Small Cars Reviving, Expect Some OEMs to Revise their Product Mix: R C Bhargava

Entry-level small cars are witnessing a revival, and this could trigger action in terms of new introductions by OEMs, says Maruti Suzuki India. The change of fortune for the small cars segment is mainly due to enhanced affordability, powered by the revised tax rates under GST 2.0, which kicked in from 22nd September.

For the period of April to September this year, 16.7 percent of Maruti Suzuki’s sales came from its entry-level model portfolio, comprised of the Alto, S-Presso, Celerio, and Wagon-R. Within a month and a half of announcing post-GST 2.0 prices, the sales share of these models has gone up to 20.5 percent, according to the company. 

This might also be an early indicator that the entry-level car segment's declining trend is being arrested, and its share of the overall passenger vehicle (PV) market is improving. About 70 percent of the vehicles Maruti Suzuki India currently produces fall in the 18 percent GST category, but the company will see some change in its product mix, according to its Chairman, R C Bhargava.

"Retail sales of vehicles in the 18 percent category are likely to grow faster than the sales of vehicles in the 40 percent GST category," says Bhargava.

Maruti Suzuki India says it currently has bookings for 3,50,000 vehicles, of which 2,50,000 fall into the 18 percent GST slab. The festive season, and the GST-revision-led price drops may also lead to a record month of sales in October for Maruti Suzuki India. The company says it has seen a 30 percent jump in retail sales of small cars (falling in the 18 percent GST category) this month. The sales of bigger cars grew by 4-5 percent. Overall, retail sales growth was around 20 percent.

While noting that the beneficiaries of the small car market revival are limited, Bharagava expects the emerging market trend may make the others to relook at their strategy for the bottom of the market pyramid. "I think many car makers will now realise what the nature of the Indian car market is, and I expect some of them at least to revise their product mix," he says.

The market movement towards SUVs has made multiple OEMs move out of, or reduce their focus on the small car segment. In FY25, the share of SUVs in the overall PV industry reached around 65 percent. Bharagava argues "it's not correct that all the car buyers including those who used to be small car buyers have moved up to the SUV category. It's just that they couldn't afford to buy the more expensive small cars."

Under GST 2.0, tax on small cars (up to 4 metres, 1200 cc petrol/1500cc diesel), was reduced from 28 percent to 18 percent. Larger cars attract a flat 40 percent tax. Puneet Gupta, Director, S&P Mobility, India & ASEAN, expects the new GST regime to have a bigger impact in the small car segment, while also acting as a booster for large cars, and for the luxury car segment it may act as a psychological catalyst.

GST 2.0 impact on production and sales projections

In addition to the immediate impact of growing consumer demand, the GST2.0-led revised price regime may make companies revisit their long term plans. Maruti Suzuki is currently working on its own.

"The production and sale projections for 2030-31 are bound to undergo some changes because of this GST. And I think the government will see that lowering tax rates does do a substantial amount of good in respect of production increase, in terms of people getting higher or more convenient means of transport, and ultimately in raising the tax collections of the government also," the industry veteran says.

By 2030, Maruti Suzuki India also plans to invest around ₹70,000 crore in India, to scale up its annual production capacity to 4 million vehicles, with an aim to reclaim the 50 percent market share which it had till about 6 years ago. Currently its annual production capacity stands at around 2.6 million units, and it ended FY25 with a market share of 40 percent.