Maruti waiting for the small to turn big again

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Small is still beautiful and, in a couple of years, small will become big too, at least in the passenger vehicle space in India, feels the boss of Maruti Suzuki India Hisashi Takeuchi. The managing director of the country’s largest passenger vehicle brand told The Economic Times the small car market in India would again become vibrant as the income levels of entry-level people increase again riding economic growth.

And once income levels rise, Takeuchi felt confident, his company would be in a position to exploit it to the hilt as most of its competitors have vacated this space in the market.

The sale of small cars contracted by as much as 12% (y-o-y) in FY24 in a year when the overall passenger vehicle market rose by 8.7%. This spurt was powered by a surprisingly high demand for SUVs.

This led to the space of small cars in the overall passenger car sales shrink from 34.4% in FY23 to 27.7% in FY24. Just a few years ago, in FY18, small cars had a 47.4% share of the total passenger vehicles market. The overall market leader Maruti enjoys a 69% share of the small car market.

Takeuchi attributes this to the ballooning of prices. “Vehicle prices at the entry level went up much faster than income levels of buyers in the last few years, which impacted demand,” he said.

The small car market is extremely price sensitive. Demand in this segment was hit by rise in input costs, insurance charges, road tax and transition to higher emission and safety norms.

“We sell decent volumes, make money on these cars. We have very high market share in small cars. And as the economy grows, the market will revive, revive, we will grow because others have stopped sales in the space,” the Maruti MD told the newspaper.

The Maruti boss thinks the market of premium hatchbacks would continue to zoom in India and about a million of these would sell 2030-31 – a 47% rise compared to the 6.8 lakh units sold in FY24.

Sluggish sales of small cars prompted Nissan, Honda and Volkswagen, to ride out of this space over the past few years. As a result, while there were 31 small car models in FY16, the number shrunk to just 14 now.

The Maruti MD remarked that with the government trying to turn India into a developed economy by 2047, heightened economic activity would only push demand for automobiles up in the coming years.

“With only 32 vehicles per 1,000 people compared to over 600 in developed countries like Japan, India presents a vast pool of car aspirants. As car ownership rises, the hatchback segment will serve as an entry point for many customers, and thus shall expand,” he told the newspaper