Compact SUVs are convincing drivers in the world’s fourth-largest auto market to finally trade in their favorite hatchbacks and sedans
Vivek Sharma needed a new car. The New Delhi-based lawyer was tired of cramming his wife, son and pet beagle into a respectable but boring 10-year-old Toyota sedan. He wanted something roomier, sturdier—something that could get him from place to place amid the chaos of COVID with a sense of adventure and style.
And so last July Sharma bought a Seltos, a five-seater sports utility vehicle, from Korean carmaker Kia Motors.
Eager to try out his new wheels, Sharma piled his family into the Seltos earlier this year and headed to the northern Indian hill town of Shimla for a long-awaited vacation. Over the five-day trip, he put 2,500 kilometers (1,553 miles) on his new SUV, including stretches of gravelly and potholed roads.
“We could cover the distance smoothly because of the car’s higher ground clearance. It was our first holiday in several months,” says Sharma.
Like Sharma, more and more Indian consumers are swapping sedans for SUVs in one of the biggest transformations of India’s auto market, the world’s fourth-largest, in decades. Indian consumers have long preferred hatchbacks and sedans because they were less expensive and more fuel-efficient than larger vehicles. But a slew of new compact SUVs that are as cheap as sedans and can be crammed into urban parking spaces just as easily are convincing Indian drivers to upgrade.
SUVs accounted for 48% of all Indian car sales in the nine months of the current fiscal year, from April to December 2021, up from 38% the previous year, according to data from the Society of Indian Automobile Manufacturers. A decade ago, SUVs made up 10% of sales.
SUVs are stealing market share from sedans, which shrank to 11% of sales this fiscal year from 14% last year. Hatchbacks, meanwhile, have dropped to 38% of sales from 46%.
Compact SUVs “seem to have found the sweet spot, offering superior value propositions with regard to hatchbacks and entry-level sedans because of better ground clearance and [trunk] space,” says Rohan Rao, partner of industrials and automotives at KPMG India. Indian roads often are potholed and in disrepair. Stones and shards of pavement can hit the undercarriage of vehicles and cause damage. Cars with higher ground clearance are less vulnerable to such debris and can more easily maneuver roads that flood regularly. India has the world’s highest road accident rate; bigger, sturdier cars typically offer more safety. “The segment is poised for strong growth over the next few years with the shift in consumer preferences, entry of players and new product launches,” Rao says.
A decade ago, SUVs in India were bulky cars with souped-up engines, seven seats, and four-wheel drive that could ride roughshod over dirt tracks in villages or beat-up country roads. Models such as Mahindra’s Scorpio and Toyota’s Innova appealed to niche urban consumers, such as politicians and social workers who visit India’s more remote regions as well as taxi drivers who need the larger vehicles for luggage space.
Older SUV models were too big for traveling and parking in crowded Indian towns and cities, and their price tags were almost double what smaller vehicles cost, putting them out of the reach of India’s middle class.
Most new SUVs in India look like the offspring of the monstrous SUVs of yesteryear and hatchbacks. They typically feature engines between one and 1.5 liters, five seats, two-wheel drive, and sophisticated new technologies like voice assistants, touch screens, and sunroofs that appeal to a new generation of customers. But the compact SUVs have 20% higher ground clearance and wider wheelbases than sedans or hatchbacks, making them more useful on Indian roads.
India’s tax on goods and services encouraged carmakers to shrink their SUVs. The country levies a tax as high as 50% on cars that are longer than four meters. Smaller vehicles are taxed at 29%.
The global chip shortage, which has snarled the production of automobiles, also prompted manufacturers to churn out more SUVs than sedans and hatchbacks because of SUVs’ higher price tags. “It is like a rationing that is happening and [carmakers] are prioritizing their output,” says Rajeev Singh, partner at consulting firm Deloitte.
India’s most popular compact sports utility model, Hyundai’s Creta, costs between $14,000 and $24,000, and features a panoramic sunroof, ventilated front seats, and voice-assisted commands. Tata’s Nexon model costs $11,000. Nissan’s Magnite compact SUV model runs buyers even less: $8,000. Meanwhile, larger SUVs such as Toyota’s Innova and Fortuner models cost around $27,000 and $50,000, respectively.
Sedans, such as the Honda City model, can cost around $17,000. Hatchbacks are especially cheap; Maruti Suzuki Limited’s Alto has a sticker price of $4,400. Sedans and hatchbacks retain their cost advantage with better mileage than most SUVs, though the gap has shrunk over the years as SUVs have become lighter and equipped with more fuel-efficient engines.
SUVs are growing in popularity worldwide, but the demand for compact SUVs, in particular, is unique to India, says Suraj Ghosh, vice president at IHS Markit. Smaller SUVs subject to a lower tax are reminiscent of the Kei cars that Japan’s government pushed after World War II to revive the country’s auto industry and diversify it away from motorcycles, but compact SUVs are not as limited as Kei cars are in engine capacity.
“The multiple lockdowns due to COVID have changed a couple of things in the Indian market,” says Tarun Garg, director of sales and marketing at Hyundai Motors India. “People think that personal mobility is very important and therefore they want a car at their disposal 24-7. They are willing to spend more on better features for cars.”
India’s largest carmaker Maruti Suzuki is scrambling to keep up with India’s new demand for compact SUVs. The subsidiary of Japan’s Suzuki Motor Corporation, which has dominated the market for four decades, accounts for nearly half of all hatchback and sedan sales in India, but just 11% of SUVs. The company sells two compact SUVs, the Brezza and the S-Cross, and is reportedly preparing to launch three new compact SUVs this year.
“We need to be aggressively present in the SUV segment,” says Shashank Srivastava, executive director at Maruti Suzuki India Ltd.
In December, India’s Tata Motors overtook Hyundai Motors India to become the nation’s No. 2 carmaker by monthly sales for the first time, boosted by the rollout of its low-cost Punch SUV and its higher-priced compact SUV, the Nexon. Four of Tata’s seven car models are SUVs, and the vehicles account for up to 70% of the company’s total sales, says Shailesh Chandra, managing director of Tata Motors Passenger Vehicles.
U.S. carmakers GM and Ford have stopped operating in India recently after struggling in the market for years. Both made the fatal mistake of trying to emulate Maruti’s success with affordable cars like hatchbacks rather than playing to their strengths with bigger and better-performing cars, says Ghosh.
Ford was one of the first carmakers to launch a compact SUV in India. Ford introduced the Ecosport in 2013, and the SUV became one of the company’s top-selling models, but Ford lost out to rivals like Tata Motors and Hyundai because of lack of market reach and manufacturing scale, says Ghosh.
All told, global and domestic manufacturers are expected to launch at least ten new compact SUV models in India this calendar year, says Rao, meaning Indian consumers will have plenty of options to satiate their new appetite for the smaller utility vehicles, especially if the global chip shortage eases as expected.
Pradeep Tyagi, 55, who lives in Ghaziabad near New Delhi, wanted to buy a new car to replace his nine-year-old Maruti Suzuki Dzire sedan in January. He admits that his 25-year-old son Vishal talked him into purchasing Tata’s Nexon compact SUV, but he has no regrets.
“[T]he new car can easily accommodate our family of four and smoothly runs over potholed roads,” says Tyagi. “Listen to the youth.”
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