’s small cars. It currently has at least five SUVs. Trends suggest the demand will keep rising in the coming years.

Maruti Suzuki reiterated its commitment to the small car segment and its hope for a revival. RC Bhargava, Chairman at Maruti Suzuki India, recently said the turnaround could happen within the next two years. He explained the reason why the segment has seen a downward slide. In an interview with Economic Times, he said, “Vehicle prices at the entry level went up much faster than income levels of buyers the last few years, which impacted demand. Maybe by 2026, the impact of these high prices will be absorbed by the increase in the purchasing power of people in that category. The slide will get arrested.”

Also watch: 2024 Maruti Suzuki Swift launched

During the launch event of the Swift 2024, Takeuchi said the low penetration of passenger vehicles in India is also one of the reasons why small car sales are not improving. “With only 32 vehicles per 1,000 people compared to over 600 in developed countries like Japan, India presents a vast pool of car aspirants, As car ownership rises, the hatchback segment will serve as an entry point for many customers, and thus shall expand,” he said. However, passenger vehicle penetration in India has not grown enough in the past five years. According to Statista Market Insights, it is projected to grow by a mere 1.4 per cent by 2028.

Will cars like Alto, Swift, Baleno and WagonR keep losing popularity amid the rise of SUVs? Besides the economic factor, a lot will also depend on car manufacturers like Maruti, Hyundai, Tata Motors and others. It remains to be seen what course these carmakers take to make buyers turn their heads again for a small car or a hatchback.

First Published Date: 10 May 2024, 13:15 PM IST

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