Entry-Level Cars Likely To Face The Heat In 2023

Srinjoy Bal
20 Jan 2023
10:18 AM
2 Min Read

Experts believe that the Centre should reduce the GST on small cars from 28% to 18%

Passenger Cars

Car and SUV sales in calendar 2022 ended on a high with a growth of 23.03%. Despatches totalled 3,792,356 units up from 3,082,421 units in the previous calendar.

Rajesh Menon, Director General, SIAM (Society of Indian Automobile Manufacturers), said this growth had been on a low base given that sales had plummeted in April/May 2021 thanks to the pandemic. He added that consumer sentiment has been better especially in urban areas.

Further, the fall in supply chain challenges and overall economic recovery last year aided sales with the holiday season being a lot better in 2022 than previous years.

Will the tempo continue in 2023 as well? Experts say it could be a mixed bag. According to Puneet Gupta, Director, IHSMarkit, pent up demand will fuel growth till the first half of the year after which concerns could arise. This would be a result of constant rise in vehicle prices owing to steeper raw materials cost.

New Headwinds

Menon agreed, saying that new regulations such as RDE (real driving emissions), six airbags etc could raise vehicle costs. Coupled with global recessionary trends, headwinds could be a reality in 2023.

Wholesale prices of passenger vehicles increased by 2% and retail by 8% in the quarter ended September 2022 marking it the highest-ever. Inflation has also been a concern which has led to an increase of lending rates. With BS VI Phase 2 norms kicking in from April, vehicle costs will increase and may affect sales, said Menon.

Manish Raj Singhania, President, FADA (Federation of Automobile Dealers Associations) believes that the market buoyancy, pent up demand and the introduction of new models (including affordable EVs) will boost  growth in the PV segment, albeit in single digits. Automakers have been rapidly launching EVs and their price tags have put customers in a dilemma when it comes to the internal combustion engine.

PV Sales Fron CY18-CY22

Discounts Galore

While affordable EVs will take a year or two to get into the market, experts believe that the current calendar will be a year of discounts. Low demand products which were earlier filling the gap in the market, will now be offered at higher discounts.

According to Gupta, as supply comes back on track, low volume PV players will face the brunt as consumers shift back to more popular models. To get around this, they will have to look at Tier 1/2 cities and offer steep discounts to generate demand for their range.

He said top PV players would have to employ aggressive marketing tactics over the next 3-4 months to attract customers to their showrooms. Strategies may include offering steep discounts or even introducing minor changes. Gupta added that the problem would be more acute for SUV makers given that there is high demand for those in the INR 6-30 lakh range.

Singhania was of the view that this would spawn a discount war in the SUV space while entry-level hatchbacks would dip further following a higher price tag with new norms. The BS VI regime already made this segment super expensive which resulted in a 70% crash in demand. The new emission norms phase which is effective from April will aggravate this situation since prices will go up even higher, he added.

Lowering GST

According to Singhania, the low demand in the entry-level segment is a big loss to the auto industry especially when personal mobility has become imperative after the pandemic. The FADA chief said the Centre should reduce GST for the segment from 28% to 18%. “This alone can make a huge difference as customers in this space are very price-sensitive,” he added.

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