Even though Maruti Suzuki, the country's largest car maker, has maintained a double-digit growth in the overall passenger vehicle market in first eight months in the current financial year, it has clearly not seen similar performance for its entry level segment. Maruti sells the WagonR and Alto in the mini-segment, which now comprises 34% of its total domestic sales compared to a 36% share in the same period last year.
The segment has witnessed a contraction in volumes in two months in the current financial year, the latest being a 4.7% fall in November. Company sources attribute the decline in November to inventory management as buyers in the segment do not prefer to buy the cars at year end. Accordingly, the wholesale volumes for Maruti in the segment could continue to remain muted in December as well, sources said.
Moreover, with an addition of Renault Kwid to the segment, the competition will get tougher for the existing dominant players Maruti and Hyundai, at least in the urban markets. For instance, in November, the segment did not witness a fall in volumes despite Maruti volumes declining. The saviour for the segment came from Kwid, which saw a volume of 5,000 units in its first full month of sales. The sales for the segment excluding Kwid would have been in line with Maruti's performance, as Maruti holds 85% market share in the segment.
For the April-November period of the current financial year, while the segment has seen a minor fall in volumes, Maruti has recorded a growth of 5.1%. Hyundai, which sells its Eon in the segment, has witnessed a steep fall of 36% in the April-November period and has been able to sell 45,206 units against 71,000 units sold last year. Hyundai also had Santro in the segment last year, which was discontinued in India in December last year.
In FY15, the volumes of Alto and Wagon R rose a meagre 2.40% and 3.12% to 264,492 and 161,250 units, respectively. Hyundai, the second largest manufacturer saw the volume of entry level car Eon fall 9.41% to 78,334 units in the last financial year.
Analysts, however, feel that the decline in the segment is also due to change in pattern of buying for urban buyers as well as a significant slump in the rural demand. According to analysts, over 40% of Maruti's entry-level products – Alto and WagonR—are sold in rural areas.
“The major factors impacting the segment remain rural demand, new launches as well as the fact that the distinction between the small cars and compact segment is getting diluted. Aspirational customers are preferring to spend some more and buy a compact hatch instead of an entry level car,” Abdul Majeed, partner at Price Waterhouse said.
Moreover, OEMs are being careful that if the supply of newly launched products does not keep pace with the demand, they might lose customers, he said. “So it is a practice to increase production of new launches to meet demand while reducing output of older models to some extent, even if it is for established brands.”
Maruti's Swift, which continues to be among the top selling models in the country for many years in a row, saw a steep fall in domestic sales in November. According to industry estimates, Swift sales in November fell to 11,500 units compared to 17,600 in October. Company officials maintained that the fall has been due to increased focus on the newly launched Baleno, which shares the assembly line with the Swift. However, the fall in volumes put Swift behind Hyundai's Grand i10 for the first time since the launch of the latter in September 2013.