Post-pandemic bias: Upscale car sales up, but lower price segment still down

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As supply chain issues have impacted automakers across the board, the divide between entry-level cars with lower sticker prices and premium segments has widened sharply. widened after the pandemic, confirming the high inequality that marked the recovery process.

Data from the country’s three largest passenger vehicle makers, Maruti Suzuki, Hyundai Motors and Tata Motors – these account for more than 70% of all car sales in fiscal year 2021 – show they have all makes a decisive change.

For market leader Maruti Suzuki, cars costing Rs 10 lakh and above (the premium segment), as a percentage of its total model portfolio, grew from just 2.5% in FY 2020 to 14 % during the current financial year. For Hyundai, this jump is 20% to 40%; and for Tata Motors, it’s 20-28%.

Figures from the industry lobby group Society of Indian Automobile Manufacturers (SIAM) for the first half of this fiscal year show sales growth being driven by sport utility vehicles (SUVs), which make up a large chunk of passenger vehicles. tourism costing more than Rs 10 lakh and above. While sales of passenger cars, including entry-level sedans, in the first half of this fiscal year over the same period in 2018-19 fell 24.7% to 880,000 cars, sales of commercial vehicles over the same period increased by 111.6% to 982,000.

The sale of premium cars is expected to help automakers post record numbers for this fiscal year – the last record year for automakers was 2018-19.

On the other hand, entry-level cars, motorcycles and mopeds are still struggling to recover.

Data from SIAM shows that the mini car and compact car segments, during the second quarter of this fiscal year, recorded growth of 44% and 9% respectively, lower than the record year of 2018-19.

While mopeds are down 51% from the 2018-19 peak, motorcycles (110cc engine up) are down 35%. This underscores the continued distress in the lower end of the automotive segment, which is having a cascading impact on the entry-level car market, as a large portion of consumers moving to this segment are those moving away from two-wheelers. .

Explain

Two tracks in recovery

Low-cost cars are usually bought by new users or by those who are switching from one two-wheeler to another. This is the segment whose revenues have been hardest hit by the pandemic. Automakers have reinforced this by cutting options at the lower end and pushing models over Rs 10 lakh across the board.

Estimates from CRISIL Research confirm this trend: in FY22, cars priced above Rs 10 lakh sold five times faster than those priced with stickers below Rs 10 lakh, and recorded growth of around 38% year-over-year, compared to growth of around 7% for the last one.

As a result, the premium car market share increased by 5 percentage points to around 30% last fiscal year from around 25% in fiscal 2021. This 30% market share is the level the highest for premium cars recorded in the last seven years.

Several analysts The Indian Express spoke to said the figure is likely to be higher this year.

Behind this lies a series of factors: a difference in the income levels of target consumers after the pandemic; a sharper rise in the prices of low-end cars; fewer options in the entry-level segment as some manufacturers exit; and an increase in new launches in the more expensive segments.

Typically, low cost cars are purchased by new users or those replacing used cars. And with the pandemic significantly impacting the income prospects of entry-level car buyers, purchases and upgrades have been pushed back.

CRISIL Research estimates that “the cost of employees (salaries) of large and medium-sized companies – an indicator of income sentiment among affluent buyers of higher priced cars – has increased far more than those of small and medium-sized companies which generally represent a greater proportion of cheaper car buyers”.

Added to this is the 15-20% increase in the list price of low-end cars over the past four years due to multiple regulatory and compliance requirements – increased safety regulations that mandate ABS, airbags front-row and crash test standards, as well as moving to BS-VI emission standards.

Sales of top-selling low-cost vehicles such as Maruti Suzuki’s Alto, Swift, Celerio and Dzire; and Hyundai’s i10 and i20 (which cumulatively accounted for about 56% of low-cost cars sold in fiscal year 2019), have been down for three fiscal years now. As a result, there were only about 39 low-cost car models available in FY22, compared to about 54 in FY2016.

However, SIAM hopes for a recovery of the rural market with good monsoons. “The entry-level segment has been impacted due to various reasons like inflation etc. The rural market is also affected. Hopefully the rural market will perform better with good monsoons,” said Vinod Aggarwal, President of SIAM and CEO of VE Commercial Vehicles.

Data from the Mumbai-based Center for Monitoring Indian Economy indicates that between 2019 and 2022, agriculture created 11 million new jobs while the rest of the economy shed 15 million jobs. Rural wages, especially non-farm wages, have fallen sharply during the pandemic and have yet to recover.

Auto industry insiders say the rural market continues to struggle with few signs of recovery. “The rural market is stressed and, consequently, the decline in sales of entry-level cars. At present, the urban market – where people buy their second and third car – holds the market. It is unclear whether the rural market will recover as demand in the urban market drops,” an auto industry insider said.

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