Small car not a big draw in Q1

Negative sentiment in the rural economy and a high interest rate are making a big impact on the small car market. Sale of passenger cars expanded eight per cent in the quarter ended June but of mini cars, represented by the Alto, WagonR and Eon, declined five per cent.  

Car makers sold 123,058 units of mini cars in the quarter against 130,071 in the corresponding quarter last year, according to Society of Indian Automobile Manufacturers (Siam). Most other segments in the passenger cars posted a growth.

The country’s largest player, Maruti Suzuki, saw the mini segment (Alto and WagonR) grew a mere two per cent in Q1 against 13 per cent overall sales growth. In June, this was the only segment to have declined and by a sharp 28 per cent. The drop is prompting Maruti to offer discounts of 10-15 per cent on the Alto and WagonR, said industry executives.

R S Kalsi, executive director, sales and marketing, Maruti Suzuki, said, “This category is influenced by macro economic factors like interest rates. Rates have not softened in spite of our expectations. We were expecting rates to come down by Q3-Q4 of last year. Though Reserve Bank has given a leeway of 75 basis points (bps), banks have passed on only a 15 bps reduction. This impacts customers for whom equated monthly instalments is a concern.” Kalsi added some first-time buyers could be shifting to the compact segment.

For Hyundai Motor, the mini car segment declined 33 per cent to 18,005 units in the quarter, Siam data showed. Eon is the main car in the segment for Hyundai. Rakesh Srivastava, senior vice-president (sales and marketing), said the mini segment had a fair degree of contribution from the rural areas which are going through a challenge.

“The interest rate is also a challenge, as this is a price-sensitive segment. These two challenges are still visible. With a near-normal monsoon and an expected drop in interest rate, this segment could see better traction in the festive season,” he said.

Industry officials said there had been some impact on this segment due to withdrawal of the lower excise duty that existed last year.

The United Progressive Alliance government had reduced excise duty on passenger vehicles in February 2014. The duty on small cars was cut from 12 to eight per cent.

The Modi government in its first budget extended the lower duty till December 31, after which it was allowed to lapse. In January, companies passed on the excise hike of four per cent that increased price of mini cars by up to Rs 15,000.. This has also created a pressure on the segment.