He explained that affordability is a major concern that has impacted growth of the small-car segment. The company is betting on first-time buyers and more customers from rural as well as suburban areas — tier II and III towns.
“We believe absolute volume (of small cars) will increase but as a percentage of the total volume (of passenger vehicles), which is 38 per cent at the moment, this may show a decrease, but in absolute volume terms, it will increase,” PTI quoted Srivastava as saying.
The hatchback market used to fluctuate between 45-46 per cent of the total passenger vehicles market for the last five years and last year it dipped to about 38 per cent and SUVs with 40 per cent of the overall market became the largest selling segment, he added.
However, in terms of absolute volume, Srivastava said the small-car segment is still pretty large.
“Roughly if you look at the last fiscal’s full-year volume of about 30.7 lakh, 40 per cent of that is hatch. It was just under 12 lakh last year. The market for SUVs last year was 12.3 lakh. So, there is not a very large difference in terms of volumes,” he said.
On why MSIL is bullish on the small-car segment, Srivastava said India’s projected economic growth for the future propelling the requirement for transportation, a young population and a stream of youth coming into the workforce every year act as favourable factors.
It is also one of the reasons why the first-time buyers in India are in 45 to 48 per cent range for the last 25 years, he said adding, “there will be first time buyers because new workforce coming in means the demand for the hatches will continue.
“We are still not a high GDP per capita country where people straight away go into a large car or a high price car”.
“So, that is the reason why we are confident that this demand in this segment will remain strong and grow,” Srivastava asserted.
He, however, said one of the biggest challenges for the small-car segment is the affordability factor as consumers are highly price sensitive.
With prices of the vehicles going up due to various factors such as compliance of new regulations like emission and safety norms, increase in commodity prices and addition of new features to the cars, he said, the affordability factor has come down.
“The rate of increase of the income level of the consumers in this segment is slower than the increase in price levels.
“The rate at which these vehicle prices have increased in the past two-three years have been faster than income and thus the affordability factor has come down. As a result, we believe that this segment has become smaller than the SUV segment,” Srivastava said.
(With inputs from PTI)