Demand for entry-level cars falls 56% in H1 owing to financial woes
The sales of entry-level cars have crashed by more than 56% in the first five months of this fiscal.
The share of entry-level cars — or, mini cars not more than 3,600 mm in length and having up to one-litre engine — in the overall car market has shrunk to just 8% so far this year, down from 25% in 2011-12 as a double-digit rise in acquisition price, growing agrarian stress and slowing economic growth are making many potential buyers defer their purchase.
Sashank Srivastava, executive director for sales and marketing at Maruti Suzuki, said the entry car buyer is extremely price sensitive and in the times of downturn, it is these buyers who withdraw from the market. “The prices of entry cars have gone up by 14-24% depending on the states in the last two years, which is a very steep hike,” he said. “Plus, rural is a strong contributor to the segment; unlike last year, the sentiment in the rural is very poor at this point in time, which has affected the segment.”
To be sure, the entry-level motorcycle segment, too, has witnessed a double-digit decline in sales in the April to August period.
The sales of entry-level cars have dropped in absolute numbers, too, in recent years even as the car market hit new highs. Sales of entry-level cars stood at around 335,000 — or, 10% of overall car sales of 3.34 million — in the last fiscal, down from about 485,000 in FY12 when the overall car sales stood at 2 million, according to data from industry body SIAM.
And players such as Tata Motors and Hyundai have exited the market by pulling out Nano and Eon, respectively. Maruti Suzuki Alto and Renault-Nissan’s Kwid and Redigo are the only participants left in the space.
Venkatram Mammillapalle, MD of Renault India, said buyers at the bottom of the pyramid have a saving mentality and in times of downturn, they withdraw from the market.
Lack of options and excitement, too, has had an impact on the entry segment, even as better finance options have enabled prospective buyers to skip the segment and move directly to premium hatchbacks, experts said.
“More the challengers, more the volume growth,” said Arun Malhotra, former managing director of Nissan Motor Corporation (India).
VG Ramakrishnan, MD at consultancy firm Avanteum Advisors, said the rural markets, which threw up substantial small car volumes till recently, is slowing down.