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

Since the 1990s, small cars led by Maruti Suzuki and Hyundai Motor have been the backbone of the Indian auto industry. Even in the early part of the last decade, car enthusiasts preferred small cars or hatchbacks over any other body type. Consider this – small cars accounted for over 47 percent market share in terms of sales in the financial year (FY) 2017-18. It has fallen 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 percent market share, selling over eight lakh small cars and hatchbacks.

In recent times, Maruti Suzuki’s overall sales have also seen a decline in small cars. Small cars and hatchbacks accounted for around 55 percent of Maruti Suzuki’s total sales last fiscal. In the previous fiscal, the share of small cars was over 68 percent. In a span of 24 months, Maruti has seen a 13 percent decline in sales of its popular models. Shares fell further to below 50 percent in April. All this while Indians bought a record number of cars for any one 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, Maruti Suzuki India Managing Director and CEO Hisashi Takeuchi said, “So I’m sad…India’s economy is growing and people will have different choices. In the past, there were not so many choices available and people’s purchasing power was also limited. But now people are growing, economies are growing and more choices are available.”

However, it is important to note that sales of Maruti Suzuki’s utility vehicles, including SUVs and MPVs, grew from just 22 per cent in FY2022-23 to over 36 per cent in the last fiscal. Overall, SUVs dominate the Indian auto industry with over 50 percent market share amid a huge surge in demand. The list of top 10 cars sold every month in India was once dominated by Maruti’s small cars. Currently he has at least five SUVs. Trends suggest that demand will continue to grow in the coming years.

Maruti Suzuki reiterated its commitment to the small car segment and hopes for a revival. Maruti Suzuki India chairman RC Bhargava recently said that a turnaround could happen in the next two years. It explained the reason why the segment has seen a downward slide. In an interview with the Economic Times, he said, “In the last few years, the prices of entry-level vehicles rose much faster than the income levels of buyers, which affected demand. Perhaps by 2026, the impact of these higher prices will be absorbed. People in that category Purchasing power will increase.

Also See: 2024 Maruti Suzuki Swift Launched

During the launch event of the Swift 2024, Takeuchi said that the low penetration of passenger vehicles in India is also one of the reasons why sales of small cars have not improved. “With only 32 vehicles per 1,000 people compared to more than 600 in developed countries like Japan, India presents a large pool of car aspirants. As car ownership increases, the hatchback segment will serve as an entry point for many consumers, and thus expand. Will happen,” he said. However, the penetration of passenger vehicles in India has not increased significantly in the last five years. According to Statista Market Insights, it is projected to grow by just 1.4 percent by 2028.

Will cars like the Alto, Swift, Baleno and WagonR continue to lose popularity amid the rise of SUVs? Apart from the economic factor, a lot will also depend on car manufacturers like Maruti, Hyundai, Tata Motors and others. It remains to be seen what path these car makers take to get buyers to turn their heads again for a small car or hatchback.

Date of first publication: 10 May 2024, 1:15 PM IST