Luxury car sales in top gear, but hatchbacks hit the brakes

Cut to the small car segment. Sales of Maruti Suzuki Alto, which once dominated sales charts across segments, halved year on year in the quarter ended September at about 24,000 units.

Overall, sales of small cars (vehicles with length less than 3.6 metres) — already on the decline – crashed by 55% last quarter whereas sales of BMW X1 (which also comes in diesel and petrol options) grew 56% on year.

So, while those wanting to buy iX1 will have to wait till next year when fresh allocations will come in, there’s unsold two-month stock of Alto, Spresso, Celerio and other small cars. “More and more people are entering the (luxury) segment. We have seen more first-time buyers come in this year than ever before,” BMW Group India president Vikram Pawah said.

According to him, 76% of the German luxury carmaker’s demand in India last quarter came from first-time buyers aged 31-45 years — the highest ratio seen in the last five years.

Even in the lower segments, several first-time buyers are opting for sports utility vehicles (SUVs) priced Rs 10 lakh and above.However, the fall in small car sales is not all about bigger aspirations of young Indian consumers, industry executives said. “Small cars are not selling not because people are upgrading,” said Shashank Srivastava, senior executive director (marketing and sales) at market leader Maruti Suzuki.There is pressure on purchasing power of consumers buying vehicles priced up to Rs 10 lakh, and more particularly those priced up to Rs 7 lakh.

“This has probably led to telescoping of the demand downward from this segment to used cars and even recently to two-wheelers,” Srivastava said.

Sales of luxury vehicles have increased 30% to 31,000-32,000 units until September this calendar with young professionals like lawyers, doctors, chartered accountants, and entrepreneurs joining the queue of businessmen who have traditionally bought into the segment.

Pawah said BMW is poised to better its last year’s best-yet sales of 11,981 units in 2023.

To be sure, luxury vehicles account for only about 1% of total passenger vehicles sold in the country, but the potential is huge given that India houses the third largest number of billionaires globally.

Experts said increasing preference for premium products among Indian buyers is visible across product categories including mobile phones and consumer durables, encouraged by increased access to credit.

“Even at the entry level, some sets of customers are opting for bigger pre-owned vehicles or saving up to buy a feature-rich sedan or SUV,” said Santosh Desai, brands expert and chief executive officer of Futurebrands.

Madan Sabnavis, chief economist at Bank of Baroda, said, “With increased access to credit, consumers starting their careers are not going for vehicles priced below Rs 10 lakh.”

ENTRY-LEVEL STRESS
At the same time, Sabnavis said, “buyers migrating from twowheelers to four-wheelers are seeing stress in disposable income, and also getting impacted by the hike in interest rates we have seen in the past one year”.

Vehicle prices, too, have increased due to factors such as rising input costs, increase in road tax levied by state governments, and transition to higher emission and safety regulations, hurting sales in this price-sensitive segment.