Things are changing on the auto turf. While a lot has been talked about the changing preferences of car buyers who seem to be drawn in big numbers to SUVs, the micro and mini car segment, once the growth driver for Indian automakers, is sliding into a slow lane.

The segment dominated by first-time car buyers – which gave India the moniker “small car market” and the one that was largely instrumental in making Maruti Suzuki what it is today – is set to see a significant growth deceleration in the coming years. According to LMC Automotive, the mini and micro car segment is expected to grow at a meagre 2% CAGR over the next seven years (2018-2025).

The micro and mini segment presently accounts for about 1/4th of the sales of all passenger vehicles in the country compared to the share of compacts at about 1/2 of the total volumes. With this deceleration in growth, its share is likely to shrink further as compacts grew at 10.5% in the first 11 months of the just-concluded fiscal but the micro-mini segment recorded a decline of over 2%.

There are three major factors that have led to a gear shift in the growth of this segment. First, higher sticker prices on the back of rising manufacturing costs, driven in part by upgrades to meet the upcoming stringent emission norms, is making micros and minis less attractive to the middle-income buyers. Second, “entry-level buyers with higher and rising income levels are skipping this segment in favour of more stylish, feature-rich and affordable sub-compact cars,” says Ammar Master, senior manager, LMC Automotive. And the last but not the least is the “government policy changes are dictating and influencing consumer preferences towards more fuel-efficient, cleaner and safer vehicles,” adds Ammar.

“In the next seven years, we expect the passenger vehicle segment to begin from the likes of Maruti Swift. While the micro segment may become obsolete much earlier, if Maruti does not get the 800 Euro-6 compliant, it is going to be tough for that (mini) segment,” said VG Ramakrishnan, founder -partner and MD, Avanteum Advisors.

“Not many new buyers are investing in the entry-level segment cars while the mid-size car segment is getting replaced by compact SUVs as they are priced competitively and available. Today, instead of buying a Honda City, buyers are preferring to buy a compact SUV as entry-level sedans and luxury sedans do not have significant difference in terms of features,” says Ramakrishnan. In the last three years, more than 15 new SUV models have been launched and more are set to follow in the near future.

The micro-mini segment includes the likes of Hyundai’s Santro, Maruti’s Alto and Tata’s Nano, as per the Society of Indian Automobile Manufacturers (SIAM) industry segregation. As per the recent SIAM report, dated March 12, 2018, the micro and mini car segment together saw total domestic sales of 5,23,525 units for April-Feb 2017-18 compared to 5,36,472 units for April-Feb 2016-17, a decline of 2.4%. The total exports of the segment were 30,673 units in April-Feb 2017-18 compared with 43,199 units in April-Feb 2016-17, a drop of 29%.

While Tata Motors has reportedly said that it will continue production of Nano for “some more time”, other manufacturers like Maruti Suzuki (Alto, Wagon R and A-Star), Hyundai Motor (Santro, Eon) and Renault India (Kwid) are already feeling the heat and are planning facelifts.

By Shweta Bhanot Mehrotra