India’s passenger vehicle (PV) market is set to close the ongoing calendar with a sustained year-on-year (YoY) growth of around 8 percent as improved chip supplies enabled better production at OEMs to cater to the pent-up demand, reasoned Tarun Garg, Chief Operating Officer, Hyundai Motor India, in an interview.
However, Garg expects the industry’s trajectory to moderate next year to a low-single digit growth rate, owing to the high base in CY23 as the industry is set to clock its highest-ever sales, upwards of 4.12 million units in the ongoing calendar.
“The PV industry sales during the January-December 2023 period are pegged at 4.12 million units, indicating at an 8 percent year-on-year growth from the previous year,” said Garg. The growth could be attributed to the industry hitting the top gear on the back of pent-up demand, increased vehicle production, new launches and strong demand during the festive season which lasted for nearly four months from August until November.
While constraints in the supply of semiconductors during the pandemic had crippled the automotive industry as automakers could not produce enough vehicles to cater to the demand, the supply has improved, particularly in the second half of CY23 and most industry players cite that they are out of the woods.
Furthermore, a flurry of new model launches in the utility vehicle (UV) segment, which has been contributing upwards of 50 percent to the total vehicle sales in the country, struck chords with buyers and drove demand. Honda’s Elevate, Tata’s updated range of the Nexon, Nexon EV, Harrier, Safari, refreshed Kia Seltos, and the Citroen C3 Aircross are some of the models that have created a buzz in the market, attracting buyers towards showrooms.
UV contribution has consistently been on the rise, growing from 51% contribution in September, to 52 percent in October, and reaching 53 percent in November 2023. The 42-day festive period that culminated with Diwali in mid-November saw retail sales register a 10 percent year-on-year uptick with total PV sales of 547,246 units, as against 496,047 units sold in the festive period in CY22.
According to Manish Raj Singhania, President, Federation of Automobile Dealers Associations (FADA), “Despite the initial underperformance of PVs during Navratri, the situation significantly improved by Diwali, with the segment ending the festive season with a 10 percent YoY growth.”
For FY24, Maruti Suzuki India estimates PV sales to grow in the range of 5.5-6.5 percent on a year-on-year basis. The growth in the April-September 2023 period was on a low base in the comparable period when the chip shortage issue was at its peak. The chip supply improved gradually from the H2 of FY24, which resulted in a better second half of CY23 compared with the first half in 2022-23.
Automakers have also noted that growth in rural parts has been robust during the year and was exceeding the growth rate in the urban markets.
CY24 growth to remain in low-single digits
As Garg estimates the industry growth to limit to a low-single-digit rate in CY24, it could be attributed to the reduction in the pent-up demand. “The pent-up demand is now over. While people could not get cars in the last two years because of supply issues, now it is all about fresh bookings,” Garg said.
The low growth rate can also be attributed to the weakness seen in the small car segment. The entry-level car market has been shrinking amid the increase in vehicle prices over the last couple of years.
SUVs, however, are expected to continue the trend with an outperformance. “Customers have lost their interest in small cars priced under Rs 5 lakh or those with smaller than 1-litre engines,” Garg said.
Recently, Marut Suzuki India’s RC Bhargava also noted that the PV industry is not very optimistic about a high growth rate next year, while projecting a stagnant growth in FY25, partly due to the de-growth in the small car segment. Bhargava said the growth of small cars is essential for the sustained growth of the passenger vehicle market as SUVs or sedans are unlikely to attract many new entrants.
Meanwhile, several automakers including Maruti Suzuki, Tata Motors, and Mahindra & Mahindra, have announced their plans to hike vehicle prices from January 1, citing input cost pressures. Hyundai Motor India also expects to increase prices from January 2024.