Note ban, low spend power shrinking mini-car market

Had it not been for Renault Kwid the mini segment would have been in red

India’s entry level car segment, popularly called mini, has continued to shrink for over a year, signalling declining spending power as first-time car buyers continue to defer purchases.

Had it not been for the Renault Kwid, which lends its design from the sports utility vehicles, the mini segment would have been in red. SUVs have seen peaking demands for the past three years, despite slowing car sales.

India’s largest carmaker Maruti Suzuki, which sells one out of every two cars, registered a 3% drop in the sales of mini cars, such as Alto and WagonR, during the April to January period, over last year. In the month of February it shrunk by 6.8%.

“The mini car segment continues to struggle. First-time car buyers are not purchasing… As the market was turning around, demonetisation hit, and things changed,” said Vinay Pant, deputy general manager, market research and product planning, Maruti Suzuki.

Prime Minister Narendra Modi announced demonetisation on November 8, which weeded out 86% of the country’s currency in circulation, creating the biggest cash crunch in the world.

It’s not only Maruti that has been affected. Hyundai Motor India, makers of Eon, witnessed its sales volume drop in mini cars by 16% in the April to January period. Sales of Tata Nano, the car that was meant for buyers who would graduate from twowheelers to cars, shrunk by 43%.

Kwid, whose sales crossed 10,000 units per month in August and September, was down to

› The mini car segment continues to struggle. Firsttime car buyers are not purchasing… As the market was turning around, demonetisation changed things VINAY PANT of Maruti Suzuki

6,924 units in February.

Lower spending power is also forcing new car buyers to settle down with a used car, which according to experts are about 50% to 60% cheaper.

“The availability of used cars has increased, as existing car owners are changing their vehicles quicker. And with e-commmerce platforms like Olx and Droom, the trust in purchasing used cars have increased,” said Abdul Majeed, partner at PwC.

Throw in the growth of cabhailing apps like Ola and its American rival Uber, in order to save on instalments, fewer families are buying two cars —the second one was usually from the mini-segment in an average household, Majeed explains.

In a discussion with HT earlier, Rakesh Srivastava, head of sales and marketing at Hyundai, said that for the longest time the company focused on the ₹2.5 lakh to ₹7 lakh cars, which made for over 90% of its sales.

“The ₹10 lakh plus segment makes for over 20% of our sales now,” he said. The flipside is that the towns and cities are seeing an increasing number of bigger cars, both new and used.

Maruti’s Pant believes that the situation will not ease out soon. “It will take a few quarters before the mini car segment bounces back,” he said.