In FY18, India’s largest carmaker Maruti Suzuki sold 427,183 units of its entry-level car models (Alto and S-Presso). Since then, sales of these two models have been dropping by the year—368,990 units in FY19, 247,776 units in FY20, 226,159 units in FY21 and 211,762 units in FY22—even as the overall passenger vehicle (PV) market has remained a couple of hundred thousand units above or below the 3-million-unit mark.
In terms of percentage, these two models contributed to 13% share in overall PV sales in FY18, which reduced to 10.9% in FY19, 8.9% in FY20, 8.3% in FY21, and just 6.9% in FY22, according to data from the Society of Indian Automobile Manufacturers.
According to the H1FY23 sales numbers released last week, the percentage share of these two models has further reduced to 6.2% (121,056 units of Alto and S-Presso sold in a market of 1,936,740 PVs).
No competition left
Automotive analysts told FE that despite the falling sales share of entry-level hatchback cars, staying in this segment is a huge advantage for Maruti Suzuki.
“The carmaker has already invested a lot of money into the hatchback segment, and therefore developing newer variants or facelift models of the existing entry-level hatchback cars isn’t very expensive,” said one analyst.
The biggest advantage, however, is that Maruti Suzuki has very little competition left in this segment. In September, the carmaker strengthened its position by launching the all-new Alto K10. Shashank Srivastava, senior executive director, Marketing & Sales, Maruti Suzuki India Ltd, told FE that the carmaker enjoys over 90% market share in the entry-level hatchback car segment.
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The only other model that has remained in this segment is Renault Kwid.
In FY20, Hyundai India had discontinued its entry-level small car, the Eon, and the same year Tata Motors pulled the plug on the Nano. Earlier this year, Datsun (which sold three entry-level hatchback cars) got wound up.
“This has left the field open for Maruti Suzuki,” said Gaurav Vangaal, associate director, Light Vehicle Forecasting, S&P Global Mobility. “Historically, except for the first-generation Santro, no entry-level hatchback car has been able to successfully compete against similar cars by Maruti Suzuki. In fact, over the last decade, other carmakers have changed their strategy and nobody wants to challenge Maruti Suzuki head-on in the entry-level hatchback segment.”
It implies that in the future as well no other carmaker will enter this segment, leaving the field wide open for Maruti Suzuki.
Negotiating power with suppliers
Staying in this segment has another advantage—it gives Maruti Suzuki a better negotiating power with its suppliers.
“Maruti Suzuki gets a lot of parts from suppliers for the hundreds of thousands of entry-level hatchback cars it still sells every year. That gives the carmaker better negotiating power with those very suppliers when it comes to sourcing parts for its more expensive models,” said an automotive analyst who didn’t wish to be named. “That means Maruti Suzuki can source some parts for its expensive cars at very competitive prices, making those very cars more competitive in the market.”
Small cars drive rural India
Most analysts, however, argued that despite the dropping sales share of entry-level hatchback cars, these cars serve a very important function, i.e. keeping rural India on the move. “If you go to the smallest of towns and villages, especially in mountainous regions, you would see that only the smallest of the cars such as the Alto can be driven with ease across the tiniest of streets,” said an analyst. “These cars are made for rural India infrastructure, and till the time that infrastructure remains—which can be decades—these cars will remain.”
(Entry-level hatchback cars are models such as the Alto, S-Presso and Kwid. Above this segment are models such as the Wagon R, Celerio, Tiago and Swift. Then there are premium hatchbacks like the Baleno, i20 and Altroz.)
—No carmaker wants to challenge Maruti Suzuki head-on in the entry-level hatchback segment
—Entry-level hatchback cars serve a very important function, i.e. keeping rural India on the move
—These cars give Maruti Suzuki better negotiating power with suppliers when it comes to sourcing parts for its more expensive models
