Rising prices deter small car buyers as premium cars support demand

From January to March 2022, sales of premium cars increased by 38% year-on-year, while sales of low-cost cars increased by around 7%.

From January to March 2022, sales of premium cars increased by 38% year-on-year, while sales of low-cost cars increased by around 7%.

India’s entry-level hatchback market has shrunk significantly over the past few years due to the economic distress of the “low-priced vehicle” buying segment amid rising car prices, while that at the same time, the market share of higher-priced cars continues to increase thanks to “resilient incomes of affluent buyers” and less sensitivity to price increases.

Cars priced above ₹10 lakh, which belong to the premium segment, sold five times faster than those with lower sticker prices last fiscal year, grabbing around 30% of the passenger vehicle market up from 24% in fiscal 2019, Crisil said in a research note. .

From January to March 2022, sales of premium cars increased by 38% year-on-year, while sales of low-cost cars increased by around 7%. Among the main reasons for this are a marked difference in the income sentiment of the respective target consumers and a more marked increase in the prices of low-end cars.

Early adopters

In India, which has been touted as the small car market, sales of the entry-level hatchback segment are largely driven by new users. With the pandemic having a significant impact on the income sentiment of entry-level car buyers, purchases and upgrades have been postponed.

According to Crisil Research estimates, payroll costs for large and medium-sized businesses — an indicator of income sentiment among affluent buyers of more expensive cars — have risen by around 20% to 25%, outpacing that of small and medium-sized businesses ( 0-10%), which generally represent a larger proportion of low-cost car buyers.

“Over the past three years, the low-end market…for people who use either two-wheelers or smaller sedans…that market has shrunk considerably, which is worrying, said RC Bhargava, president by Maruti Suzuki.

Pointing out that only 11.5 lakh units of sedans were sold in India in the last financial year, about 25% less than the 15.5 lakh units sold in 2018-19, Mr. Bhargava added that due to the regulatory changes, state government taxes, rising commodity prices, low market prices had risen so much that a large portion of the population could not afford a four-wheeled vehicle . “These are the people who are on the margins. They replace the two-wheelers… They take out loans to cover more than 80% of the cost of their car,” he said.

For Maruti Suzuki, which is the country’s largest automaker, the price of its entry-level Alto has increased by around 20%, while that of midsize sedans such as Celerio and Swift has increased by around 38%. . In contrast, prices for entry-level SUVs increased by 13.5% and mid-level SUVs by around 20%.

Ashim Sharma, senior partner and group leader at Nomura Research Institute, said that before COVID, income segments were moving a bit higher and so people were opting for bigger cars. However, there had been a lot of churn due to the pandemic. “COVID started in urban centers leading to job losses and wage cuts. So a large part of the population, who bought the entry-level cars and two-wheelers, fell because of it. Then when the virus spread to rural India, the same thing happened there,” Mr Sharma said.

He noted that the pandemic had also coincided with the implementation of new BS6 emission standards which made vehicles more expensive. “Car prices have also started to rise and this segment is very sensitive to price increases, so demand for entry-level vehicles has slowed. layers of society due to job losses along with wage cuts and cumulative rise in car prices are the reasons for lower entry-level car volumes.

Rohan Kanwar Gupta, Vice President and Area Head, Corporate Ratings, ICRA Ltd., noted that the generally accepted definition of the entry-level segment – both in the two-wheeler and passenger vehicle categories – had undergone a change in the last two or three years.

“One of the key criteria for identifying a vehicle as an entry segment is the selling price. However, due to the significant increase in vehicle prices over the past few years, the definitions had to evolve,” Gupta said.

For entry level two-wheelers, which are below 110cc, the ex-showroom price has fallen from under ₹50,000 in October 2018 to under ₹70,000 now, while for entry cars range, the price of the segment has increased. from around ₹2.8 lakh-₹3.5 lakh to ₹3.5 lakh-₹4.5 lakh.

Going forward, Crisil expects the share of more expensive cars to remain higher at 30% from 25% previously due to “resilient income from affluent buyers and traction for new models”, and the share more expensive two-wheelers remains above 40% of the market.

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