Compact cars drive passenger segment

Compact cars drive passenger segment

Author | Source: Business Line | Wednesday, Aug 16,2006 8:51 AM

Compact cars drive passenger segment

Small car policy boosts market share to 68% in April-July

The numbers

* Overall passenger car market registered 24.86% growth

* Sales of compact cars jumped by 31.2%

* Mid-size car segment grew slower at 14.7%.

The Government's small car policy seems to be yielding results, with the share of compact cars increasing to 68.25 per cent in the April-July 2006 period compared with 64.9 per cent in the same period last year.

Not surprisingly, compact cars emerged as the main driver of passenger car growth in the period. While the overall passenger car market increased by 24.86 per cent to 3,24,671 units, sales of compact cars jumped by 31.2 per cent to 2,21,598 units in the April-July 2006 period. In fact, all the three major carmakers (Maruti Udyog, Hyundai Motor, and Tata Motors) saw a sizeable jump in their compact car sales in the period.

In comparison, the growth in the midsize car segment (which consists of cars such as the Maruti Esteem and Hyundai Accent) was slower at 14.7 per cent despite the recent launches.

This has made almost all automakers to rework their strategy to capitalise on the increasing demand for compact cars. Industry officials point out that a large majority of the new capacity that is coming up is dedicated for the manufacture of small cars.

New line-up

While General Motors has announced plans to build a new plant in India next year to make a small car, Japanese carmaker Nissan has tied up with Maruti to launch a small car for the Indian market. Maruti itself is planning to launch a new compact car and the diesel variant of the Swift this year.

Further, Japanese carmakers Honda, Toyota and Mitsubishi have also indicated plans to roll out compact cars, while Hyundai may introduce another compact car from its upcoming facility in India. In addition, Tata Motors small car project is going on track and the company may also through its collaboration with Fiat roll out more compact cars in the market.

India is already the third largest manufacturer of compact cars in the world.

The Indian Government had reduced the excise duty on small cars by eight per cent in this year's Budget. Analysts point out that in addition to small cars becoming more affordable after the excise cut, rising fuel costs could also be contributing to the growing popularity of these cars in India.

However, these twin factors have failed to drive sales of compact cars in China, the world's second largest car market. The Chinese Government, in a bid to decrease energy consumption, had provided sops to small cars, effective April 1 this year, which increased the taxation on cars with larger engines and decreased taxation on smaller cars.

In fact, growth in the overheated Chinese car market tapered off in June and July, with sales growing by just 5.82 per cent and 5.39 per cent respectively. Industry watchers point out the slowdown affected small car sales the most, with sales of small cars declining by 24 per cent in June.

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