Small cars poised to clock double-digit surge in sales due to GST rate cut

New Delhi: The sales of entry-level cars are expected to record a robust double-digit growth year-on-year in the forthcoming festive season due to the GST rate cut that kicks in from Monday, according to a report by HSBC Research.

“The passenger vehicle segment is now expected to grow by double digits (YoY) during the upcoming festive season compared to single digits before the GST cut announcement,” the report states.

The report is based on an interaction with more than 10 dealers across geographies in India and calls to a larger dealer. It points out that the market leader, Maruti Suzuki, has announced its new price list after the announcement of the GST cut. Consequently, enquiries have increased significantly, both online and walk-in, across segments by 15-20 per cent, and more for entry-level cars (K10, Celerio, S-presso and Wagon R) in Tier-1 cities. The share of first-time buyers increased by 5-7 per cent in total bookings so far. The premium hatchback segment (Swift, Baleno, etc.) is also seeing a decent uptick, the report further states.

Maruti Suzuki has announced steep price cuts to the tune of 11-21 per cent on its entry-level portfolio, 9-11 per cent on premium hatchbacks and up to 8 per cent on Brezza (Exhibit 1), which is more than the GST cut of 3.5-8 per cent on these models. This should support a revival of the entry-level segment and keep Brezza competitive as well. Brezza’s cost differential with competing models such as Nexon, Venue, Sonet and 3XO had increased by 5-6 per cent following the GST cut, and now this should normalise post price cut, the report states.

WagonR continues to lead in the entry-level cars segment, though the yellow board (cabs) percentage has increased over time. WagonR is strong among personal-use vehicle customers in Tier 2 cities. Interestingly, it had started sliding in Tier 1 cities last year, but an increase in enquiries and bookings post GST cut announcement suggests a trend reversal towards growth now, the report points out.

The new Maruti SUV ‘Victoris’ is getting a good response from customers. However, there might be some cannibalisation of Grand Vitara (GV) as pricing is similar. We expect it to add 5,000-6,000 units per month net of cannibalisation. The Victoris also introduces an entry-level hybrid priced at INR 1.64m to the Maruti stable, which is available only in Toyota HyRyder and not in Grand Vitara, the report further states.

It also observes that the entry-level two-wheeler segment is seeing a healthy uptick from the rural market with a double-digit increase in enquiries. Credit-based approvals have also increased over the past 1-2 months, which is positive for overall two-wheeler retail sales.

IANS