Weak sales in ‘bread & butter’ segment: Rising prices squeeze out entry-level buyers

“This means that people who were buying lower-end cars are not being able to buy cars. In the two-wheeler segment also, in 2019-20, 2020-21 and 2021-22, in all three years, there has been a double digit decline for two-wheelers,” Maruti Suzuki Chairman RC Bhargava said.

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During financial year 2021-22, Maruti Suzuki, India’s largest carmaker, hiked prices of its vehicles four times.

The shrinking market of entry-level hatchbacks, India’s top selling car segment, in addition to a decline in two-wheeler sales over the last 3-4 years, points to severe distress in the segment of the economy that typically buys low-cost personal transport vehicles.

“The worrying part about the market this year has been the fact that we are now seeing that over the last three years that the market for lower end commuters who use two-wheelers or hatchbacks has been shrinking significantly. In 2018-19, about 15.5 lakh units of hatchbacks were sold. This year 11.5 lakh units were sold. This is over 25% decline in size of the market for hatchbacks, and this is a major part of the market in India,” Maruti Suzuki Chairman RC Bhargava said during the company’s earnings press conference Friday.

“This means that people who were buying lower-end cars are not being able to buy cars. In the two-wheeler segment also, in 2019-20, 2020-21 and 2021-22, in all three years, there has been a double digit decline for two-wheelers,” Bhargava added.

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He pointed to “regulatory changes, taxes by state governments, increase in prices of commodities” as the reasons for increase in prices of the affordable vehicle segment. During financial year 2021-22, Maruti Suzuki, India’s largest carmaker, hiked prices of its vehicles four times.

“…the prices of lower end of the market have increased…by such a figure, that lot of customers have dropped out of the market and they cannot afford personal transport. This is what the events of last three years have shown, and there seems no likelihood of the market reversing substantially in the near future,” Bhargava said. But Maruti is not the only automobile company to witness a slump in entry-level segment. Several global automakers have changed their focus on sport-utility vehicles from hatchbacks and entry-level cars. Japanese carmaker Nissan has discontinued its Datsun brand of small cars in India. German Volkswagen has announced end of production for its Polo hatchback in India. “Small cars used to be our bread and butter,” Bhargava said. “There’s no butter in small cars anymore. We will have to change our strategy. People with limited income are getting squeezed out of the car market due to higher cost,” he said. In the two-wheeler segment, which is an indicator of rural consumption, the slowdown is evident as well. As per data provided by Society of Indian Automobile Manufacturers, two-wheeler dispatches fell to a 10-year low of 1.35 lakh units in FY22.

Releasing auto sales numbers earlier this month, SIAM president Kenichi Ayukawa said: “Despite some recovery from a low base, sales of all four segments are below even 2018-19 level. While some segments like commercial vehicles and SUVs are seeing improvement in demand, mass segments like two-wheelers and smaller cars are facing serious affordability issues”.