India's Car Industry Is Slowing Down As SUV Sales Lose Steam

The passenger vehicle industry is slowing down as sports utility vehicles, the key driver of demand, may not be able to sustain the momentum in the coming months.

"So far, the growth (of passenger vehicles) is around 7.9% in FY24, which is primarily driven by SUVs," Shashank Srivastava, senior executive officer of marketing and sales at Maruti Suzuki India Ltd., told BQ Prime in an interview. "My expectation is that this 7.9% will become 6.1–6.2% by the end of the year."

While demand of entry-level cars was already falling, a high base and tapering sales of SUVs will further slow down the industry. It grew at over 20% in the last financial year but is expected to expand just over 6% in the current fiscal.

"Due to this slowdown in small-car sales, the industry is expecting a stagnation in the next fiscal," RC Bhargava, chairperson of Maruti Suzuki, said in October.

Shashank Srivastava, senior executive officer of marketing and sales at Maruti Suzuki India (Soruce: company)

The market has tilted towards higher-priced vehicles over the last few years as rising commodity prices and increased costs on account of new emission and safety norms have made cars more expensive.

Despite lower sales of smaller cars, the industry marched ahead, riding on the booming demand for SUVs. The share of SUVs in overall passenger vehicle sales has climbed steadily.

SUV sales have risen by 26% in the current fiscal so far and contributed over 50% to the overall sales in the last three months, Srivastava said.

By contrast, sales of mini and micro cars tumbled to 35,000 units in the September quarter, a 75% drop compared with five years ago.

While the signs of slowing growth were visible much earlier, the on-ground sales are likely to reflect the trend from December as post-festive inventory remains high.

Nomura Holdings Inc. expects that discounts in the month will reach a three-year high as dealers and companies look to clear the stocks.

"It appears the growth levels for next year may not be high. You would see some tapering off on the SUV growth and unless the smaller car segment revives, it might be difficult to see a large growth," Srivastava said.