Battle for survival: The future of hatchbacks in the SUV era

    We examine the ground realities of the hatchback segment and why some carmakers are still banking on it, despite growing preference for SUVs.

    Published On Jun 14, 2024 02:10:00 PM

    11,927 Views

    Battle for survival: The future of hatchbacks in the SUV era

    While many popular hatchbacks have been discontinued, the Swift, in its fourth-gen avatar, powers on.

    In 1984, securing a Maruti 800 with its cutting-edge features, such as front disc brakes, front-wheel drive, reliable wipers, and the luxury of air conditioning, was akin to striking automotive gold. Yet, acquiring the Rs 50,000 marvel required a patience-testing wait that often stretched beyond three years. In those days, India revolved around the pulse of small cars, an automotive ethos that endured for decades, reigning supreme until 2017-18, after which, the tides started turning in the favour of SUVs (sports utility vehicles). What’s more, in March 2024, for the first time, the top two vehicles sold were SUVs – Tata Punch and Hyundai Creta.

    But Maruti Suzuki recently launched the fourth-generation version of its highly popular hatchback, the Swift – with prices starting at Rs 6.49 lakh and top-end variants costing as much as an entry-level SUV. That begs an important question: what does the future hold for hatchbacks?

    Sales volumes over the last six years*
    Segment2018-192019-202020-212021-222022-232023-24
    Entry hatchbacks3,69,4833,03,9422,74,0192,40,2402,52,4091,61,534
    Premium hatchbacks7,83,6326,663,8176,56,8756,01,1877,32,4436,86,566
    Entry SUVs3,77,2193,59,6644,45,4476,64,2168,70,30211,14,126
    Premium SUVs34,71125,65122,43728,67942,30947,003

    *Industry sources

    Price increase contributed to downward sales trend

    A confluence of factors, including the transition from the BS4 to BS6 emission norms, higher commodity prices, stricter regulations, decrease in affordability ratio and increase in road/registration tax has chipped away at the once-mighty segment, which now contributes 27 percent to overall passenger vehicle (PV) sales, down from over 50 percent about seven years ago.

    Maruti S-Presso airbags
    Increasing safety and emissions regulations have led to the increase in prices of small cars.

    Now, SUVs make up more than half of India’s PV sales. So what brought about this change?

    The average on-road prices for hatchbacks – the most price-sensitive automobile segment – have risen from Rs 5.2 lakh to Rs 8.2 lakh in the last six years. To make matters worse, even vehicle finance rates are at their peak at 9.5 percent. Additionally, a hatchback buyer now expects nothing less than power windows, the latest infotainment system, airbags, and even a sunroof. Gone are the days when the bare essentials could win hearts.

    On-road prices for hatchbacks*
    YearAverage price (in Rs, lakh)
    2019-206.2
    2020-216.3
    2021-227.0
    2022-237.6
    2023-248.2

    *Average ranging from the Maruti Alto K10 to the Tata Altroz, among others.

    Maruti still betting on small cars

    And India’s largest carmaker, Maruti Suzuki, continues to bet on the hatchback segment, of which it controls 70 percent. Its move to launch the next-gen Swift makes one thing clear: writing off hatchbacks, especially the premium ones, is a premature endeavour. “We won’t give up on the small-car segment as it still brings decent volumes. Our strategy is to have an adequate product portfolio in every segment, and we will increase our total model portfolio towards 2030. India is in a growing stage, and when the market is growing, and new customers are entering, hatchbacks play an important role for the first-time buyers,” said Hisashi Takeuchi, MD and CEO of Maruti Suzuki.

    New Maruti Swift front static
    The fourth-gen Swift has just gone on sale last month.

    At least volume-wise, the hatchback segment would continue at a certain level. He added. “It will not disappear. One of the reasons for its decline is the lack of models from other OEMs in this segment.” Takeuchi is right. While the number of entry-level SUVs sold in the market has risen to 14 models from four in the last decade, the number of midsized SUVs has tripled to 21. In contrast, hatchback models have plummeted to 14 from 26 in the same period, with the discontinuation of beloved cars such as the Honda Jazz, Volkswagen Polo, Maruti Suzuki Alto 800, Hyundai Santro, and more.

    Model count fluctuation in the last 10 years
    Segment2014-152023-24
    Hatchbacks2614
    Entry SUV414
    Mid SUV721

    One of the reasons why the segment is no longer hot is because it has become financially unviable for automakers, following the recent changes in safety and emissions norms. Volumes in the entry-level hatchback segment fell to their lowest at 1.6 lakh units in 2023-24, from the peak of 4.5 lakh seven years ago.

    Volkswagen Polo GT TSI
    Many hatchbacks have been discontinued, such as the VW Polo.
     

    Premium hatchbacks still in demand

    According to Maruti Suzuki, the premium hatchback segment will see annual sales of 1 million units by 2030, a 43 percent increase over the current 7 lakh units, representing a compounded annual growth rate of 5-6 percent. “The new Swift re-energises the segment. The absolute numbers for hatchbacks are going to increase. We at Maruti strongly believe that car penetration is just at 32 per 1,000 individuals and will rise to 44 by 2030,” Takeuchi said.

    The company’s sales and marketing head, Partho Banerjee, believes that the Indian passenger-vehicle market will grow to 6 million units by FY31 from 4.23 million in FY24, and the company will aim to retain its 50 percent market share. “If the market has 6 million vehicles, the hatchback segment has to grow,” he added. Based on the long-term guidance, the premium hatchback segment, at 1 million units, would comprise 16 percent of the overall PV market by FY31. Despite sales declining 6 percent year-on-year in FY24, premium hatchbacks continue to be the biggest chunk of the hatchback segment at 6.8 lakh units.

    Tata Altroz Racer
    Tata believes it's about the right models for the right customer; has launched the Altroz Racer.

    As per Tata Motors, it’s all about getting the models that capture the right customer needs and continue to cater to them. While overall, there’s a larger preference to move towards SUVs, there’s also a preference to move up the price ladder, both by the customer, and driven by regulations, said Vivek Srivatsa, chief commercial officer at Tata Passenger Electric Mobility. “A combination of the emissions and safety norms have made entry cars more expensive. At the same time, manufacturers’ margins have become extremely thin,” he added.

    Almost 30-35 percent of the company’s hatchback sales come from the premium category. “That’s very close to the four-metre mark, which has many features and space. There’s premiumisation happening,” Srivatsa said. The brand has recently introduced a sportier, and more feature-rich version of its premium hatchback, the Altroz Racer

    Future of hatchbacks in India

    In the dynamic landscape of India’s automotive industry, the traditional hatchback faces challenges, but also has the potential for resurgence. However, there are two critical factors that automakers will have to keep in mind: the running costs and the costs of vehicle ownership.

    Experts said this is where green mobility could play a role. “CNG has a chance to recover entry-level segment. Maruti should surely bet on that. I don’t expect any other player to do it. Reaching 50 percent (of overall market passenger vehicle share) without entry-level improvement for Maruti is difficult,” said Vinkesh Gulati, chairman, Research & Academy, at FADA. On the hatchback segment, he said, “If the pricing and the product are right, it’ll surpass its peak (volumes).”

    Though, Gaurav Vangaal, associate director at S&P Global Mobility, doesn’t expect hatchbacks to return to their peak levels. “I don’t think any carmaker is developing a new entry-level hatchback in the coming years. The new entry-level (for buyers) will be a Punch kind of vehicle. If hatchbacks have to return, it can only happen if they become more fuel-efficient than crossovers or entry-level SUVs. They can do that with the support of hybrids, where Maruti will have an advantage,” he said.

    Maruti hybrid car launch timeline

    Experts also said it is the powertrain – and not so much the body style – that will decide which segment grows in the future. Experts say the latter half of CY2026 may witness a potential turnaround, with affordability aligning with regulatory standards and reshaping consumer preferences.

    Also see:

    Tata drops EV target to 30 percent of total sales by 2030

    Punch, Brezza, Fronx, Creta drive SUV sales in May 2024

    Opinion: India can do without Tesla, but Tesla can't do without India

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