Entry-level segment will bounce back with economy: Maruti Suzuki

Maruti Suzuki India Limited (MSIL), India’s largest maker of passenger vehicles, believes that the entry-level segment has faced short-term challenges due to a slew of macroeconomic factors, but with the economy slowly traversing on the path of recovery, the segment will bounce back. “There were multiple challenges, including the sluggish growth of incomes of those buying entry-level cars; an increase in commodity prices; stringent emission and regulatory changes, and the premiumisation of vehicles with features and technologies, even if it’s not mandatory. This caused the segment to degrow because these factors took its toll on affordability,” explains Shashank Srivastava, senior executive officer, marketing and sales, MSIL.

These factors, according to Srivastava, led to the curtailment of discretionary spending, which led to a short-term slump in sales, but the underlying demand for personal mobility was always present and was building up, even in the thick of the Covid-19 pandemic. “The car penetration in India is extremely low. Our estimates show that only 30 people out of 1,000 own a car, whereas the figure is close to 800 in developed economies like the U.S.,” tells Srivastava, adding that public transport in India is inadequate to cater to large swathes of the working population. “There is a palpable need for personal mobility among Indians, and as the economy is slowly recovering, more people will turn to cars.” Srivastava’s words are also echoed by Hisashi Takeuchi, MD and CEO, MSIL. “More and more people will buy entry-level hatchbacks; the Indian economy is growing, and people’s purchasing power is also increasing,” he adds.

But with the launch of the Alto K-10, MSIL also looks to cash in on India’s growing demographic dividend. “Economically it makes sense. India has 65% of its population in the ambit of the working age population, and the median age is 24-25 years. With more and more people entering the workforce, there will be demand for affordable personal mobility for first-time buyers, which have been 50% for the past 25 years, as the starting salaries of a lot of people aren’t a lot,” adds Srivastava. To put things into context, Japan sees only 4% of first-time car-buyers, and in the U.S., it is between 5-6%. “This is because of our demographic dividend,” he avers.

According to MSIL internal estimates, the share of car-buyers who are in the vicinity of being 35 years of age has increased considerably—from 37% in FY 2012-13 to 55% in FY 2021-22. According to a report by the Confederation of Indian Industry (CII), India will add another 183 million people to the working age group of 15-64 years between 2020-50, as per the UN Population Statistics database. The working age ratio in India will reach its apogee in 2031, while the ratio will remain at peak levels between 2031 and 2041.

It is with this potential that MSIL has shown its unwavering commitment to this segment. “While we bring more and more technology and feature-packed cars, as a market leader, it is our responsibility to continue to focus on all segments, including the entry segment,” tells Takeuchi in his keynote address ahead of the launch. He contextualises the importance of the entry-level segment by giving precedence. It has been the small cars that made India grow in the past 40 years—from being nowhere in car manufacturing to becoming the fourth largest in the world. “An interesting fact is that close to half of the passenger vehicle customers are first-time buyers. While SUVs have definitely gained popularity in recent times, a large section of customers still prefers hatchbacks,” he adds.

Takeuchi backs his claims by citing numbers. “To give you an idea, in the last fiscal, the Indian passenger vehicle industry sold over 11.5 lakh hatchbacks. Out of that, we have over 68% market share,” he adds. According to Srivastava, the entry-level segment—which mostly had parity with the premium hatchback segment for the past six years—dipped slightly to corner 18% of the entire passenger-vehicle market last year. Premium hatchbacks made up 20% of the market, whereas SUVs were 40%. “We sold 7.78 lakh hatchbacks last year. This is an important segment for us,” adds Srivastava.

Invoking the Alto K-10 moniker—which returns to ply on Indian roads after a hiatus of two years—is also important for MSIL because of its storied history and the near-inimitable trust the brand holds among car-buyers. “The Alto brand has been the number one selling car for 16 consecutive years till 2020. Even in the last fiscal, Alto was the fourth best-selling model in India. By July 2022, Alto had over 43.3 lakh customers in India,” adds Takeuchi. Srivastava further elucidates that the existing Alto 800 sold 1.45 lakh units last fiscal, which he argues, was more than any other SUV in the market. MSIL also claims that it has sold 100 Altos every hour for the past 22 years, and if Alto were to be a separate car company, it would have been India's fourth largest carmaker, based on cumulative volumes.

India has seen a perceptible shift in buying patterns of car-buyers from small, peppy, affordable hatchbacks to bigger, pricier, feature-laden SUVs. According to a CRISIL report, in the last fiscal, cars priced above ₹10 lakh (or the premium segment) sold five times faster than those with lower sticker prices, and notched up about 38% on-year growth, compared with about 7% year-on-year growth for the latter. “Consequently, the market share of premium cars rose 500 basis points to about 30% last fiscal, compared with about 25% in fiscal 2021,” the report adds. The segment has also seen new launches since fiscal 2020—including the Kia Seltos, Maruti XL6, MG Hector, Mahindra XUV700 and Hyundai Alcazar—which have contributed significantly to the overall sales volume in the segment. “As many as 19 of them racked up about 32% of volume share within higher-priced cars in fiscal 2022.”