Entry-level hatchbacks losing market share; expect to see even fewer models

No all-new product under development in this space by any carmaker.

By:Updated: Jul 04, 2021 6:10 AM

 

Entry-level hatchbacks —cars shorter than 3,600 mm in length and engine smaller than 1.0-litre — continue to lose traction amongst customers because of which manufacturers have also slowed down on new models and variants. In FY19, hatchbacks formed 13.6% of passenger vehicle (PV) sales, and had five popular models — Maruti Suzuki Alto, old Wagon R, Hyundai Eon, Renault Kwid and Tata Nano. In FY20, their share dropped to 10.6%, with Tatas discontinuing the Nano and Hyundai the Eon, and Maruti Suzuki discontinuing the old Wagon R, but launching the S-Presso. In FY21, the share further dropped to 9.8%, with just three models (Alto, S-Presso and Kwid), and marginally increased to 9.9% in the first five months of CY2021.

Analysts maintain that the drop in share was expected, with first-time car buyers choosing either a sub-4 metre sedan or a sub-4 metre utility vehicle (UV), and even cars above Rs 10 lakh. In FY21, the share of sub-4 metre UVs increased to 20%, from 15.6% in FY20; even the share of midsize, expensive UVs (`10-20 lakh price range) increased from 10.1% in FY20 to 11.8% in FY21. “Cars are aspirational products,” said an analyst who did not wish to be quoted. “Look at what happened with the Nano. A car is much more a vehicle that takes you from point A to B.”

Saket Mehra, automotive leader and partner, Grant Thornton Bharat, told FE that even as the mini-segment (entry-level hatchbacks) declined in FY21, the premium segment grew. “Within UVs, models priced up to Rs 20 lakh saw robust growth — those of Kia grew 9%, Maruti Suzuki (10%), Hyundai (17%), MG Motor (36%) and Tata Motors (48%). As an aggregate, UVs posted strong sales (12.13%) and production figures (4.04%) as compared to the previous fiscal,” he said. Easy financing options available in the market have helped car buyers proactively consider pricey cars — the EMI difference between a sub-4 metre UV and an entry-level hatchback works out to be just about Rs 3,000, said a banking expert.

“With better in-car features offered and ease of financing alternatives, car buyers are upgrading to midsize sedans, compact SUVs or premium hatchbacks. For first-time buyers, capable alternatives to entry-level hatchbacks are also found in the used-car market,” said Mehra. Som Kapoor, partner, automotive sector, EY India, added that initially hatchbacks were the first car for most Indian buyers, followed by entry-level sedans, and now compact SUVs are taking that place. “In urban markets in particular, the average car-buying age is coming down, and younger buyers, in general, prefer good driving dynamics, customisation and a lot of technology features on the dashboard (some of which may not be available in entry-level hatchbacks), over traditional features such as fuel efficiency,” Kapoor said.

The Covid-19 second wave is also expected to hit sales of entry-level hatchbacks, with buyers either shifting to the used-car market or delaying purchases. Preetam Mohan Singh, senior vice-president, automotive, Praxis Global Alliance, said due to the second wave, the entry-level segment has seen an adverse impact in the last quarter. “We forecast further decline in new car sales, especially in entry-level segment, due to the fear of an impending third wave in Q3FY21,” he said. With no all-new product under development in this space by any carmaker, expect to see even fewer entry-level hatchbacks on the roads. Gaurav Vangaal, associate director, IHS Markit, said while Maruti Suzuki is expected to launch the all-new Alto early next year, no other carmaker will enter this space. “Margins are low in this space, and you need to sell in high volumes to even recover investment costs. I doubt any carmaker will develop an all-new entry-level hatchback in the near future,” he said.

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