India’s record car sales in FY24 saw SUVs surging and small cars struggling. Maruti Suzuki maintained its No. 1 position in the passenger vehicle market by shifting focus to SUVs from the entry level.
Bhargava also said that a focus on just electric vehicles will not help reduce carbon emissions if a car is being charged using power generated from coal. In a country as large as India, multiple technologies such as biofuel, ethanol and CNG are required to lower emissions, he said. Maruti Suzuki doesn’t make EVs; it sells hybrids and CNG-fuelled vehicles.
Small-car sales fell 12% in FY24 when the passenger vehicle industry grew 8.7%, led by robust demand for SUVs. The share of small cars in overall vehicle sales stood at 27.7%, down from 34.4% in FY23 and 47.4% in FY18. Maruti Suzuki leads in small cars.
“Vehicle prices at the entry level went up much faster than income levels of buyers the last few years, which impacted demand,” Bhargava said. “Maybe by 2026, the impact of these high prices will be absorbed by the increase in the purchasing power of people in that category. The slide will get arrested.”
Bhargava said two-wheeler buyers have now started coming back into the market and they will graduate to small cars eventually.“What is the aspiration of the two-wheeler buyer? He wants to buy a car. He’s not delaying buying a small car because he wants to buy an SUV straightaway. He does not have the money (to buy a car),” Bhargava said.Increases in input costs, insurance charges, road taxes, and the transition to higher emission and safety norms, among others, led to a spike in prices in the price-sensitive, small-car and two-wheeler segments, hitting demand. While small-car sales declined 27% to 1.15 million units in FY22 from a peak of 1.58 million in FY18, two-wheeler sales crashed 36% to 13.57 million units in FY22 from a record 21.18 million in FY19.
“If you study these trends in the two-wheeler market, you will see (the correlation between) price and the affordability factor,” Bhargava said.
While official numbers are yet to be released by the Society of Indian Automobile Manufacturers (SIAM), industry estimates show
two-wheeler sales grew in double digits in FY24, finally crossing pre-Covid levels, buoyed by sustained revival in demand in both urban and rural markets.
The recovery in consumer demand at the entry level is expected to support sustained industry growth.
“The last two years have been very good in comparison to the previous years, which were very bad years,” Bhargava said. “When you suddenly drop to a low base, then you have nowhere else to go but to go up. And that’s what’s happened in the last few years. If you consider the sales we would have had if we had steady growth since FY19, we are well short of that.”
The industry finally managed to cross the 4 million mark in FY24, he added.
With India’s economy booming, the industry should perform better.
“Last fiscal, GDP would have gone up by well over 7%. This year also should be not less than 7%. So, if you have two years of 7-7.5% growth, why would the industry not grow?” he said.
Latent demand remains massive in a country where more than 65% of consumers are aged less than 35 years, if affordability constraints
are addressed, Bhargava said. First-time buyers account for 45-46% of vehicle sales in India. Given low vehicle penetration, demand for cars is present at the entry level, he said.
To be sure, sluggish sales have prompted several automakers including Nissan, Honda and Volkswagen, to exit the small-car market in the country over the last few years. The total number of models on offer in the segment now stands at 14, compared with a record 31 in FY16.
