Are hatchbacks past their heyday in India? Autocar Professional examines the ground realities for the segment and why some OEMs are still banking on it despite growing consumer preference for SUVs.
18 May 2024 | 11445 Views | By Prerna Lidhoo
In 1984, securing a Maruti 800 with its cutting-edge features, such as disc brakes, front-wheel drive, reliable wipers, and the luxury of air conditioning, was akin to striking automotive gold. Yet, acquiring the Rs 50,000 marvel required a patience-testing wait that often stretched beyond three years.
In those days, ...
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In 1984, securing a Maruti 800 with its cutting-edge features, such as disc brakes, front-wheel drive, reliable wipers, and the luxury of air conditioning, was akin to striking automotive gold. Yet, acquiring the Rs 50,000 marvel required a patience-testing wait that often stretched beyond three years.
In those days, India revolved around the pulse of small cars, an automotive ethos that endured for decades, reigning supreme until 2017-18, after which tides started turning in the favour of SUVs (sports utility vehicles).
What’s more, in March 2024, for the first time, the top two vehicles sold were SUVs—Tata Punch and Hyundai Creta.
But Maruti Suzuki recently launched the fourth-generation version of its highly popular hatchback, Swift—with prices starting at Rs 6.49 lakh and top-end variants costing as much as an entry-level SUV. That begs an important question: what does the future hold for hatchbacks?
A confluence of factors, including the transition from the BS (Bharat Stage) IV to BS VI emission norms, higher commodity prices, stricter regulations, decrease in affordability ratio and increase in road/registration tax has chipped away at the once-mighty segment, which now contributes 27% to overall passenger vehicle (PV) sales, down from over 50% about seven years ago.
Now, SUVs make up more than half of India’s PV sales. So what brought about this change?
The average on-road prices for hatchbacks—the most price-sensitive automobile segment—have risen from Rs 5.2 lakh to Rs 8.2 lakh in the last six years. To make matters worse, even vehicle finance rates are at their peak at 9.5%.
Additionally, a hatchback buyer now expects nothing less than power windows, the latest infotainment system, airbags, and even a sunroof. Gone are the days when the bare essentials could win hearts.
Therefore, SUVs seem to be winning with annual sales of over 2 million units. Hatchbacks saw peak sales in 2017-18, at 1.5 million units; the number has dwindled to over 8 lakh units now.
But most first-time car buyers still opt for hatchbacks, though the past decade has seen a 20% decline in that figure to 46%. For SUVs, that number has soared to 34% from 8%.
And India’s largest carmaker, Maruti Suzuki, continues to bet on the hatchback segment, of which it controls 70%. Its move to launch the next-gen Swift makes one thing clear: writing off hatchbacks, especially the premium ones, is a premature endeavour.
“We won’t give up on the small-car segment as it still brings decent volumes. Our strategy is to have an adequate product portfolio in every segment, and we will increase our total model portfolio towards 2030. India is in a growing stage, and when the market is growing, and new customers are entering, hatchbacks play an important role for the first-time buyers,” said Hisashi Takeuchi, MD and CEO of Maruti Suzuki. At least volume-wise, the hatchback segment would continue at a certain level, he added. “It will not disappear. One of the reasons for its decline is the lack of models from other OEMs in this segment.”
Takeuchi is right. While the number of entry-level SUVs sold in the market has risen to 14 models from four in the last decade, the mid-sized SUVs have tripled to 21. In contrast, hatchback models have plummeted to 14 from 26 in the same period, with the discontinuation of beloved cars such as Hyundai Santro, Honda Jazz, Volkswagen Polo, Maruti Suzuki Alto 800, and more.
One of the reasons why the segment is no longer hot is because it has become financially unviable for automakers, following the recent changes in safety and emissions norms.
The volumes in the entry-level hatchback segment fell to their lowest at 1.6 lakh units, in 2023-24, from the peak of 4.5 lakh, seven years ago.
But Maruti Suzuki chairman RC Bhargava believes small cars have to grow for India to be a developed economy. “It’s impossible that more than three-fourths of people have no mobility in a developed India.”
However, a lack of choice and unaffordability have led many consumers to ditch small cars, which is why there’s next to zero momentum in the entry-level hatchback segment.
“Why did the upgradation from two-wheelers to cars suddenly stop? The price increase for small cars was much higher than (for) the bigger cars. It will take an increase in the income levels of potential buyers of small cars to reverse this. The gap between the ability of a person to buy a small car and the price of the small car will keep narrowing,” Bhargava said. “India’s affluence is as good as Europe, and also, her people could be as deprived as someone in Africa.”
Vinkesh Gulati, Chairman - Research & Academy, at FADA, believes that customers seeking a functional car never come looking for a hatch or an SUV but instead come with a fixed budget.
“It’s not like if a small hatchback is manufactured at the right price, there are no takers. (But) it’s a risky bet today. That’s why OEMs have also deserted that segment. None of them are working on a hatchback below Rs 8 lakh. There’s a market for Rs 5 lakh small cars with reasonable features. Customers want it at that price, but there are no vehicles to choose from,” he said. He added that there’s a need for hype to come back in this segment. “Customer inquiry is not happening because there are no new launches.”
According to JATO Dynamics’ President and Director Ravi Bhatia, the volume available for entry-level cars is now available for premium hatches, post the increase in prices. “The premium hatches will continue to play a part with value-conscious consumers. Entry hatches will start declining slowly because the used-car market pressures them. That’s a sign of maturing the market at the entry-level. First-time buyers are also looking at options that are feature-reach, and used cars are becoming an option.”
According to Maruti Suzuki, the premium hatchback segment will see annual sales of 1 million units by 2030, a 43% increase over 7 lakh now, representing a compounded annual growth rate of 5-6%. “The new Swift re-energises the segment. The absolute numbers for hatchbacks are going to increase. We at Maruti strongly believe that car penetration is just at 32 per 1,000 individuals and will rise to 44 by 2030,” Takeuchi said.
The company’s sales and marketing head, Partho Banerjee, believes that the Indian passenger-vehicle market will grow to 6 million units by FY31 from 4.23 million in FY24, and the company will aim to retain its 50% market share. “If the market has 6 million vehicles, the hatchback segment has to grow,” he added. Based on the long-term guidance, the premium hatchback segment, at 1 million units, would comprise 16% of the overall PV market by FY31.
Despite sales declining 6% year on year in FY24, premium hatchbacks continue to be the biggest chunk of the hatchback segment at 6.8 lakh units.
The reverse is true for SUVs: just 47,003 units of premium models were sold in FY24 as compared to 11 lakh units of entry-level SUVs, which saw 28% on-year growth.
Even though SUV volumes have risen drastically, players such as Hyundai feel that hatchbacks remain relevant. “Last year, we had upgrades of Nios and i20. Hyundai is playing a critical role in the premium hatch segment. But keeping customer preferences in mind, you’ll see more launches from us in the SUV segment and relatively fewer launches in hatchbacks,” said Hyundai India’s Chief Operating Officer, Tarun Garg, who has a slightly different view.
Even within the segment, the most expensive sub-segment makes the highest contribution, stated Garg, who does not believe that people are not upgrading from two-wheelers to four-wheelers. “Instead, many first-time buyers are jumping the hatch segment and directly buying SUVs like Venue and Exter, which is reflected in the ever-increasing first-time buyer percentages in these models’ sales.”
As per Tata Motors, it’s all about getting the models that capture the right customer needs and continue to cater to them. While overall, there’s a larger preference to move towards SUVs, there’s also a preference to move up the price ladder--both by the customer and driven by regulations, said Vivek Srivatsa, Chief Commercial Officer at Tata Passenger Electric Mobility. “A combination of the emissions and safety norms have made entry cars more expensive. At the same time, manufacturers’ margins have become extremely thin. It’s quite a tough business to be in the entry-level car market, which is extremely price sensitive and also getting very value-conscious,” he added.
Almost 30-35% of the company’s hatchback sales come from the premium category. “That’s very close to the 4-metre mark, which has many features and space. There’s premiumisation happening,” Srivatsa said.
Garg asserted that evolving customer preferences are the big reason behind this change. “The average age of a Creta or Venue customer is less than that of a Nios customer, whereas the Nios’ price is lower. In fact, the average age of a Hyundai customer has reduced by almost five years in as many years while the average prices have increased due to a higher SUV mix. Sometimes, we tend to believe that growth in overall numbers can only come if the entry-level segment grows. However, the industry’s growth in the last 2-3 years defies that notion. The decline in entry-level sales would have been a cause of concern had the overall industry numbers not been growing.”
Last year, 39% of Venue customers were first-time buyers, Garg said. It’s 42.2% now. For Creta, that figure has grown to 27.6% from 25.3%.
Industry sources
“Very clearly, the first-time buyers are jumping the hatches and directly going to the Venues of the world. With six airbags and other safety features as standard and sunroofs becoming increasingly popular, aspirations are clearly taking over functionality. That is being reflected in more SUV sales. When Exter came in, the overall micro-SUV segment size increased; it’s not like we took a share from someone else. Micro SUVs are already 7.1% of the total market with only two players, Punch and Exter, showing that the right products are more important than the number of products,” he said.
Many consumers are also turning to the used-cars market, favouring larger and entry-level pre-owned vehicles over new entry-level hatchbacks, according to market players such as Spinny and Cars24. This shift reflects a growing trend where customers prioritise affordability and value.
According to Niraj Singh, Founder and CEO of Spinny, while entry-level cars and hatchbacks have traditionally been popular choices in the used-cars market, the company is also witnessing a gradual uptick in interest toward used SUVs.
“This shift reflects evolving consumer preferences and lifestyle choices, as entry-level SUVs offer versatility and perceived value for money. In FY23, Spinny observed that hatchbacks like the Hyundai Grand i10, Maruti Suzuki Swift, and Hyundai Elite i20 were favoured by over 60% of first-time buyers as their top choices,” he said.
However, in CY23, the company started observing a consistent 10% (monthly) increase in SUV contribution, with Ford EcoSport, Hyundai Creta and Tata Nexon emerging as the preferred options for Spinny’s customers. “This shift is happening for two main reasons: our digital platform makes it easier for people to access the used-cars market, providing convenience and transparency. Also, the availability of financing options means more people can afford to buy a used car,” he explained.
Recently, it has become evident that used-car sales are steadily catching up with new-vehicle sales due to a progressive shift in personal mobility. “Therefore, we can say that the used-cars segment is seeing healthy sales, making up for the widening price gap in the new-car sales market for first-time buyers,” Singhsaid.
According to the latest insights from Mordor Intelligence, the Indian used-cars market is expanding at a compounded annual growth rate of 15.10% and is estimated to hit $55.49 billion by 2028 from $27.47 billion in 2024.
“Last year alone, we observed a noteworthy trend, with 63% of first-time car buyers choosing the used-cars segment, marking a 6% increase from the previous year. This trend is gaining popularity and will continue to grow due to the emergence of various new-age start-ups that have digitised used-car sales,” Singh said.
Buyers are attracted not only by the prospect of obtaining better value for their money but also by factors such as transparency, streamlined financing options and a hassle-free purchasing or selling experience when dealing with cars online. “Our online sales reached 70% in 2023, up from 48% a year ago. This shows that people trust us more. Also, we noticed something interesting: in March 2024, 46% of women across the country chose used cars, up from 35% in the previous year. This means more and more people are seeing the benefits of buying used cars,” he said.
A significant price increase of 50-60% in cars over the past five years has made new vehicles less accessible, said Gaurav Vangaal, Associate Director at S&P Global Mobility. “This affordability gap has redirected consumer preferences from hatchbacks to crossover vehicles and entry-level SUVs, and a lot of effect can be seen in rising used-cars sales.”
According to Srivatsa, the increase in the used-cars market is a great growth indicator for the industry. “Even in used cars, customers would rather buy a larger used car rather than an entry hatch. The used-cars market going up is the best news for the auto industry. That means more customers are getting into the 4-wheeler category. We anticipate the used-cars market going up and giving more viable and practical solutions to customers who otherwise would have gone for an entry-level car,” he said.
In the dynamic landscape of India’s automotive industry, the traditional hatchback faces challenges but also has the potential for resurgence.
The rising number of households is one area to look out for, according to JATO Dynamics.
“The nuclearisation of families is leading to new households forming. People moving in search of employment will be another new segment. The household growth rate is very interesting for the entry and hatch segments to watch. That’ll create demand and start translating into first-time buyers in 3-4 years,” explained Bhatia of JATO Dynamics.
But there are two critical factors that automakers will have to keep in mind: the running costs and the costs of vehicle ownership.
Experts said this is where green mobility could play a role. “CNG has a chance to recover entry-level segment. Maruti should surely bet on that. I don’t expect any other player to do it. Reaching 50% (of overall market passenger-vehicle share) without entry-level improvement for Maruti is difficult,” said Gulati. On the hatchback segment, he said, “If the pricing and the product are right, it’ll surpass its peak (volumes).”
Though, Vangaal doesn’t expect hatchbacks to return to their peak levels. “I don’t think any carmaker is developing a new entry-level hatchback in the coming years. The new entry-level (for buyers) will be a Punch kind of vehicle. If hatchbacks have to return, it can only happen if they become more fuel-efficient than crossovers or entry-level SUVs. They can do that with the support of hybrids, where Maruti will have an advantage,” he said.
Experts also said it is the powertrain—and not so much the body style—that will decide which segment grows in the future.
“You will start seeing a lot of, sustainable mobility in this segment. EV will be one of the most relevant powertrains for hatchbacks in the future, while CNG will see very strong adoption in Tiago and Altroz. Alternate powertrains will start playing a major role in sustaining volumes of hatchbacks,” Tata Motors’ Srivatsa said.
He added that green fuels make a lot of sense in small cars because they provide a lower cost of ownership and ease of maintenance. “Green fuel options will drive the future of hatchbacks. The demand is there and is going to sustain.” Tata Motors will continue strengthening the Tiago and Altroz brands to play strongly in the hatchback category, he added.
Experts say the latter half of CY 2026 may witness a potential turnaround, with affordability aligning with regulatory standards and reshaping consumer preferences.
Bhargava suggested that ethanol and biogas can be used extensively in India and that a combination of running costs and upfront capital costs will power the segment’s resurgence. Affordable hybrids could be an alternative.
He’s optimistic about the segment’s growth. “By 2030, the entry-level car business will go up substantially. Scooter users have to go to something. I don’t think the mobility needs of the whole country can be left to more expensive cars. Plus, there’s no guarantee of what design feature will appeal to the people. In 3-4 years, SUVs have become popular; there’s no guarantee that SUVs will remain popular three years from today,” he said.
Tata Motors, too, expects the hatchbacks to show resilience. The homegrown automaker anticipates the segment’s market share to stabilise at around 25% over the next five years. “Hatchbacks remain relevant in India due to their compact size, fuel efficiency and versatility, which makes them the ideal first car. With advancements like automatic transmission and multiple powertrains like petrol and CNG being available, hatchbacks offer consumers an array of choices, fostering continued demand,” Srivatsa said.
Though he doesn’t expect the segment to return to its previous peak, he sees it stabilising in the years to come. “It would be difficult to get to the previous peak because several other products are available at the price of a premium hatch. I don’t think it’ll start growing again, but I don’t see the category de-growing any further,” he said.
This feature was first published in Autocar Professional's May 15, 2024 issue.