WHAT Ails SMALL CAR SALES?

Stagnant middle-class incomes and price hikes due to stricter regulations and inflation have hit the segment hard.

- KARAN DHAR

ENTRY-LEVEL CARS, which once sold like hot cakes, have seen a fall in demand over past five quarters as potential buyers no longer find them affordable. Domestic sales of cars in the mini segment—which Society of Indian Automobile Manufacturers classifies as entry-level hatchbacks up to 3.6 metres in length and one litre engine displacement—fell 40% from 2,52,409 units in FY23 to 1,52,262 in FY24; in fact, sales have halved since FY20 (see Falling Mini Car Sales). The biggest reason is price increases far exceeding salary hikes during and after the pandemic, say experts. The rise in prices due to regulations (such as mandatory airbags and stricter fuel emission norms) has been steep, says Partho Banerjee, senior executive officer, Marketing & Sales, Maruti Suzuki, adding the salaries have not kept pace. For example, the price of entry-level Maruti Suzuki Alto 800 went up from ₹2.94 lakh (ex-showroom) in 2019 to ₹3.54 lakh in 2023 before the Japanese carmaker discontinued production last year. Alto’s younger sibling, Alto K10, costs ₹3.99 lakh now, up from ₹3.4 lakh in 2019. The segment now has just three cars—Maruti Suzuki’s Alto K10 and S-Presso and Renault’s Kwid; Hyundai had exited before the pandemic.

Salaries have not risen much but cost of living and assets has gone up, says Neeti Sharma, CEO of staffing firm Teamlease Digital. “We had a large middle class able to afford a lot of assets. A large segment of the society is now unable to afford it (a car),” says Sharma. Average salaries of freshers in the IT sector, which employs a large chunk of graduates, have remained ₹3.5-4 lakh since the pandemic. In manufacturing, starting salaries have gone up but the base was so low that starting packages are still below ₹2.5 lakh. “Savings have come down. The number of people who are probably able to buy a four-wheeler is going down,” she says.