The small car market, which is the 'bread and butter' for Maruti Suzuki India, is shrinking and the 'butter' from the segment has gone away with only bread left now, chairman of the country's largest carmaker RC Bhargava said on Friday.
With the rising cost of vehicles due to various factors, including new regulations, high taxes and rise in commodity prices making entry level cars more expensive, Bhargava said a set of customers at a certain end of the market is getting squeezed out because of higher costs.
This, he said, is making the company "adjust to the market conditions and do what we can, to the best of our abilities in the circumstances which exist." Addressing a virtual earnings call conference, Bhargava said over the last three years the market at the lower end, for people who either use two-wheeler or use entry level hatchbacks for commuting, has been shrinking significantly.
Terming the trend as "worrying" he pointed out that in 2021-22, the hatchback segment clocked the sales of 11.5 lakh units as compared to 15.5 lakh units sold in 2018-19, down by over 25 per cent. "What has happened is that the small cars used to be the bread and butter (but) I am afraid, the butter has gone away, now it's only bread. There's no butter left in the small car market anymore," Bhargava said.
There seems no likelihood of this part of the market reversing substantially in the near future, he added. When asked about the company's plans to overcome the challenge, he said, "We have to take note of what the customer wants and what the market is doing. As you are aware, we are launching vehicles in other segments and the bigger segments, also including the SUVs."
With the company's market share going down to 43.4 per cent in FY22 as a result of decline in small car sales, Bhargava, however, asserted that Maruti Suzuki "will again strive to get out 50 per cent market share, but we will have to change some things in our product strategy and we are doing that and will continue to do that."
Explaining the reasons behind the shrinking of the small car market, Bhargava said, "I think that there is no doubt that because of regulatory changes, taxes by state governments, increase in prices of commodities, the prices on the lower end of the market have increased."
A lot of consumers in this segment are now unable to afford personal transportation, he added. On being asked if the decline in small car sales was not a case of customers upgrading and opting for bigger vehicles as seen in the increase in the number of SUV sales, he replied in the negative.
"Only the SUV segment has gone up but other segments have not gone up… but the (sales of) sedans have gone down. It is not as if there are more customers in the market. The people with money are able to buy cars because they can pay the higher prices. The people with limited incomes are not able to buy even a two-wheeler that's the reality today," he asserted. In fact, he added, the overall passenger vehicle sales in 2021-22 in the domestic market were still lower than what they were in 2018-19 "because the hatchback segment has declined" although the sales of SUVs have gone up.
Stating that policymakers and others need to take note of what is happening at the lower end of the market, Bhargava said there is a question on whether people with low income would be able to get personal transportation or would they have to give it up "and personal transport should now move up only to the people in the 'have' category." "So these are issues that needs to be debated," he added.
On the steps needed to reverse the decline in the small car segment, he said it would depend on whether state governments recognise the importance of this segment or not, and make adjustments to their tax policies for small cars and also on the Centre doing the same thing in regard to this matter. "It depends on how the commodity prices moves, which can lead to a reduction in the cost of small cars. It also depends on Maruti Suzuki, as how well we are able to make changes and improvements which will lead to a reduction in the cost of production of small cars to some extent. All of us have to work together if this segment is to grow," he said, adding it requires concerted action by all.
On electric vehicles, Bhargava said the segment is still nascent and when Maruti Suzuki enters it by 2025 it is "coming in probably at the right time for this product, by which the technologies will be a little bit more assured and reliable and some of the problems that EVs are having at present hopefully will disappear by then." When asked if the company's EV would be priced below Rs 10 lakh, he declined to give a straight answer but added "I do not think you are going to get EVs coming in under Rs 10 lakhs in a hurry."
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