NEW DELHI: The entry-level segment of the Indian passenger car market shrunk in 2011, perhaps for the first time in many years, and saw its market share dip below 50%. Eyed by many carmakers like Tata, Renault, Nissan, Bajaj and General Motors, the segment has proved to be the dullest, putting a question mark over whether the enthusiasm among many companies to spend millions in cracking the category is justified.
The share of the entry-compact segment - consisting of cars like the Tata Nano, Maruti Alto, Ford Figo, Maruti WagonR, Hyundai's Santro, i10 and Eon and GM's Beat - came down to 47%, thanks to a decline of 0.07% in sales.
The situation was quite different for premium compacts like the Maruti Swift, Hyundai i20 and VW Polo as the segment grew at a pace of 6.5% in 2011, and retained its 11% share of the market.
But perhaps the biggest surprise came from the expensive sports-utility vehicle (SUV) segment that registered the fastest growth rate in the year gone by. SUVs, which cost nearly three times (or even more) what an entry-level car does, grew a massive 32% in the year, fuelled by higher demand for both India-made and imported models.An analysis of data collated by the Society of Indian Automobile Manufacturers (SIAM) threw up these surprising results, some pointing to the 'maturing' of Indian car buyers and their gravitating towards more sophisticated vehicles like premium cars and SUVs.
So what led to the fall in demand for the entry-level cars? According to market experts, the absence of diesel models and the rise in interest rates proved to be the biggest dampeners. Entry-level cars are bought mostly by the middle-class and first-time buyers, and many of them shied away from the market last year as the enablers were not conducive.
"Most buyers of this segment have a home loan already running and the rising interest rates meant a rise in their home EMIs. This reduced their disposable income and their ability to go in for a car loan. Also, since most models in the segment are petrol vehicles, many of the customers could not muster the courage to go for a new car as monthly fuel bills would be inflated due to the near-recurring rise in petrol prices," an industry analyst said.
This perhaps explains why premium small cars were still in demand. Most premium compacts come strapped with diesel engines too, and the running cost advantage that the fuel provides (against a petrol engine model) meant that sales continued to happen.
So is it time to write off the entry segment completely? Experts are not so pessimistic. "Once the interest rates come down and petrol prices stabilize, this segment will again grow as the potential here is very high due to under-penetration of cars. Also, with a gradual increase in diesel options (Chevy Beat last year and Nano expected this year), the segment will get a new lease of life. It will bounce back, and perhaps strongly," an analyst with a brokerage firm said.
And what explains the enthusiasm for SUVs? The rapidly-improving road infrastructure and the gradual love of Indian families to travel together between cities are fuelling the demand. Also, the presence of diesel engines plays an important part here.
"Another reason behind the success of the SUVs is that the number of offerings in this segment is rising exponentially," an analyst says.
Models like Toyota Fortuner and Mahindra's newly-launched XUV500 have the distinction of a long waiting list for them. Other companies that are set to launch new SUVs include Ford, Renault, Audi and Ssangyong. "The SUV segment has witnessed a fantastic growth rate in India over the last few years and holds the maximum potential in terms of demand," says Abdul Majeed, who tracks the auto industry at PricewaterhouseCoopers India.
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