Subdued demand in rural markets, higher aspiration of first-time buyers in urban areas and lack of new products in the segment have pulled down the volumes of the entry level compact cars like Alto, Wagon R and Eon.
The country’s largest carmaker Maruti Suzuki saw volumes of Alto and Wagon R fall 28% y-o-y to 34,336 units in June. The compact car segment constitutes 33% of the total volumes of the company.
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. Tata Motors’ Nano, too, saw a sharp slump in volumes in the last fiscal.
Analysts say that aspiration of the first-time buyers and availability of superior products at affordable prices have played a major role in pulling down the volumes of the entry level cars. For instance, the Alto K10 is available at R3.82 lakh, while the bigger and packed with more features Swift is available at R4.5 lakh and Hyundai i10 (hatchback) for R4.4 lakh.
With the rise in disposable income, customers are more inclined towards hatchback cars which are spacious, packed with more features and come at affordable price.
Abdul Majeed, Partner, PricewaterhouseCoopers, said about 30-40% of total passenger car volumes come from rural markets and decreasing volumes of compact cars indicate a shift in customers’ preference in the urban centres as superior car models are available at affordable prices.
“I do not expect much growth in this segment in the current year unless some new products are launched by the manufacturers. Festive season may contribute to growth. Entry level will come under pressure as the economy improves and customers look to upgrade their cars,” said Majeed.
A significant part of the market for compact cars is in the rural areas, including small towns and tier 3 cities besides villages. Poor rise in disposable income in these parts has kept the customers at bay.
Rakesh Srivastava, senior vice-president (sales & marketing) at Hyundai Motor India, said whenever there is a slowdown, the compact car segment gets adversely affected because the potential buyers are two wheeler owners who postpone purchases.
“The compact segment has seen very limited growth. Its contribution is 48% in terms of volumes, but has grown only 4%. Real growth is happening in the sedan segment. The companies which have high resale value for the products tend to grow in such circumstances,” said Srivastava.
Despite the challenging environment, there are people who think that the entry segment will see growth once the rate on car loans come down with a good monsoon.