The marketplace for entry-level hatchbacks in India has shrunk considerably over the previous few years. Rising costs have mixed with relative financial misery to discourage shoppers within the ‘low-cost automobile’ from shopping.

Throughout FY22, premium automotive gross sales grew by 38% year-on-year, whereas gross sales of lower-priced vehicles rose by about 7%.

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Vehicles priced above ₹10 lakh, which fall within the premium phase, bought 5 instances quicker than these with decreased sticker costs final fiscal, cornering about 30% of the passenger automobile market, up from 24% in FY19, Crisil Analysis mentioned in a notice. Over the past fiscal 12 months ended March 2022, premium automotive gross sales grew by 38% year-on-year, whereas gross sales of lower-priced vehicles rose by about 7%.

“The key reasons for this were a stark difference in income sentiment of the respective target consumers, a sharper rise in the prices of lower-end cars, fewer options (some manufacturers exited the segment), and a slew of new launches that have increased the preference for higher-priced cars,” Crisil Research observed.

First-time users

In India, which has been touted as the small car market, the sales of the entry-level hatchback segment are largely driven by first-time users. With the pandemic impacting the income sentiment significantly for entry-level car buyers, purchases and upgrades have been getting postponed.

As per Crisil Research estimates, the employee cost of large and medium companies — a proxy for income sentiment among affluent buyers of higher-priced car — has increased by about 20%-25%, outpacing that of small and medium-sized companies (0-10%), which typically account for a larger proportion of lower-priced car buyers.

“Over the past three years, the market at the lower end… for people who use either two-wheelers or smaller hatchbacks… that market has been shrinking considerably, which is worrying,” said R.C. Bhargava, chairman, Maruti Suzuki.

Pointing out that only 11.5 lakh units of hatchbacks were sold in India last fiscal, about 25% lower than the 15.5 lakh units sold in 2018-19, Mr. Bhargava added that because of regulatory changes, taxes of State governments, increase in prices of commodities, the prices at the lower end of the market had increased by such an extent that a large part of the population could not afford a four-wheeler transport. “These are the people who are on the margin. They are upgrading from two-wheelers… They take loans to cover more than 80% of their cost of the car,” he said.