Small cars' demand may overtake SUVs as Covid-19 changes rules of mobility

Covid-19 has changed the rules of mobility. As more and more people want personal cars as the preferred mode of transport, carmakers are seeing a surge in enquiries for smaller four-wheelers.

But sport utility vehicle (SUV) makers remain unfazed by the general down-trading trend (increasing preference for entry-level small cars) and remain cautiously optimistic about the road ahead. They believe buyers in India will continue to spend on pricier models, albeit with some deferment.

Says Shashank Srivastava, executive director, sales and marketing at Maruti Suzuki India: “All research reports and surveys point toward a down-trading or segment transfer trend.”  

The market leader has seen enquiries for smaller cars go up from 55 per cent to 62 per cent in the recent past.  

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Those who were buying a luxury car may settle for a premium mass model, while those looking at a premium model may go for a compact car or a used model, says Srivastava, adding that the overall demand may not dry up, but see a downward shift.

“Affordability will be a prime mover,” he says. He, however, adds, these are initial trends and there is no datapoint to substantiate the hypothesis - it may change, depending on other extraneous factors.   

Srivastava expects the share of first-time buyers in the market - which accounts for more than 50 per cent - to grow further, even as replacement buyers wait it out.

Hyundai Motor India, too, has seen impressive traction for small cars. “The bookings for the i20 and Neo have been better than expected,” says Tarun Garg, director sales and marketing, Hyundai.

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But he hastens to add that while one has seen good response, one cannot be very confident about the sustenance of these numbers.  “For all you know, it could just be pent-up demand of the past one and a half month playing out,” says Garg.

Auto companies have just emerged from a zero sales month in April, as dealerships and factories remained shuttered for over a month. After relaxation in certain pockets of the country, sales touchpoints and factories have resumed operations only a fortnight ago.  Most of them, however, are operating at a third of a capacity at their manufacturing units and with limited sales network.  

Experts agree that as cars become a necessity, rather than a luxury, small cars will have the driver’s seat advantage.  

“A strong need for personal transportation, coupled with the current economic scenario, will give small car sales a push,” says Rahul Mishra, principal at consulting firm AT Kearney. “There is general expectation that buyers will tend to down-trade," says Mishra.

Buyers, however, may still prefer a model that comes loaded with features, compared to a low-frills one. The only difference being they will tend to bargain a lot more for better value, he points out.

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The overall passenger vehicle market in India is expected to see significant contraction owing to the current economic uncertainty, which has come on the back of a prolonged lockdown, says Puneet Gupta, associate director at IHS Markit, a sales forecasting and research firm.

IHS expects small cars to decline 20 per cent over the next 18 months, while SUVs will see sharper decline of 32 per cent.

But SUV makers aren’t reading much into the initial trend. “It is an unprecedented situation. We do not have prior experience,” says Manohar Bhat, head-sales and marketing, Kia Motors India.

Moreover, the buying pattern does not alter so soon, he says, adding Kia has not seen cancellations despite the gloom and doom. For every 1,000 bookings, the cancellations have only been 200, says the South Korean automotive manufacturer.

Hyundai is equally enthused about the strong booking numbers for the Creta. The South Korean automaker has got bookings for over 21,000 units.    

Others like Gaurav Gupta, chief commercial officer at MG Motor India, remain optimistic about a strong SUV run. “The SUV growth story will continue. But the overall industry will see a decline, with gross domestic product growth rate falling much more than expected.”

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Gupta concedes that while buyers have been a lot more cautious, cancellations have been insignificant, compared to bookings. “Our immediate priority is to produce more cars and deliver them to those on the waitlist,” he says.

The bigger challenge, he adds, is meeting demand, given only a third of its dealerships are open and supply chain is broken. This has hammered production. He hopes to see the supply chain up and running by September.