Entry level and mid-size sedan cars priced between R6 lakh and 10 lakh are one of the fastest growing categories in cars, as more buyers upgrade their vehicles and taxi fleet operators purchase more. The sedan segment has grown 37% in May this year, even as the total car sales fell to their lowest in the past seven months. Car sales grew 2.8% in May, industry body Siam said, citing high fuel prices and interest rates on retail loans as reasons.
?The sedan segment is traditionally a strong segment because people upgrade to bigger cars,? said Jnaneshwar Sen, senior vice-president, sales & marketing, Honda Siel. ?Compared with a few years ago, there is a lot more option in the segment which is keeping the growth healthy.?
Mid-size sedan cars alone grew 33% in May over the same period last year, while entry-level sedan segment grew over 40%, driven by purchases by taxi fleet operators buying Maruti Suzuki Dzire, Mahindra Verito and the Toyota Etios sedan.
The shift is cutting market share for Tata Motors? cars in metros. ?Toyota is grabbing attention from Tata?s key constituency ? fleet operators,? said Amit Bhandari, Vishal Bhargava and Divyanshu Dikshit of brokerage firm CLSA in a research note released on May 25. ?Even while sentiment among fleet operators to purchase cars is low, Tata Motors is battling a new competitor in Toyota. On the back of strong mileage and superior brand, Toyota is becoming a preferred option.?
The report states that Toyota Etios sedan is becoming the preferred option amongst fleet operators despite its higher price tag. ?This phenomenon is gathering momentum in other cities as well,? the brokerage report said. ?But in smaller cities and towns, Tata Motors is still the preferred option for commercial purposes.?
?Apart from the customer demand, a lot of taxi fleets have also been helping in increasing the sales of the entry-level sedans,? said Abdul Majeed, leader (automotive practice) at PricewaterhouseCoopers (PWC).
Consultants say the growth in the mid-level sedan segment has also been growing as small car owners upgrade their car by staying in a similar price range between R6 lakh and R10 lakh.
?A reason why the mid-level segments are doing well is that people are not migrating to the luxury cars because of inflationary pressures,? says Kumar Kandaswami, senior director of Deloitte India. ?People are migrating to bigger and better cars but not necessarily to luxury cars.?
?Primarily, the reason for growth in the sedan segments is because people from the premium hatchback segment like Polo, Swift and i20 have moved to the sedan segment,? said Majeed of PWC. ?Although the premium hatchback segment will have more volumes, the growth will be seen in the sedan segments where people have more disposable income and want a better car.?
Diesel sedan cars also drive sales. ?The increasing differences between petrol and diesel have made the effective cost of owning a diesel car significantly less than a petrol one,? said Jatin Chawla and Akshay Saxena, analysts at Credit Suisse said in a research note released on March 21. ?As a result, sales composition of models with diesel variants has increased from 43% to 55%. Within these models, the share of diesel car sales has gone up from 60% to nearly 85% now.?
?Consequently, while sales of petrol-only models have declined year on year, models with diesel variants continue to grow at healthy double digit levels,? Credit Suisse report added.
But consultants and carmakers say diesel is not the only reason for the sedan segment growth. ?I think diesel is not the only reason as you have diesel variants in almost all segments,? said Kandaswami of Deloitte.
?Even last year, the growth in the sedan segment was better than the industry, so it?s not just diesel variants that are increasing sedan sales,? said Honda?s Sen. Honda does not have a diesel variant. ?Car buyers tend to go for a bigger and better car when they upgrade. The buyers of this segment are also slightly more affluent and a little less price sensitive.?
The growth in sedan segment overtook industry growth during the fiscal 2012. Mid-size sedan segment sales grew 17% in the 2012 fiscal as compared to the previous fiscal while the entry-level sedan segment sales rose 31%. The market share of the two segments grew to nearly 15% in the 2012 fiscal from 12.6% in the previous fiscal.
