Bull run for passenger carmakers in 2023

It’s no secret now that the frenzy for sports utility vehicles continues to drive the Indian passenger vehicle market to new highs. The Indian SUV segment for the first time touched a new peak of two million vehicles, helping the Indian car market post a record high for the second consecutive year as per industry sources. The cumulative sales for the calendar year 2023 is estimated to be around 4.11 million units. The country’s passenger car market has exceeded expectations of most analysts in the country, who had pegged the 2023 market growth at 3.5 percent, whereas the market is set to grow by 8.4 percent this year — which is more than double the estimates at the beginning of the year. Every month of this year — from January to November — the industry has posted the highest sales of that respective month on account of sustained demand and improved semiconductor supplies and December is likely to be the same story with despatches of about 2.85 lakh units. 

Entry level SUVs emerge as the biggest segment winners

What stood out in 2023 was that there was a strong preference in favour of SUVs over premium hatchbacks and sedans at the entry level. One million prospective buyers chose an entry SUV over other alternatives helping the SUV segment to cross two million units mark. While the mid-size SUVs are estimated to be the second most preferred segment in the market at about 22.5 percent, it was followed closely by the premium hatchback at 17 percent. Automakers sustained the excitement with 10 new SUV launches in 2023 taking the total number to 108, across entry level to luxury as per Jato Dynamics India. Out of 196 models available in the marketplace, 55 percent of the models were SUVs, highlighting the options for the prospective buyers. In comparison, sedans are 47 and hatchback options are only 21 — very clearly reflecting how the vehicle makers are aligning to market needs. Compare that to the market in 2018 with 50 hatchbacks and 78 SUVs.

The automotive industry also took rapid strides on cleaning up the environment by increasing the share of CNG vehicles. Sales of CNG vehicles crossed half a million units accounting for 13.5 percent of the annual sales. Meanwhile, the industry will be inching towards one lakh zero emission vehicles, and may close the year with around 90,000 EV sales in 2023, accounting for 2.2 percent of the annual sales. The strong hybrid vehicle sales are likely to end at about 80,000 to 85,000 units at two percent. Cumulatively, the cleaner vehicle segment represents over 17 percent of the market and is growing steadily. Shashank Srivastava, Senior Executive Officer, Sales and Marketing at Maruti Suzuki says that from a volume's perspective the year 2023 was quite dramatic. “Not only has every month individually been the highest ever and this is despite the industry battling with the semiconductor components supply in the year till July.

"The year was marked by high pending bookings and lingering waiting periods for the larger cars and an increased inventory levels of smaller cars. With consumer preference clearly tilting to SUVs, the market should touch the two million sales mark, something which was never achieved by even hatches,” informed Srivastava.

Supplies restored, market back to normalcy

With increased availability of component supply from July onwards, the industry has seen the rapid transitioning to the ‘normal’ pre Covid-19 conditions especially with inventory rising, discounts coming back and waiting periods shrinking or disappearing. To be sure, at the beginning of 2023, the industry was sitting on an orderbook of close to one million units, which has more than halved and the inventory in the channel is back to almost 45 days of stock. The channel stock, which started with 1.5 lakh at the beginning of 2023, did swell to over 3-3.5 lakh, may correct again at the end of December.

During the year, the market also saw the average age becoming slightly younger and a sustained improvement in the share or women buyers and the gap between rural and urban buyers is getting narrower, with SUVs in strong demand in the smaller towns and hinterlands. Availability of finance ensured that the rural contribution to the industry rose up to almost 30-31 percent, say sources.

Maturing Indian car buyer

Tarun Garg, COO at Hyundai Motor India says 2023 has to be yet another defining year in terms of the Indian market maturing — with cleaner and safer cars. “It has been a very significant year in my view. There were doubts that 2022 growth momentum may not sustain in 2023, due to rising interest rates, fear of global recessionary trends and the Russia-Ukraine war, but the market has held on very well with a growth of over eight percent and Hyundai too has outpaced the market and is set to cross six the lakh mark.” This happened in an environment — when significant new regulatory changes were implemented — RDE emission norms, three-pointed seat belt and the announcement of Bharat NCAP norms — even though mandatory six airbags norms were not enforced. Hyundai Motor India, became the first mass-market vehicle maker to make six airbags mandatory and the company said it was accelerating its advanced safety assist features and expects 100 percent of vehicles to sport ADAS features and blue link connectivity features by 2025.

“For Indian consumers too, safety has become amongst the key buying criteria as against the price — the elements of six airbags, ADAS are being sought after by majority of our buyers. Having said that the value equation is still very important, but it is no more about the lowest price, an Indian consumer is willing to pay more for safety, features and convenience,” added Garg. As per the automotive consultancy Jato Dynamics, the sunroof as a standard feature in India is inching close to 30 percent at the end of 2023, which was just eight percent pre-Covid-19. Nowadays, 87 percent of the vehicles have Bluetooth connectivity as a standard and remote services are available in 30 percent of cars. Almost 20 percent of the cars running on the road today offer over the air updates, with 16 percent of the vehicles can start HVAC remotely. Garg says given the ability of the growing middle-class to pay more, many of the global automakers are encouraged to offer more features and equipment levels in the car and he believes that India is taking a giant leap towards safety and the gap with the other global markets too is narrowing.  Hyundai Motor India claims the demand for safety also comes due to average speed on roads increasing due to thousands of kilometers of highways being built every month. 

The length of national highways has increased to 1.45 lakh kms and at the same time, the number of vehicles on the road have surged by a staggering 62 percent over the last eight years. The top speed on expressways is now at par with global standards. Hence it is natural that upgrading of vehicle safety levels should go hand-in-hand with this development of road infrastructure, claim industry players.

On a high base, growth to slow

On the way ahead, Garg says he expects the market growth to continue, but it is likely to be in the low single digit, given the high base created by three consecutive years of growth.

“The outlook still appears to be stable for India amid challenges of high interest rate and fluctuating forex. With political stability and a healthy GDP forecast, the market will sustain the growth. However due to high base, the growth rate may be in the low single digit around three percent,” added Garg. The pace of road construction and highways has been one of the biggest enablers and sustained growth in economic activity will ensure a better distribution of income and eventually small car buyers making a comeback.

On the way forward, Srivastava says factors like sectoral GDP growth, forthcoming Assembly elections, rural income (agricultural income), interest rates and inflation are the key determining factors which may impact the growth rate in 2024. “PVs will perhaps have a flattish growth in 2024 as the base of 2023 has been artificially high,” he added.

This feature was first published in Autocar Professional's December 15, 2023 issue.