Opinion: A requiem for the 'mini car'?
By Avik Chattopadhyay

We finally exited a traumatic 12 months, primarily for the Indian auto field, on a high note. The December 2020 figures are out with promising silver strains. Each the passenger motor vehicles and two-wheelers confirmed indicators of revival, developing by thirteen.6% and 7.four% respectively around December 2019 as per wholesale data launched by Culture of Indian Car Makers (SIAM) on January fourteen, 2021.

The October-December quarter, the Q3, also saw an enhance of fourteen.four% and thirteen.four% in equally the groups around very last 12 months. The Federation of Car Dealers Associations (FADA) data on registrations, launched a few times ahead of SIAM, also confirmed an enhance of 24% and 11.8%, respectively around December 2019.

Nonetheless, equally the press releases by SIAM and FADA tempered the data with text of calculated caution. Statements produced by the presidents of equally the field bodies attributed the general performance to aspects like unfulfilled need of the April-June quarter, a late festive season spilling around into December and the cost enhance announced for January 2021.

The tone of voice was nervous as the very last quarter (January-March) would be the ultimate problem. Would the field ‘crack it’ just as the Indian cricket crew did on the very last working day of the Brisbane test on January 19, 2021?

Why the stress and anxiety? Why the deliberate caution? Is the December general performance a momentary blip or a signal for the times forward? I decided to dive into the figures around the very last 21 months to see the designs if any. Also, I spoke with a pair of improvement economists for their viewpoint on whether the field is around the bend finally immediately after a gradual slump that started way back again in October 2018.

So, listed here is my choose on the present condition. The ‘revival’ is not sustainable, and the ‘green shoots’ are that of a prickly thicket and not a huge tree. Am I fashionably contrarian, or do I have logic behind my assessment? I do not have the remedies to get out of where we are but definitely, have some specific observations that may possibly assistance arrive at a number of.

My observations are based on the way the ‘Mini car’ segment of passenger motor vehicles is performing by way of this pandemic. SIAM defines the segment as “Seats up to five, length – ordinarily

This is the 1st action into the planet of four-wheeled mobility in India. This is the base. This generally carries the bodyweight of the full market on its shoulders. This is the starting of a extended pipeline. This is where sustainable revival gets ignited. So, let us choose a look at how this segment has performed during the pandemic vis-à-vis a number of other critical segments like ‘compact car’ and ‘compact UV’, (UVC as per SIAM classification).

Opinion: A requiem for the 'mini car'?
Supply – SIAM

The comparison is between the top three PV segments. UVs have had a great run during this time, top this ‘revival’, but cannibalising into compact automobiles and mini automobiles. What is worrisome is that minicars’ share in whole profits has truly absent down vis-à-vis compact automobiles and UVs. In a crucial revival such as now, one would generally expect the entry-amount to guide the charge, but it has not. This has two apparent implications – both the base is not developing, that means there is truly no revival or, the base by itself has shifted to a distinct cost band, that means the present entry-amount/mini vehicle has shed relevance in the Indian market.

So, what is happening? And why does it take place?

Below is a snapshot of the top 10 PVs marketed in December 2020.

Opinion: A requiem for the 'mini car'?
Supply – SIAM

Just set, the well-off have restarted acquiring motor vehicles, albeit scaled down a cost band but the financial segment that helps make up the bulk of mini vehicle customers have not conquer the shock of positions shed or salaries slashed. One who had decided to upgrade to a Hyundai Creta in 2020 scaled-down into acquiring a Location but did not cancel the order. One who had prepared to upgrade from a 2-wheeler into the 1st four-wheeler has had to postpone the order altogether.

Armed with this hypothesis, I share a number of observations.

The egg versus the samosa

I current this comparison, many thanks to the chats with the improvement economists. The way the market has made around the very last 10 years is not sustainable. India is not a experienced market. It is a maturing one. The market is not 1.three billion. Only around four hundred million Indians can manage to acquire a mode of transport starting up with a bicycle. So, the base wants to be broadened to assure a bigger vehicle penetration than the present 23 per 1,000 individuals. The entry-amount has to be the major to assure a healthier pipeline.

Opinion: A requiem for the 'mini car'?

We have been developing like an egg with the base segment lesser and with a lesser protection than the segments higher than. For a maturing market, this cannot be sustainable. This works in a experienced market with a car penetration higher than five hundred per 1,000 where entry-amount motor vehicles are purchased both as supplemental motor vehicles or by a decreasing economically weaker area.

A maturing market has to develop like a ‘samosa’, with a larger sized base with vast protection. There is no different to developing a sustainable advancement design that ponders around a extended stagnation as the present one for around 24 months.

Far too number of and far too hideous

How does the entry-amount develop? Could feel simplistic, but the merchandise presents have to have to be equally quite a few and aspirational. There are only five items on present (Alto, S-presso, Kwid, E2O and RediGo) in a segment that is meant to catch the attention of thousands and thousands into owning a four-wheeler.

Automakers like Tata Motors and Hyundai have exited the segment. With the Kwid figures flattening and the RediGo a non-starter, Maruti Suzuki should really have a home run listed here. If you look at the Alto and S-presso you would not think so. Why do low cost motor vehicles have to look hideous and act boring? To make the buyer acutely aware that he/she has purchased a low cost car and should really be transferring a notch bigger into the realm of a WagonR or Celerio? Confounds me, as it is the entry-amount that has to be most eye-catching to the 1st-time buyer!

The water pipe impact

Opinion: A requiem for the 'mini car'?
Supply – FADA

Consider a extended water pipe. Open the faucet and water the grass. Then shut the faucet and roll the pipe. Subsequent time unroll the pipe and you discover that voila, water pours out without the need of opening the faucet. It really is a extended pipe and you water for some time ahead of it all dries up. The water saved in the pipe is around. Without the need of the faucet, practically nothing will perform.

The very same principle applies to any market. To water it, the faucet wants to be operational. For the PV segment, the base of 2-wheeler house owners is the faucet. Extra and replacement profits cannot be a sustainable design for any segment, more so an entry-amount one.

The bloodbath in 2-wheeler profits and registrations is the key trigger for the mini vehicle segment underperforming and seeming to reduce relevance. The faucet is half-closed, top to a trickle by way of the water pipe. Only when it is fully open up will the circulation get healthier.

The leap of cost

The most affordable mini vehicle is Datsun RediGo at INR three.32 lakh on-highway in Delhi. The most affordable Alto is a little bit bigger at INR three.forty one lakh.

The normal 2-wheeler from which a human being aspires to possess an entry-amount four-wheeler prices around INR 75,000. Even if one were to go for a five-12 months loan, the leap is just far too a lot, even when moments are good.

The vehicle makers will justify that specified the soaring input prices, the sticker cost of an entry-amount vehicle at cost parity has absent up by only four%-five% around the very last five years, a lot decrease than the inflation amount around the very same period of time. Accepted, but just that the cost hole is however way far too high.

If car possession is to enhance sustainably in favour of the ‘samosa,’ then the sticker cost should really be 2.five-three. moments that of the normal 2-wheeler.

So, if the aspirant cannot get a new vehicle at that cost issue, the made use of vehicle is the best option. Scanning by way of a number of made use of-vehicle internet sites exhibits that one can opt for a made use of mini vehicle in that cost band. Versus a brand new Alto LXi, one can get a three-12 months previous Swift or i10 getting completed in 40,000 kms. This is the purpose one saw a large spurt in made use of vehicle profits in the early stages of the lockdown. At the time the stock was around, the profits trends are back again to ‘normal’ as ahead of the pandemic strike us.

The mini vehicle has to be produced more ‘affordable’ to the 2-wheeler aspirant if the segment is to see any extended-expression advancement. That may be by way of clever financing and subscription/leasing possibilities, bringing them closer to what the pocket lets.

For whom the price range tolls?

The anomaly of the entry-amount/mini vehicle segment wants to be resolved in the price range. The field and its representative bodies have to construct a strong circumstance for stimulating its revival.

We need to try to remember that a citizen pays a decrease GST for a INR 70,000 smartphone than for INR 70,000 motorbike! Just simply because the plan makers feel that a passenger car is a luxury product and therefore wants a ‘sin tax’ on it.

I am absolutely sure the automakers and plan makers alike will have possible remedies up their sleeves. If they never and carry on not to see eye to eye, the Indian auto field will carry on to develop in a lopsided manner, not running at its potential.

An egg is certainly healthier and works quite well for the mid-working day foods. Also, it is undoubtedly rough to make an egg stand upright for extended. The samosa has a superb base to relaxation on, is universal in charm and can be consumed at any time of working day or night.