Compact sedan volumes grow 25-26% despite shift to SUVs, room to revive demand: Shailesh Chandra, Tata Motors PV

The compact sedan segment in India has grown around 25-26% in volume over the past year to nearly 3.5 lakh units, even as its share of the overall passenger vehicle market has declined amid the sustained shift towards Sport Utility Vehicles (SUVs), said Shailesh Chandra, MD & CEO, Tata Motors Passenger Vehicles (TMPV).

Speaking at a media roundtable ahead of the launch of the company's new compact sedan Tata Aeris, Chandra said the increase in absolute volumes shows that the category continues to have a sizeable customer base, despite the decline in its overall market share. Tata Motors sees an opportunity among customers who have moved to SUVs because existing compact sedans did not adequately meet their expectations on design, technology and modernity.

TMPV on 25th September, launched the Aeris in India at an introductory price of ₹5.29 lakh (ex-showroom Delhi), 

‘There is a clear section of customers’ looking for compact sedans

“There is a clear section of customers who is looking for a compact sedan. And there is a section of customer who has been looking for compact sedan but has moved to SUVs because the current compact sedan might have not met their requirements of contemporariness, modernity and so on. And that is the opportunity we want to tap,” affirmed Chandra.

The compact sedan market was around 2.7 lakh units when India's passenger vehicle market was about 2.7 million units during the Covid period and has since expanded to nearly 3.5 lakh units, Chandra said. The broader sedan market is around 4 lakh units, with compact sedans accounting for nearly 80-85% of the category.

“The volume has been growing in a growing market, but the share has been dropping,” Chandra said, highlighting the divergence between absolute volumes and the segment's share of the overall passenger vehicle market.

He said the compact sedan continues to offer a combination of space, affordability and a sense of an upgrade for customers moving up from hatchbacks. A smaller SUV can cost more, while a sedan offers greater space at a relatively accessible price point, he added.

Chandra also indicated why Tata Motors believes a fresh product can address some of the lost demand. “If I had not come with Aeris, I might have lost a customer who was actually looking for a compact sedan,” he said, explaining the company's approach of offering customers different body styles rather than assuming that every buyer would shift to an SUV.

Tata separates personal, fleet compact sedan strategy

The strategy has prompted Tata Motors to create a distinct product for personal buyers instead of continuing with the earlier Tigor positioning. Chandra said the company conducted comprehensive consumer research around one-and-a-half to two years ago, along with feedback from channel partners and sales executives, which indicated a need for a compact sedan tailored specifically to private customers.

“Different customers with different expectations should have distinct products built around their specific needs,” Chandra said.

The fleet-focused Xpress will continue to cater to commercial customers, with greater emphasis on fuel efficiency, operating economics, repairability and uptime. The Aeris, meanwhile, has been developed around the aspirations of personal buyers, with a greater focus on design, technology, comfort and safety.

Personal buyers account for 65% of the compact sedan market, while fleet customers make up the remaining 35%, according to Chandra.

The customer mix also varies by geography. In larger metropolitan markets, compact sedans are more heavily represented in the fleet segment, while tier-2 and tier-3 cities and rural markets offer a larger pool of personal buyers. Chandra said affordability and aspiration are important factors supporting demand in these markets.

This smaller-city opportunity is also reflected in the company's positioning of the Aeris, with Tata Motors expecting personal demand for compact sedans to be more pronounced in markets where buyers are looking for an aspirational upgrade without moving to the higher price points of larger vehicles.

According to Chandra, " We foresee Tier-2 and Tier-3 markets as an important demand pool for the new sedan."

CNG drives segment; EV option remains open

CNG has emerged as an important powertrain for compact sedans, with Chandra saying CNG retail volumes in India have grown nearly 46% year-on-year, around twice the pace of the overall industry. CNG accounts for nearly 60% of compact sedan volumes, compared with around 20-25% for the overall industry.

Among personal compact sedan buyers, CNG penetration is around 53%, while it is as high as 73-75% among fleet customers. The Aeris will initially be offered with petrol and CNG powertrains.

An electric version remains a possibility, although Tata Motors will wait for the market to expand before introducing another EV in the segment.

“Electric is a possibility. It is protected for it. It has been configured also, but we would wait for the market to evolve a bit,” Chandra said.

Tata Motors already has three EV offerings in the ₹8 lakh-₹15 lakh range — Tiago, Punch and Nexon. Chandra said the company would prefer to wait for demand to build before adding another nameplate, as introducing another model into a limited market could result in too many products chasing the same pool of buyers.

The company is nevertheless preparing for stronger-than-expected offtake for the Aeris. “We have planned significantly higher than what we were doing in this segment earlier. And whatever we have planned for, we also know that it might surprise us,” Chandra said, adding that Tata Motors has taken steps to ramp up production if demand exceeds expectations.