Small cars may emerge as a viable option for car buyers in the long run, said a top executive at market leader Maruti Suzuki, which also sells the highest number of small cars in India.
The small-car story in India is likely to get a fresh lease of life with the government putting its weight behind lowering carbon emissions.
The government has been encouraging local automakers to accelerate the development of alternative powertrain strategies, ranging from flex fuel to compressed biogas to electric in its bid to reduce crude oil imports and vehicular pollution. Small cars, with their high fuel efficiency, also fit into this strategy.
“For safe, sustainable mobility, we are continuing to look at small cars as a choice,” CV Raman, chief technology officer (CTO) at Maruti Suzuki. Raman added: “We need to have entry-level solutions for two-wheeler upgraders that are sustainable.”
India is among the world’s largest market for motorcycles and scooters, with 21 million units sold at its peak in fiscal 2019. With passenger vehicle penetration in the country standing at about 25 per 1,000 households, automakers expect growth opportunities to remain at the entry level as income level rises.
Sales of small cars fell to 1.15 million units in fiscal 2022 from a peak of 1.55 million in FY19. Several factors – rising input costs, increase in road tax levied by state governments, and transition to higher emission and safety regulations – caused a spike in vehicle prices, hurting sales in this price-sensitive segment.
Sluggish sales prompted several automakers, from Nissan to Honda Cars India and Volkswagen, to exit the small-car market in the country. The segment currently offers just about a dozen models, compared with 29 in FY19.
However, sales have started increasing in the past few months and totaled about 1.34 million units in the financial year that ended March 31, 2023.
“The share of small cars has been coming down the past few years but in terms of absolute volumes, numbers are still huge. First-time buyers (most of whom buy small cars) account for 47-48% of vehicle sales in India, and this has been the trend for several years now. Given low vehicle penetration and the lack of adequate public transport systems in the country, demand for cars, be it new or pre-owned, is there at the entry-level,” Shashank Srivastava, senior executive director at Maruti Suzuki, said, adding that if income levels continue to go up and vehicles are provided at affordable costs, there is a massive potential for growth.
Tarun Garg, chief operating officer (sales, marketing, service, and product strategy) at Hyundai Motor India, said CNG-driven vehicles are a good option to extend mobility at an affordable cost to customers at the entry-level. “CNG holds value, especially at the entry level,” Garg said in a recent interaction. “With the number of (CNG) dispensing stations going up within cities, as well as geographically, it is emerging as a viable and affordable option for consumers in the mass segment.”