Sales of sub-Rs 10 lakh cars are contracting due to affordability issues, says Maruti Suzuki chairman R C Bhargava

Maruti Suzuki Chairman R.C. Bhargava expects the PV market to grow in the range of 3 to 4 percent that will be in line with the industry growth

Maruti Suzuki India Ltd chairman R.C. Bhargava has expressed concern over the decline in sales of models in the sub-Rs 10 lakh car market stating that stagnant income levels, volatile fuel prices and surging price points of entry-level models have led to a dip in volumes of compact cars such as Alto, S-Presso, WagonR etc.

“The market under (Rs) 10 lakh cars is not growing. In fact, it is declining and that is a cause for some worry, Bhargava said, during the post Q2 FY25 earnings conference. India’s largest carmaker posted a 17 percent drop in profit amid falling sales in the second quarter.

"Unless the lower end of the market grows, there are going to be no feeders into the upper market," Bhargava said.

As per data provided by SIAM, the sales of minicars in the domestic market declined by 15.5 percent to 66,000 units during April-September 2024 period from 78,170 units in the same period last year. This segment, which also includes Renault Kwid, contributed just 3 percent of the total 20,81,143 units of Passenger Vehicles (PVs) sold during the first six months of this financial year.

Bhargava noted that in FY 2018-19, nearly half of the total PVs sold were below Rs 10 lakh. “That market is not growing at the point that is a cause of worry (and) not the overall slowdown. It’s the segmentation which has happened. The fact that growth is taking place only in the more expensive cars, I think that doesn't make me very happy.”

In 2018-19, the PV wholesales in India stood at 33,77,436 units, as per SIAM data.

Affordability playing spoilsport

Bhargava cited affordability as the single biggest reason for the de-growth in this category. "People need to have more disposable income," he noted. He added that this concentration of growth at the higher end of the market does not inspire confidence.

On whether some incentives from the government are needed to boost sales in the segment, he said, "I don't know what is required, but we need people to have more disposable income."

When queried if the customers have any hesitation in buying premium cars, he said that Maruti Suzuki still commands over 42 percent of the total PV retails.

“Jimny (lifestyle SUV) was never supposed to be a mass volume car and Invicto is (positioned in) the upper premium (MUV) are two very extreme examples and don't signify Maruti. We have a lot more other models, and that is why we are constantly maintaining around the 42-43 percent retail market share,” reasoned Bhargava.

Bhargava said discount on cars is a function of demand and inventory with dealers, and the pressure to offer discounts eases once the stock with dealerships reduces to a more reasonable level. "In the coming months, I do not think our discount levels will be higher than what we have been doing so far, because we have aligned our production with market requirements," Bhargava said.

Temporary blip or recessionary headwinds?

When quizzed about the slowdown in the domestic PV market, Bhargava maintained that it’s a temporary phase and there will be a sales upsurge in the future.

“We don't get worried because we also recognise that slowdown and upswings in the market are part of business.  Often with car sales, nowhere in the world has the market remained constant, at a certain growth rate of a certain level of sales, it always fluctuates. I would be worried if I had expected the market to always remain steady. We have also had bad periods in the past and have the strength to ride over both good and bad times.”

Commenting on the festive sales, Bhargava said these have been "pretty good". "Our retail sales compared to the same period starting from the end of the 'Shraadh' period till the end of Diwali, we are expecting that we will have roughly a 14 percent growth in retail sales," he said. As a result of that, the inventory levels of the dealers will come down to around 30 days by the end of this month, he said.

"The new inquiries and the bookings have also been better than last year, not by very much, but better than last year. Therefore, we look forward to a reasonable quarter where we should continue with our growth, but that growth is not going to be very much different," Bhargava said, adding, "New bookings crossed over 4.15 lakh units at the moment. So, the order book is quite healthy."

Bhargava noted that the PV industry is not very optimistic that there's going to be a great surge in demand and the overall sales for this year are expected to grow in the range of 3 to 4 percent, and Maruti Suzuki's growth forecast will be in line with this.