Hyundai-Santro Becomes History: Will This Be The Fate Of All Small Cars In India, Soon?

It's the end of the road for Hyundai's popular hatchback Santro, yet again, as low demand and rising input costs made the going tough for the car.

Santro was one of the most popular small cars of post-liberalization India after Maruti-Alto and was a symbol of graduating from the lower-income group to the middle class, for an average Indian.

Launched first in 1998, Santro was the only car that allowed Hyundai to compete with Maruti, which rules the small car segment till date.

Its first-gen model was on sale till 2014, four years later, Hyundai brought back the Santro in India in a new avatar with some modern features but the demand remained tepid after initial months amid competition from other carmakers.

Santro's resurrection in 2018 did not see it meet with the same popularity as expected. Hyundai reintroduced the Santro at a starting price of Rs 3.9 lakh for the base variant and going up to Rs 5.5 lakh for the top variant. The company already had Grand i10 in its line-up which was priced a little over Santro but was a better deal in terms of features.

Santro was so popular that it accounted for 76 per cent of the total sales of Hyundai, But the car's popularity started waning as more options from rivals started trickling in, at the same time, SUVs started gaining more attention.

Sales for the Santro peaked initially, but since then it has declined. The company has on average managed to sell just about 1,500-2,000 units every month.

Recently, several carmakers had to take a tough call on passing the rising input costs to customers in the wake of supply-chain issues due to Covid-19 restrictions and semiconductor chip shortage.

The Russia-Ukraine war dealt another blow to the automakers.

Also, the rising popularity of SUVs is impacting the sales of sedans and hatchbacks.

But it's not just Hyundai, even the country's largest carmaker Maruti Suzuki India is also looking to change its strategy as small cars -- its main source of income -- become more expensive and the demand shrinks.

“Small cars used to be our bread and butter, there’s no butter in small cars anymore. We will have to change our strategy," Maruti Suzuki India Chairman R C Bhargava recently said.

The market for hatchbacks is shrinking significantly, there has been a 25% decline in the market for hatchbacks in the last four years due to an increase in commodity prices and taxes by state governments, Bhargava added.

Maruti Suzuki India (MSI) has hiked prices five times from January 2021 to April 2022.

The company was quick to gauge the situation and it brought the S-Presso, which averages to around 5,500 units a month, much higher than Santro.

In Dec 2021, only 1,298 units of Santro were sold while in Jan 2022, only 1,252 units were sold, down from 2,211 units sold a year ago. The sales grew in February (2,393) and March (2,494) but dropped in April (1,783).

However, there is more to the declining numbers posted by leading players like Maruti Suzuki and Hyundai Motor than just the ongoing chip shortage.

Hyundai's sales have consistently declined by over 10 per cent every month so far this year with SUVs Venue and Creta driving sales; averaging nearly 10,000 units in the last six months.

The country's largest carmaker Maruti Suzuki India (MSI) is also feeling the heat with sales declining over 7 per cent every month since January this year.

Swift, Swift Dzire, and Baleno remained bestsellers for the company and barring Wagon R, there were not many takers for its other small or entry-level cars.

Sales of mini cars, including Alto and S-Presso, fell to 15,491 units in March against 24,653 in the same month last year.

“In FY18-19, sales in the hatchback segment were 15.5 lakh units, but now in FY21-22, it has shrunk to 11.5 lakh units and that means a massive reduction of 4 lakh units in just 4 years and that's massive and that has certainly hurt Maruti Suzuki.” Bhargava had said.

Explaining the reasons behind the shrinking of the small car market, Bhargava said, "I think that there is no doubt that because of regulatory changes, taxes by state governments, increase in prices of commodities, the prices on the lower end of the market have increased."

A lot of consumers in this segment are now unable to afford personal transportation. The SUV segment has grown from 18 lakh units to 19 lakh units during the same period of 4 years and though it's a growth, it's just a 6 per cent growth and that's marginal, he added.

Gaurav Vangaal, Associate Director, S&P Global Mobility, said: "It is becoming difficult to develop and sell small cars in India due to low margins & high regulations. Companies are refraining to develop new small vehicles. We do not expect any new development from any car makers for the short term after the upcoming Alto this year."

Vangaal believes the popularity of SUVs is hitting sales of Sedans and hatchbacks in India. "SUVs provide better road presence than any other body style. Secondly, the consumer is fine paying a premium for SUVs providing better margins to carmakers," he said.

He explains the costs are a concern and entry-level cars are getting expensive, which leaves a little option for automakers but to focus on upper segment cars.

"(Rising input cost) is a concern for carmakers and if the six airbag regulation gets mandatory, it will further impact the margins of small cars. Carmakers slowly and steadily shifting towards upper segments like Small CUVs--Tata Punch or SUVs where they have better margins," he said.

On being asked what Hyundai could do differently to make Santro a hit again, he said the company may need to relook at its pricing strategy as the car had a good brand image but it was pricer than its competitors.

"The current Hyundai i20 is perceived as expensive compared to the competition. Hyundai may need to relook at its pricing strategy as Indian brands like Tata Motors (nowadays) provide more value to their customers," he added.