Indian automakers are reducing exposure and ending the production of no-frills mini cars as consumers are increasingly moving down the value chain towards more ambitious, high-quality products. Following the demise of the Tata Nano and Hyundai Eon, Nissan Motor India will likely stop producing the Datsun Go and Go Plus models. The easy availability of loans and the desire for better technology have reduced the demand for cars that cost less than Rs 5. lakh to 416,000 units in 2020 from 1 million in 2016. From a third of the total market in 2016, cars under Rs 5 lakh accounted for only 17% at the end of 2020. Aside from Maruti Suzuki with the Alto, Renault Kwid and Nissan redesigned GO, most carmakers have left the gap and are focusing on the Rs 5-10 lakh segment.
However, the used car market below Rs 5 lakh is experiencing strong growth. The mantle of market expansion has now shifted to used vehicles and this is a boon for original equipment manufacturers (OEMs) and consumers, according to Ravi Bhatia, president of automotive consultancy JATO Dynamics India.
“We are starting to see near-new cars (three years or less) becoming available for less than Rs 5 lakh,” he said. Most used cars in India are under Rs 5 lakh and the segment is growing 20%, led by -time buyers, said Ashutosh Pandey, MD, Mahindra First Choice Wheels Ltd.
“There has been a clear shift from new entry cars to used cars, as these cars are more premium and well equipped,” said Pandey. “Since the used car market is more of a commercial activity, the vehicles sold are based on what’s available. There is a clear shift towards premium cars and SUVs; if they are available, the price in the used car market could also rise ”.
To be sure, the average price of used cars has gone from Rs 2.4 lakh to Rs 2.5 lakh to Rs 3.5 lakh in recent years, and is moving towards Rs 4-5 lakh, Pandey said.
The mini hatchback segment, or entry level car, played a key role in driving ownership from the very beginning. Carmakers such as Maruti and Hyundai, and later Renault Nissan, have amassed market share by offering such products at low margins. But the demand has declined over the years. The number of variants below Rs 5 lakh has more than halved: 66 at the end of January 2021 compared to 142 at the end of January 2016.
India lagged significantly behind developed markets in weighted average car price, according to JATO. This is changing as vehicle manufacturers are starting to shift the focus on new product planning towards larger cars from the entry hatch segment.
Because propulsion systems are common across all vehicle segments, the only way to get better margins is to offer “more cars per car” in terms of size and packaging, Bhatia said. “Consumer preference in suburban and rural markets is changing as larger, better-packaged cars are now available with attractive financing, making it easier for entry-level consumers to enter personal mobility.”
According to JATO, a new car depreciates by 40% in the first 36 months of purchase.
Indians are gravitating towards more expensive cars as per capita gross national disposable income soared to Rs 154,349 in FY20, up 10.6% annually over the past decade, according to data from the Central Statistics Office. Over the past five years, the entry car segment has experienced a decline of 6%, compared to the volume of the industry, which fell by 1% over the same period.
[ https://www.dainikviral.com/blog/focus-on-suvs-sedans-in-rs-5-10-lakh-segment-end-of-the-road-for-entry-level-cars-on-premium-switch-et-auto/ https://d26toa8f6ahusa.cloudfront.net/wp-content/uploads/2021/07/30214746/a-quiet-place-part-2-bigs-16.pdf