The Indian automotive landscape is witnessing a significant shift, with the entry-level budget car segment seemingly on the brink of extinction. As of now, the base variant (STD) of the Maruti Suzuki Alto K10 remains the sole contender with an on-road price under Rs 5 lakh. This stark scenario underscores a broader trend: the choice for affordable new cars is dwindling rapidly.
Market Share Plummets
A striking decline in the market share of entry-level cars has been observed over the last eight years, plummeting from approximately 33% to a mere 0.4%. Shashank Srivastava, Executive Director (Marketing and Sales) at Maruti Suzuki, highlighted the drastic drop in market share for cars priced under Rs 5 lakh, from a robust 33.5% in 2015-16 to an almost negligible 0.4% in 2023-24.
Factors Behind the Disappearance
Several key factors contribute to the vanishing segment of sub-Rs 5 lakh cars:
Inflation and Buyer Demands
The automotive industry has faced general price hikes due to inflation and evolving consumer preferences. Cars that were once priced at Rs 4 lakh have now surged to Rs 6 lakh, pushing them beyond the reach of the budget-conscious buyer. Srivastava pointed out that the demand for more features, which were traditionally reserved for premium segments, is now a standard expectation among buyers of all car categories.
Rise in Material Costs
Post-COVID-19, the cost of materials critical to car manufacturing, such as steel, copper, aluminum, platinum, rare earth elements, and lead, has skyrocketed. Since the cost of these materials constitutes a significant portion of the overall vehicle price, their increase has directly impacted the final pricing of cars.
Stricter regulatory norms related to emissions and safety have also contributed to the rising costs. Transitioning from BS-4 to BS-6 emission standards, along with compliance with frontal and side impact safety norms, has necessitated technological upgrades, further inflating prices.
The Shift Towards SUVs
The changing consumer trend towards SUVs has also played a role in diminishing the market share of small cars. As buyers gravitate towards larger vehicles with more features, the demand for compact, budget-friendly cars has suffered.