India's largest carmaker Maruti Suzuki India Ltd expects small car sales to revive only after two years as affordability remains an issue for entry-level car buyers.

The small car segment, which contracted during the last fiscal and in April 2024, still drives a significant number of sales for the Japanese carmaker.

The price hike that has happened in small cars due to government regulations is quite a steep high whereas the salary increases have not happened to that extent, says Partho Banerjee, senior executive officer, Marketing & Sales, Maruti Suzuki.

The affordability of small cars has reduced due to this gap, he adds.

Sales of cars in the mini segment, comprising Alto and S-Presso, declined 18% year-on-year to 11,519 units in April 2024 compared with 14,110 units in April 2023. Sales of compact cars, including Baleno, Celerio, Dzire, Ignis, Swift, Tour S and WagonR, dropped 24% to 56,953 units last month over 74,935 units in the year-ago month.

India's top carmaker is pinning its hopes on the revival in the two-wheeler segment. "In the past, whenever there is a revival in the two-wheeler segment, it comes to the four-wheelers also with a lag. We are going to see an upside in the hatch segment," says Banerjee. "We expect this market to revive by 2026-27."

Out of 1,000 people, only 32 own a car in India. In developed markets, car penetration per thousand people is over 600. "We are moving in that direction. By 2030, car penetration in India will increase to 44 cars per 1,000. Obviously, people will be migrating more from two-wheelers to four-wheelers," Banerjee explains.

The small car segment will revive and it is only a matter of time, believes Banerjee. In times to come, there will be a market for all segments, he says.

The share of first-time buyers of Maruti cars in 2023-24 stood at 43%.

A rebound in entry-level cars in the current financial year is a little optimistic, according to Maruti Suzuki chairman RC Bhargava. "It is too early. It won't happen that quickly. It will take more time. Therefore, SUVs will still remain the dominant segment in the car market. The small car market is not rebounding this year or maybe not even in 2025," Bhargava says.

Over the past few years, India's car market has shifted to sport utility vehicles. To cater to this growing demand for SUVs, Maruti Suzuki is ramping up its capacity for larger utility vehicles.

"Maruti in the last 2-3 years had a limitation of capacity in manufacturing bigger cars when the market shifted towards bigger cars from smaller cars following a relatively sharper increase in prices of smaller cars. We did not anticipate that there would be such a big increase in costs happening there and that it would have an impact. So our production capacity got out of tune with the market requirements," says Bhargava. "It took us time but we have adjusted to a large extent. We are sharply increasing our market in bigger cars."

The automaker added 1 lakh units per year capacity at its Manesar plant last month. It plans to start its greenfield manufacturing plant in Kharkhoda, Haryana next year. Maruti Suzuki crossed the 2 million sales mark including exports last fiscal. The carmaker plans to double its production capacity to about 4 million cars per annum by 2030-31.

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