At the crossroads of evolving aspirations, technological innovation, and market shifts, the auto industry's linchpin faces redefinition.
31 Jan 2025 | 3446 Views | By Balaji Pandiaraj, Ipsos India
India's automobile market, which boasts a rich history of innovation and is one of the most vibrant and diverse in the world, is at the crossroads. The foundation of the industry has been the Entry-level vehicles—spanning across passenger cars like hatchbacks, commercial vehicles consisting of light commercial vehicles (LCVs), and ...
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India's automobile market, which boasts a rich history of innovation and is one of the most vibrant and diverse in the world, is at the crossroads. The foundation of the industry has been the Entry-level vehicles—spanning across passenger cars like hatchbacks, commercial vehicles consisting of light commercial vehicles (LCVs), and two-wheelers with engines under 150cc. However, this segment is witnessing a consistent decline in demand. This shift raises critical questions about the future of these vehicles and the strategies needed to keep them relevant in a rapidly evolving landscape.
In 2018, hatchbacks constituted 46% of the passenger car market, but by 2023, this number had dropped to just 30%. In contrast, SUVs now dominate with a 48.7% market share as of the first half of FY2024, up from 41.5% in FY2023. Similarly, motorcycles with engine capacities under 150cc, which once accounted for over 60% of two-wheeler sales, have seen their share shrink to approximately 48% due to rising demand for premium models and scooters.
A significant driver of this decline is changing consumer preferences. Once the default choice for first-time buyers, hatchbacks have lost ground to SUVs. These larger, feature-packed vehicles offer better road presence, advanced technology, and enhanced comfort, aligning with the aspirations of a growing middle class. The average price of a compact SUV in 2024 was Rs 12 lakh compared to Rs 7 lakh for a hatchback, yet the former outsold the latter by almost 2:1.
There are several factors for the decline for entry level hatchbacks
In the two-wheeler segment, premium motorcycles priced above Rs 1.5 lakh now account for 25% of total two-wheeler sales, up from 15% in 2020. Urban consumers, particularly millennials and Gen Z, increasingly prefer motorcycles that reflect their lifestyle choices.
The decline of motorcycles with engine capacities under 150cc in India can be attributed to several factors.
In the case of commercial vehicles, share of entry level 4W LCVs (mini trucks) has declined from ~65% a decade back to ~35%. With logistics models getting matured leading to load aggregation and penalties on overloading, the shift is towards higher tonnage 4W LCVs (pickups) which offer a lower cost/ton/km than mini trucks as it brings in logistics cost efficiencies.
Amongst LCV, the segment has shifted from mini trucks (Ace like) towards pickups (Dost, Bolero like) products due to significant increase in prices driven by emission regulations and practically no change in customer value/ benefit of mini trucks while pickups have evolved in value.
Within CV, 3-wheeler cargo segment was declining until electrification revitalized it. This revival is primarily driven by organized logistics companies purchasing electric fleets for last-mile e-commerce deliveries, motivated by internal mandates and carbon reduction commitments. However, overall volumes remain stagnant as the larger unorganized segment still predominantly uses 4-wheeler mini trucks and pickups.
Rising costs have compounded the challenges faced by the entry-level segment. The transition to Bharat Stage VI (BS6) emission norms has driven up manufacturing expenses across the board. The cost of compliance added approximately Rs 15,000–20,000 to the price of entry-level cars and Rs 6,000–Rs 8,000 to two-wheelers. Higher input costs, coupled with inflation, have widened the price gap between budget-friendly options and higher-end models. As a result, many buyers are opting to slightly stretch their budgets for vehicles that offer more features, better performance, and greater long-term value.
Urban mobility trends have also played a role in reshaping demand. The proliferation of ride-hailing services and shared mobility platforms has reduced the need for personal vehicle ownership, particularly for budget-conscious urban dwellers.
In urban areas, where shared solutions are perceived as more cost-effective and practical, this has further diminished the allure of entry-level options. A recent survey indicated that 35% of urban residents in Tier I cities prefer using ride-hailing services over purchasing a car, a number that was less than 10% a decade ago.
There is still hope for the entry-level segment despite these obstacles. For OEMs and policymakers, this decline represents an opportunity to reimagine and reinvent the category. The secret to bringing entry-level cars back to life may lie in Electrification.
With India's push toward green mobility, affordable electric hatchbacks, light commercial vehicle’s, and electric two-wheelers could become game-changers. Achieving this, however, will require significant investments in battery technology, infrastructure development, and policy support to ensure affordability and accessibility.
In addition to electrification, innovative financing solutions can help revive interest in entry-level vehicles. Flexible payment models, including low down payments, extended loan tenures, and subscription-based ownership, can make these vehicles more attainable for first-time buyers. Financial inclusivity, particularly in rural and semi-urban markets, could serve as a catalyst for growth in this segment.
Additionally, in PV the OEM’s could look at specific strategic for the below segments
For Rural Segments:
For Urban Segments:
OEMs should also explore niche markets to sustain demand. For instance, rugged hatchbacks tailored for semi-urban areas, compact and durable LCVs designed for small businesses, and stylish, fuel-efficient motorcycles under 150cc aimed at young riders in Tier II and Tier III cities could find a loyal customer base. This approach would require a careful balance between affordability and feature offerings to meet specific consumer needs.
Sustainability will also play a pivotal role in shaping the future of entry-level automobiles. Vehicles built with recycled materials, eco-friendly production processes, and highly efficient engines can resonate with environmentally conscious buyers. These measures not only reduce the carbon footprint of these vehicles but also position them as forward-looking alternatives in a competitive market.
Although the future of entry level cars in India looks challenging given the context that car penetration is abysmally low in India (36 cars per 1000) as compared to more developed countries, it is by no means a dead end. Millions of first-time buyers and rural consumers still rely on this segment as a vital entry point, even though it may no longer control the majority of the market.
By embracing innovation, sustainability, and consumer-centric strategies, manufacturers can ensure that entry-level vehicles continue to play a vital role in India's automotive ecosystem.
In the end, the future of this segment will depend on the industry's ability to adapt and evolve. Manufacturers, policymakers, and stakeholders must work together to reimagine what entry-level vehicles can offer in an era defined by technological advancements and shifting consumer priorities.
Balaji Pandiaraj is Executive Director & Country Service Line Leader, Customer Experience, Ipsos India. Views expressed are the author's personal.