No more a small cars market

The share of utility vehicles (UVs) in the overall domestic passenger vehicle (PV) segment increased to 48% in the first nine months of fiscal 2022 from 15% about two decades ago (fiscal 2002) - a whopping 3,300 basis points (bps) jump.

This indicates a clear shift in consumer preference towards UVs, contrary to the long-held view that India is a small cars market.

Indeed, the share of small cars declined from 65% in fiscal 2012 to 45% in the first nine months of fiscal 2022. This shift was felt more so in fiscals 2021 and 2022 as income sentiments of entry level car buyers has been impacted due to Covid-19 which has also led to a spurt in UV sales share.

We take a look at aspects such as entry of new players, launch of new UV models, the increasing share of petrol variants, varying goods and services tax (GST) rates across sub-segments, and the share of UVs in international PV markets to say for sure.

India’s booming UV segment

India’s PV market remains an underpenetrated consumption segment with 24 vehicles per 1,000 people. A growing middle class and rising per capita income make it one of the preferred target markets for auto players, leading to many original equipment manufacturers (OEMs) setting up presence here.

For long, the market has been skewed towards small car segments - including micro, mini and compact vehicles whose lengths vary from 3,200 mm to 4,000 mm - which have predictably drawn the most action from OEMs.

Recent years, however, have seen a major shift in consumer preference, especially in urban areas. Between fiscals 2009 and 2019, the small car segment logged a compound annual growth rate (CAGR) of 7%, while UVs - defined as either four-wheel-drive (4WD) or two-wheel-drive (2WD) vehicles having off-road capability and lengths of 3,800mm to 5,100 mm - logged a CAGR of 16%. While a part this growth is due to low-base effect, the entry of new players and launch of new models have also pushed the change in consumer bent.