Fat to flat: Carmakers run out of speed in urban mkts

Urban markets (metros and mini metros), which account for the bulk of the car sales, have started stagnating for leading manufacturers even as overall sales remain positive, supported by growing rural demand.

Market leader Maruti Suzuki and its nearest competitor, Hyundai, among others, are seeing a flat performance in urban markets, which account for over two-thirds of sales. In recent years, urban markets used to see a single high-digit growth rate.

“The company’s urban growth so far is flat and rural markets are showing high growth, in fact close to 13 per cent. We have had a third consecutive good monsoon this year and are seeing clear-cut buoyancy in rural markets,” said R S Kalsi, senior executive director (marketing and sales) at Maruti Suzuki, which sells every second car in the country.

According to Kalsi, metro markets are under pressure owing to issues like traffic congestion, shared mobility, and so on. Improved Metro connectivity in most metro cities is also seen as a factor behind this trend.

Maruti Suzuki sells about 148,000 cars on average every month and has seen a cumulative growth rate of 8 per cent in domestic sales this financial year. About one-third of Maruti’s sales come from rural markets, the highest for any carmaker in the country.

That, in a way, partly offsets the lack of growth in urban markets. In the case of most other manufacturers, rural would be around one-fifth or even smaller part of domestic sales.

The story is not any different for South Korean carmaker Hyundai. The company has not seen growth in urban volumes in the first 11 months of the 2018 calendar year vis-à-vis the corresponding period of 2017, while rural sales are growing at a consistent rate of 15 per cent. “Urban markets have been sluggish to a certain extent due to multiple macro and micro economic factors,” said a company spokesperson. The share of rural sales has doubled to approximately 18 per cent for Hyundai in the last four years.

“Nearly 70 per cent of India resides in rural areas, which presents an enormous demand base and huge market potential. The rising income levels and changes in lifestyle have increased confidence among consumers in rural areas and semi-urban markets. In the last few years, there has been a noticeable upward trend,” the Hyundai spokesperson added.

However, the worry is that rural markets, with their double-digit growth, cannot compensate for the lack of growth in urban areas. Moreover, the fallout of the non-banking financial sector crisis could slow financing in rural markets, where banks have a lower coverage. The share of urban sales for most other brands will be on the higher side, which implies a bigger impact of sluggish urban sales.

In Delhi, one of the biggest markets for cars, dealers of leading brands confirm that volumes are marginally low, compared to last year. “The trader and business community in the city has been affected due to the sealing drive, pressure on real estate prices, and so on. This segment is cautious on spending,” said a city-based dealer. “There are certain markets, particularly Mumbai and Gujarat, that get affected because of stock market movements. So there is a slight slowdown,” said Kalsi.

Today, consumers have an option to subscribe to a car for a few months to a couple of years from players like Zoomcar without owning it. The rise of radio cabs and aggregators, along with increased transactions and rides, has led to them emerging an alternative means of transport.

A study by Kantar Millward Brown (released in May) said 72 per cent of potential car buyers have delayed their decision to purchase a car due to this. It said 88 per cent of potential consumers say using a cab aggregator is cheaper than car, besides being more convenient.

With clogged roads and difficulty in finding parking spaces, the consumer is seeking convenience over pleasure of driving, it noted.