Indian automakers shift gears: Affordable, not premium cars in focus

The pivot is a direct response to the exhaustion of the pent-up demand, which had fuelled growth from 2021 to mid-2023, masking a deeper affordability crisis, a Mint analysis of automotive pricing strategies shows. Now, as the dust settles, automakers are finding it necessary to re-engage with the cost-conscious segment of the population, as passenger vehicle sales slow and consumer behaviour shift towards value-driven choices.

Ten out of the country's 12 leading passenger vehicle OEMs (original equipment manufacturers) saw their weighted average retail prices fall year-on-year in September, in a range of 1-17%, indicating that customers are opting for lower-priced models and variants compared to last year, data sourced from auto intelligence firm JATO Dynamics showed.

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The brands that saw a drop in their weighted average retail prices included Hyundai Motor India, Maruti Suzuki, Mahindra & Mahindra and MG Motor India. Hyundai saw a 17%, or ₹1.98 lakh drop in the weighted average sales price in September 2024 versus the same month last year, Toyota Kirloskar Motor saw an 18%, or ₹3.96 lakh drop, and MG Motor India saw a ₹2.57 lakh or 14% fall. Weighted average retail prices for Maruti Suzuki fell 5% and Mahindra's declined 11%.

In September 2024, passenger vehicle sales fell 1.09% year-on-year, a minor decline that conceals significant changes in buying patterns. “In an era of demand slowdown, the automotive industry finds itself at a crossroads, with consumers altering their purchasing habits," Ravi Bhatia, president, JATO India, told Mint.

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One striking example is the performance of Kia's Carens model, where the entry-level variant saw a 343% surge in sales, while mid-range and high-end variants plummeted by 58% and 71%, respectively. “This isn’t an isolated incident but part of a broader down-trading trend across brands," Bhatia said, adding that the trend signals a strong consumer preference for practicality and value over luxury.

Kumar Rakesh, analyst, India auto and IT, BNP Paribas, highlighted the core issue: “Indian automakers will have to start shifting focus back to affordability. We maintain our own affordability index for the PV and two-wheeler markets, and what we’ve noticed is that post covid, affordability had started falling, largely due to commodity price increases and focus by OEMs on premiumization. However the impact of this falling affordability on demand was not visible due to a strong pent-up demand. With pent-up demand now behind us, the underlying market trends have started becoming visible."

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Kumar pointed out that 2022, 2023 were outlier years due to the influx of customers acting on delayed purchase decisions after the pandemic. "Since affordability has fallen, we see the entry-level segment customers being impacted the most while pent-up demand kept the premium segments’ demand resilient so far. We don’t think the reason for the industry’s premiumization was that customers were upgrading to higher segments in a big way; they were just missing from the market. However, with affordability stabilizing in the recent quarters, we’re beginning to see some cost-conscious buyers re-enter the market, although it is still a little early to call it a broad recovery."

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India's largest carmaker, Maruti Suzuki, is counting on the resurgence of entry-level buyers to drive demand in what was once a predominantly small-car market.

“There's been a 25% price hike in entry-level cars over the past two years due to new regulatory norms (e.g., safety features like airbags). This disproportionately affects affordability for entry-level buyers, as their income has remained flat, or even slightly negative. In contrast, higher segment vehicles have seen smaller percentage increases," Partho Banerjee, senior executive director—sales and marketing, Maruti Suzuki, told Mint.

He said that Maruti Suzuki has focused on creating more affordable options to re-engage this market. Initiatives like the Dream Series editions and the recent launch of Wagon R’s limited edition have gained traction (16% increase in bookings). Additionally, offering longer warranties (three years, 1,00,000 km, extendable to six years) aims to provide assurance and value to customers.

However, customer's “live life to the fullest" mindset may be changing now.

“We’ve noticed a clear shift in the consumer mindset. Customers are now prioritizing features that offer value—safety, fuel efficiency, and durability—over luxury add-ons. At Maruti Suzuki, our goal is to innovate while keeping affordability at the core. This means offering products like the Alto K10 and WagonR, which meet the needs of our cost-conscious buyers, while simultaneously improving fuel efficiency and safety," Banerjee said.

“The affordability crisis is real, and ignoring the middle and lower segments could prove costly. We’re doubling down on making sure our entry-level and compact offerings remain accessible without sacrificing quality," he said.