This segment includes the hypercompetitive entry-level SUV category, but consumer preferences are shifting towards larger body-style vehicles. "The task of carving out a substantial share has become an even greater challenge, prompting a potential slowdown in new model introductions," said Ravi Bhatia, president, Jato Dynamics.
In 2006, India implemented a policy that lowered excise duty on cars that were less than 4 meters in length, with petrol engines smaller than 1200cc and diesel engines smaller than 1500cc. This spurred the popularity of small cars, and an average of 72% of cars sold for almost a decade. Most of the leading manufacturers such as Maruti Suzuki, Hyundai, Tata Motors, Mahindra & Mahindra, Kia, Renault, Nissan and Toyota had a presence in this market, especially in the compact SUV segment.
According to India's largest car maker Maruti Suzuki, making entry-level SUVs affordable has played to consumer preferences. "Price overlaps with premium hatches and entry sedans have increased the consideration of entry SUVs," Shashank Srivastava, formerly senior executive director of Maruti Suzuki told ET in an earlier interaction.
"SUVs are winning over those who were previously drawn to hatchbacks and compact sedans. Their form factors work brilliantly in Indian conditions, and automobile manufacturers have adapted their lineups to meet the surging demand, offering reconfigured SUVs tailored for urban mobility," said a spokesperson for MG Motor. Hyundai and Tata Motors declined to comment.
Furthermore, new safety requirements for vehicles have increased the cost of entry-level hatchbacks. Generating high profits on these cars can be challenging, and the dominance of small cars is one reason why some OEMs have been forced to exit the market. Designing small cars presents unique challenges due to safety and fuel economy regulations, packaging limitations, and the need to keep prices low.
With urban incomes in India remaining resilient, there have been few speedbumps in the road towards upward mobility in car and body-type choices. Controlled inflation and easy financing options are aiding the premiumisation trend among new-age buyers, say industry experts.
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