“Premium auto sales soar, reflecting robust incomes of affluent buyers”
“Premium auto sales soar, reflecting robust incomes of affluent buyers”
Customers looking to purchase entry-level cars or looking to upgrade to such models are postponing decisions as the COVID-19 pandemic has significantly impacted their income sentiment, ratings agency Crisil said in a report Monday.
At the same time, sales of premium cars are expected to rise on the back of robust incomes from wealthy buyers, while the share of higher-priced two-wheelers is expected to remain around 40%, she added.
Cars priced over 10 lakh fall into the premium segment, while two-wheelers priced at £70,000 and up fall into the higher price bracket.
While supply chain issues have affected a number of vehicle manufacturers, models more expensive than entry-level models have continued to find buyers, counterintuitively, the agency said.
In India, cheaper cars are usually bought by first-time users or those switching from used cars.
Last fiscal year, cars in the premium segment sold five times faster than cars with lower sticker prices and posted about 38% year-over-year growth, compared to about 7% growth for the latter, Crisil said.
As a result, premium car market share rose 500 basis points to about 30% last fiscal year, compared with about 25% in FY21, it said.
Going forward, Crisil says, the expectation is that the share of higher-priced cars will remain at current levels due to the robust incomes of wealthy buyers and traction for new models. The share of higher-priced two-wheelers will also remain around 40% due to increasing consumer preference and the availability of more models.
The agency found that there was a sharp disparity in the income sentiment of respective target consumers, steeper price increases for lower-end cars, fewer options – some manufacturers were exiting the segment – and a number of new launches that had increased preference for higher-priced cars .
The report also said it estimates labor costs for large and medium-sized businesses — an indicator of income sentiment among affluent buyers of higher-priced cars — have risen much more sharply than costs for small and medium-sized businesses, which account for a larger proportion of low-cost car buyers.
Adding to the subdued earnings sentiment, there has been a cumulative 15-20% increase in the sticker price of low-end cars over the last four fiscal years due to tighter safety regulations (anti-lock brakes regulation, front-row airbags, speed warning alarms, seat belt reminders, rear parking sensors, crash test standards) and the move to BS 6 emissions standards, which Crisil Research said had impacted sales.
Consumer preference gradually shifted from budget models, which previously performed well, to similarly priced commercial vehicles, with some customers even choosing to buy a more expensive used vehicle than spending the same amount on a lower-end new vehicle. it said.
Sale of best-selling budget vehicles such as Alto, Swift, Baleno, Vitara Brezza, Celerio and Dzire by Maruti; and Hyundai’s i10 and i20, which together accounted for about 56% of lower-priced cars sold in fiscal 2019, have been in decline for three fiscal years, the agency noted in the report.
It also said only 39 models of cheaper cars were available last fiscal year, compared to 54 in fiscal 2016.
Additionally, the lower-priced car segment has had little to show for new launches since FY2020, contributing only about 15% to the overall share of lower-priced cars in FY22.
But the drive was different in higher-priced cars. Best-selling models such as Hyundai Creta, Maruti Ertiga and Ciaz, Mahindra Bolero and Scorpio, Honda City, Ford Ecosport and Toyota Innova combined accounted for 68% of higher-priced cars sold in FY19 and have seen sales decline since FY19. said Crisil.
However, the new launches had outdone themselves and closed the gap. Although the number of available models has been stable at 53 to 55, new launches have contributed significantly to the segment’s overall sales since fiscal 2020, it said.
Saying that 19 of them had reached 32% of the volume share in higher-priced cars in fiscal year 2022, it said that the higher-priced new models Kia Seltos, Maruti XL6, MG Hector, Mahindra XUV700 and Hyundai Alcazar are doing well.
Similarly, over the past 5-6 financial years, two-wheelers priced over £70,000 had consistently sold more than those costing less, due to factors including a 40-45% and 50-55% increase in running costs Increase in acquisition cost since fiscal 2015, the report said.
Operating costs have increased significantly due to stricter regulatory standards (safety and BS 6) and price increases by vehicle manufacturers to offset higher input costs. According to the report, this has significantly dampened consumer sentiment and the take-up of cheaper two-wheelers.
Vehicle manufacturers have also focused more on the higher-priced segments due to changing consumer preferences. In the 2015 financial year there were 29 models in the lower price segment; there are currently only 12 models in this segment.
On the contrary, models in the higher-priced segments have increased from 71 in fiscal 2015 to 93 last fiscal year, driving sales, the agency said.
