Can’t afford an entry-level car

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June 4th, 2012 Ram Prasad Sahu

In a slowdown as sharp as this, all product segments in the discretionary spend value chain ought to be impacted. However, the latest auto numbers do not reflect this. Even though India’s largest passenger car company reported a steep drop in volumes of its entry-level or mini segment cars (800, Alto, A-Star, Wagon R), consumers can’t have enough of its diesel-driven compact segment cars -– the Swift and Dzire. Volumes for the two higher-priced cars when consumers are going snip, snip at other expenditure was up between 15-64 per cent.

While the higher running costs for the entry level petrol portfolio is part of the reason, affordability especially for the mid-level consumer seems to be the bigger factor. Given fuel price hikes and a jump in interest costs, price conscious consumers continue to downtrend to the Nano and motorcycles, while costly diesel versions are snapped up by people higher up on the affordability ladder. This probably explains why Maruti’s Ertiga and M&M portfolio of utility vehicles delivered another month of strong growth.

With a 45 per cent price gap between petrol and diesel prices, Maruti’s is forced to offer discounts up to 11 per cent on its petrol vehicles but consumers aren’t taking the bait and instead downtrending or postponing their decisions. With over 65 per cent of its portfolio comprising vehicles running on petrol, the market leader has a tough task on its hands.

While Maruti’s passenger cars volumes and M&M’s tractor volume growth does put a question mark on the strength of the rural economy, Hero MotoCorp’s (HMC) numbers suggest otherwise. As if its high base and recent good performance was not enough, the largest player in the two-wheeler business delivered another strong month of volume growth. Given that rural consumers predominantly buy two wheelers on cash, higher interest costs doesn’t impact HMC’s sales. On the other hand, financing issues and the affordability factor have pegged back Maruti and M&Ms rural sales push.

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One Response to “Can’t afford an entry-level car”

  1. Sanjay Prakash Srivastava Says:

    With continuous increase in petrol prices and no relief expected in near future , sales of entry level petrol cars may not see any substancial change in near future.

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