High base and shrinking small car segment are seen dragging the growth in the next financial year.
31 Jan 2024 | 4327 Views | By Kiran Murali
Riding on a high base in the current financial year, India’s passenger vehicle industry expects sales volume to grow in the low single digits during 2024-2025 (FY25). Entry-level cars were the major growth driver for the industry until sometime back, but the demand for small cars has been on a ...
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Riding on a high base in the current financial year, India’s passenger vehicle industry expects sales volume to grow in the low single digits during 2024-2025 (FY25). Entry-level cars were the major growth driver for the industry until sometime back, but the demand for small cars has been on a declining trend recently.
“India is already at a high base. This year, we may close at around 4.18-4.20 million units. The preliminary estimates that were discussed in the SIAM Looking Ahead Conclave yesterday was 4.3 million units for the next financial year,” Maruti Suzuki’s management said today in a post-earnings call with investors.
With 4.3 million units in FY25, the industry could be growing in the range of 2.5-4% on a year-on-year basis. In 2022-24 (FY24), the passenger vehicle industry grew by around 26% to 3.9 million units. The growth in the current financial year could be around 7-8% on year.
“The growth could have been much better had it not been for the small cars segment, which is shrinking both in absolute terms and percentage terms,” the management said.
The demand for entry-level cars, or small cars, has been among the most impacted after the pandemic. The current growth in the passenger vehicle industry is being fuelled by strong demand for sports utility vehicles, while small car sales have been declining amid rapid increases in the cost of vehicles.
The growth in small cars is essential for the industry to be on a sustained growth path as entry-level cars attract many first-time buyers, particularly from rural areas. Many SUV or sedan customers are those upgrading from entry-level cars.
Maruti Suzuki Chairman RC Bhargava had earlier said the revival of the small car segment is essential for the long-term health of the industry. The company believes that it will take 2-3 years for demand in the small car segment to pick up, provided the prices of these cars stop increasing rapidly.
The share of first-time buyers for Maruti Suzuki, which was at around 47% in 2020-21, hit a low of 38% in the second quarter of the current financial year. The share improved to 41% in the December quarter, but the management believes it is premature to say whether it is a green shoot of recovery or some quarter-specific phenomenon.
India’s second-largest carmaker Hyundai Motors has also said they are expecting passenger vehicles to grow in low-single digits in the calendar year 2024. “The pent-up demand has gone. People could not get cars in the last two years because of supply issues. Now it is all about fresh bookings,” Chief Operating Officer Tarun Garg earlier this month.