Low cost small cars necessary for India, Maruti Suzuki won't change strategy despite temporary setback: R C Bhargava

India's largest carmaker Maruti Suzuki India Ltd will not adjust its strategy on small cars just because of a temporary downturn in demand for those cars in the market, according to the company's Chairman RC Bhargava.

“We firmly believe that low cost and small cars are necessary in our economic and social conditions. A temporary setback in demand is not going to change our strategy,” he told shareholders in the company's annual general meeting.

India's small and affordable market has been declining since the pandemic, with hatchbacks losing their market share steadily. Sport Utility Vehicles (SUVs) have been driving overall passenger vehicle industry growth and now account for around 50% of the industry volumes.

This is primarily because the rate of increase in the cost of small cars outpaced income growth of the potential consumers for small cars, squeezing budgets and making vehicles increasingly out of reach for many.

Regulatory changes and rising inflation have led to small car prices moving up by over 30-40% over the last five years, hence putting it out of reach of many two-wheeler upgraders.

Most of the car companies have altogether exited the entry-level or sub-Rs 5 lakh category, and are focusing on higher-margin SUVs. The share of entry-level is estimated to have shrunk dramatically to less than 1% last year from around 33% in 2015.

However, Maruti Suzuki, which is the king of small cars with a market share of over 60%, believes the small car segment will recover next year with improvements in the affordability factor. Bhargava had previously said he believes the growth of small cars is essential for the sustained growth of India’s passenger vehicle market as it attracts more first-time buyers to the market.

“Even as we produce more SUVs and higher cost cars to cater to a different market segment, we will never forget the needs of the large numbers who cannot afford expensive cars," Bhargava had said in the company's annual report. 

India's passenger vehicle volumes scaled a new high of 4.2 million units in 2023-24 to sustain its status as the third-largest car market globally. However, the growth rate of the industry has been moderating and is expected to moderate further to low single digits in the current financial year.