New Delhi: In a record year for car sales, only four companies – Hyundai, Tata Motors, Mahindra & Mahindra and Toyota – hit new highs, amid weak demand at the lower end of the market. Market leader Maruti Suzuki got to 1.71 million units, but that was still short of its pre-Covid record of 1.73 million units registered in 2018.
Honda reported sales of 84,289 units last year, significantly lower than its peak volume of 202,403 units in 2015. Volkswagen sold 43,481 units, short of its high of 66,783 units in 2012. Renault-Nissan too was a long distance away from its previous sales record in 2016. Overall, 4.1 million vehicles were sold in the local market in 2023, up 8.2% from the year before. The five-year compounded annual growth rate up to 2023 was 4.2%. Vehicle penetration in India – 31-32 per 1,000 persons – is among the lowest in major car markets.
Prices have shot up 25-30% in the last three-four years, outpacing growth in the income levels of consumers at the lower end of the market, said Shashank Srivastava, senior executive officer, marketing and sales, Maruti Suzuki.
That’s impacted affordability and thus sales of small cars, once the mainstay of the market. Critically, the market profile has been shifting with younger buyers moving toward sports utility vehicles (SUVs) – or cars that look like them – as aspirations change. Small, entry-level cars are not popular with such buyers.
“The share of hatchbacks declined to 30% last year, from 47.4% five years back,” said Srivastava. “Every percentage decline in the share of hatchbacks impacts us by 0.7 basis point. It is true we have been gaining share in SUVs, but most of these models have come in only recently.”
Maruti Suzuki, with a share of 68% in the small-car segment, has completely revamped its range with a clear SUV focus. The originator of the small-car revolution in India launched the Grand Vitara, Fronx and Jimny as well as a facelifted Brezza – all classed as SUVs – in the past 18 months to double its share in the fast-growing category to 20% by the close of 2023.
The company sold 836,000 hatchbacks last year, down from 987,000 units in 2018. SUV sales totalled 395,000 units in 2023, up from about 202,000 units in 2018.
However, Srivastava is optimistic that as affordability improves, first-time buyers will come back to small cars at the entry level, though the preference for body styles may change, resembling small SUVs rather than hatchbacks.
“India is a growing economy – the demand for transportation will only increase,” he said. “The cross consideration between traditional hatchbacks and micro SUVs is likely to get higher, but demand for cars at the entry level will continue to be there because of low vehicle penetration and our demographics.”
As much as 65% of the country’s population is aged less than 35 years, a demographic that will fuel consumption across industries in the coming years, according to economists. The International Monetary Fund (IMF) has projected India will become a USD 5 trillion economy with the third highest GDP by FY2028.
Hyundai Motor India (HMIL) has seen a “phenomenal” increase in aspiration levels among buyers in India, which will drive growth in the industry, said Tarun Garg, chief operating officer (COO).
“In even a micro SUV like Exter, we have seen 77% of the demand come in from variants with sunroofs,” he said. “Vehicle prices have increased. But the average age of our buyers has come down by five years in the last five years. Consumers today want everything – connected features, advanced tech, safety – and are willing to pay more for them.”
Demographics will play “the most important role” in driving growth in the country, he said.
Hyundai increased car sales by 9% to a record 602,111 units in the local market in 2023, bettering the previous year’s peak of 552,511 units.
2023 was the third straight year of record sales for Tata Motors, which boasts the widest range of electric vehicles in its portfolio.
Sales last year totalled 553,000, “led by its commanding position in the compact SUV segment and strong growth in hatches, despite the hatch segment degrowing at an industry level”, said Shailesh Chandra, managing director, Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility. “Going forward, with multiple new products, including a new nameplate scheduled for launch in CY2024, we remain optimistic about continuing the growth trend in the quarters ahead.”
