Bigger the better for first-time car buyers in India

India is a small car market, right? Well, actually not any more. In the past one year, the entry level A-segment - which has models like the Maruti Alto and Hyundai Eon - and the bread and butter B segment - with models like the Hyundai i10, Maruti Wagon R and Chevrolet Beat and Spark - have shown a sharp degrowth as customer preference moved up the value chain. The new growth sweet spots are the premium hatchbacks - Suzuki Swift and Ritz, Hyundai i20 - or the compact sedans like the Honda Amaze, Swift DZire and Chevrolet Sail. 

Said Vikas Jain, director-sales, GM India: "The A and B1 segment sales are shrinking with more people migrating to bigger cars. The massive discounts in the small car segment should tell you the extent of suffering of manufacturers of these cars." 

Currently, the discounts in the A and B1 segments range anywhere between Rs 20,000 to a lakh depending upon model and make. Industry experts say the trend is driven by a new class of first time car buyers who are joining the pool at a higher price level. Said Sumit Bali, executive vice president, Kotak Mahindra Bank: "The entry level A-segment has been soft all through last year and of late first time buyers are going straight to entry level sedans. So the A and B segments continue to be soft. The second half of this fiscal should be slightly better in terms of demand and sentiment." 

Also Read: Small cars lose sheen as buyers opt for bigger cars

Car marketers say the shift could reverse as petrol makes a come back vis-a-vis diesel. Said Maruti COO marketing and sales Mayank Pareek: "This trend has more to do with availability of diesel versions in a year that saw a rapid drive towards diesel cars. In the A2 + segment, for instance, we have Swift and Ritz in diesel version so that segment showed growth. With petrol prices becoming more supportive of late, the entry level segment has just about started looking up and diesel models are now under pressure. So there's just a hint of an improvement in Alto and WagonR now as they move into the plus zone," he explained. 

Marketers say the bigger picture of decline though does not seem to have corrected itself and April was the fifth month in a row that saw a decline in car sales. "Earlier SUVs and diesels were growing but that too is getting neutralized," said Pareek. "Last month, SUVs grew 4%, this month it is lower." The only silver lining is rural growth. "We have clocked a 17% upside on rural sales last month," he said, adding, "the market should pick up in the second half of this year helping us close with 5-7% growth if we're lucky." 

Auto experts also say that overall the higher priced models have fared much better in the slowdown with the super premium segment clocking decent double digit growth last year as well. Said Ashok Khanna, senior executive VP and business head-auto loans, HDFC Bank: "The segment that has proved to be quite slowdown resistant is the premium car market in the Rs 20 lakh plus category currently dominated by six brands - Mercedes Benz, BMW, Audi, Porsche, Volvo and Jaguar-Land Rover. That's why this segment is seeing compact launches including the impending A Class launch."

Also Read: Small cars lose sheen as buyers opt for bigger cars