Why is India’s small-car segment shrinking
Vibha Sharma
Chandigarh, October 26
A recent Indian auto-sales data by the Society of Indian Automobile Manufacturers (SIAM) and reports by several auto experts revealed some very interesting trends.
According to the figures released by the apex national body that represents all major vehicle and vehicular engine manufacturers in India, sales in the small car segment are not as robust as earlier.
Only 35,000 small cars were sold in the July-September quarter as compared to nearly 77,000 in the same period in 2022, as per reports.
Experts say sales of “entry-level cars” (as small cars are also referred to as) have been declining since CovidD. For these three months in particular, the sales of small cars slumped 75% and of motorcycles and scooters (other popular modes of transportation for lower income groups and rural areas) by 39% and 25%, respectively.
Interestingly, however, the second important trend noticed was from the sports utility vehicles or SUV segment and luxury brands. Apparently, their demand increased as according to reports the sales of domestic utility vehicle were up by 23% in the quarter.
The reasons
Apparently, small cars are no longer small in price as compared to the mid-segment passenger vehicles, thereby making them unaffordable for the segment which would have naturally graduated to them had their income increased.
Another problem seems to be the interest rates on car loans, which are crucial to determine the decision to whether or not to buy a new vehicle. The rise in repo rate increases the rate of interest on all types of loans, home, business, car, everything.
Experts add another reason for dampening the sentiments. They say that the prices of small cars increased due to regulatory changes, making them unaffordable.
In other words, incomes did not increase, rather in many cases, they decreased in the post-Covid era, while the demand decreased.
“The ability of people to buy these cars has been affected, which is a sign of delayed economic recovery in rural and semi-urban areas in the post-pandemic period. Rural income levels are lower than earlier, which is a disturbing factor not just for auto-manufacturers but for all consumer goods manufacturers. The bottom line is that the demand in the rural/semi-urban areas is not as robust anymore,” they add.
The drop in sales of entry-level cars should worry the manufacturers this festive season, as this does not seem to be a temporary phenomenon. The counter argument that perhaps the same people want to spend more and buy a better car as the median level in prices has increased does not work with sceptics.
“The income of rural buyers is no longer what it used to be; the same is true for semi-urban areas post the pandemic. The divide between urban and rural has widened and the fact that the sales of high-end cars is increasing proves the point that the recovery has been more K-shaped.
“The farm incomes have been affected after the ban on wheat and rice exports. Besides, the rainfall mismatch, excess in some and deficit in other, added to the dampening of the mood,” they add.
Luxury cars cruise
While sales of small cars are declining that of luxury vehicles seem to be on the cruise.
The surge, experts say, is being driven by buyers in all categories—first-timers as well as those upgrading to premium products because of easier access to loans, etc. Many in middle and upper classes who during Covid period could not indulge on expensive clothes, eating out, holidays, etc. had sufficient money post-pandemic to splurge on expensive cars and luxury items.
However, this is also indicative of widening gaps between segments.
Sign of ‘K-shaped’ recovery?
A K-shaped recovery is when one sector of the economy rebounds from a recession while another sector continues to decline.
Obviously, this affects wages and incomes in both sectors.
There are many reasons for this widening gap, including the stock market which boomed through the pandemic while some key sectors tanked. The most affected was the unorganised and MSME sectors, resulting in decrease in incomes and high levels of joblessness.
