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After a long stretch of inertia, car sales including SUVs and LCVs are coming back full-circle, though overall market size remains in stasis. With both Kia and Hyundai — the former’s Sportage and Picanto are selling like hot cakes —(estimated) volumes have grown 67 percent in Jan-21 and 36 percent in the 7MFY21 period. Volumes should be slightly higher if some of the other new brands are taken into account including Changan Karvaan, Prince Pearl, Glory Pro etc. which have recently generated interest of car buyers beyond traditional Japanese vehicles.

Affordable car financing has evidently attracted a good portion of new car owners, offsetting some of the effect of price increases that took place quite frequently since 2018 with companies citing rupee depreciation and higher cost inputs to be the primary cause (read more: “Cars on a carousel”, Jan 14, 2021).

However, volumes are still lower compared to this time in 2018 — in fact, against Jan-18, volumes have reduced by 11 percent in Jan-21 (including effect from Kia and Hyundai models). The aforementioned 67 percent increase, therefore, is primarily low-base effect taking place.

Amongst existing OEMs, some of Corolla volumes are now reflecting in Yaris’ growth as the new model takes over while Alto and Wagon-R demand is finally resurfacing after a lull for the past few months. Both Honda and Toyota were quick to recover from the cascading effects of economic downturn curbed further by Covid-19. Suzuki, the quintessential middle class car assembler was lagging in the race but it seems, appetite in the segment is once again growing despite higher prices which middle class buyers were slower to absorb. This is likely due to cheaper borrowing cost which will persist until policy rate is revised up.

Though the market is evolving (notice the changing colors since Jul-19 in the infographic), the full-year estimates seem to indicate a routine recovery to a market size of 180,000-200,000 if Kia maintains its selling streak; which would be lower compared to the volumes achieved during FY19 of ~240,000 and significantly lower than market’s growth expectations as new entrants began assembling. A major shift is also coming in the form of new segmentation as volumes shift from sedans to cross-overs and SUVs. New entrants are capturing some of the market share, though for some Chinese models, it is going to be a long hike as they fight a perception battle on one front, establish a resale value in the market on another, while ensuring that bank financing is at par with Japanese models (evidence suggests banks are not entirely keen on offering financing on Chinese models and require a higher equity in auto lending).

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