Consumer preference is shifting towards utility vehicles contrary to the long-held view that India is a small cars market

MG Arun

Mumbai,UPDATED: Apr 27, 2022 16:05 IST

Why Datsun’s exit signals a major shift in Indian auto market

Datsun brand in India is the fourth in a series of auto exits from the country since 2019

By MG Arun: Auto major Nissan’s decision to discontinue its Datsun brand in India is the fourth in a series of auto exits from the country since 2019, as multinational auto companies find it tough to gain a foothold in the changing Indian market amidst mounting pressures back home. General Motors drove out of India in 2019 following a decision to exit non-profitable operations in a few regions, including India, Russia and Western Europe. Top-end motorcycle brand Harley Davidson left India in 2020 as part of its ‘Rewire’ strategy to focus on select markets, such as North America, Europe and some parts of Asia. Last year, Ford Motor Company of the US said it was stopping production of its cars in India, shutting down the Sanand (Gujarat) and Chennai plants in 2021 and 2022, respectively.

Datsun’s decision has not surprised auto analysts, who say the company had failed to make a dent in the low-cost (sub-Rs 4 lakh) category. Datsun GO was unveiled in 2013 with a 1.2 litre engine. Media reports say the first Datsun GO rolled out of the Renault-Nissan Alliance’s factory in Chennai in February 2014. It aimed to crack the low-cost car market, dominated by Maruti and Hyundai, by offering the vehicle at a price tag between Rs 3.12 lakh and Rs 3.70 lakh. But Datsun GO failed to make a mark, following which the company launched the multi-purpose vehicle Datsun GO+, and later the hatchback Datsun redi-GO. But none of these could create a significant buzz.

At a time when India is seeing a shift to aspirational vehicles, including sports utility vehicles (SUVs), this was bound to happen. According to a Crisil study, the share of utility vehicles (UVs) in the overall domestic passenger vehicle segment increased to 48 per cent in the first nine months of fiscal 2022, from just 15 per cent two decades ago (fiscal 2002). “This indicates a clear shift in consumer preference towards UVs, contrary to the long-held view that India is a small cars market,” the Crisil study said. Meanwhile, the share of small cars declined from 65 per cent in fiscal 2012 to 45 per cent in the first nine months of fiscal 2022. “This shift was felt more so in fiscal 2021 and 2022 as the income sentiments of entry-level car buyers was impacted due to Covid-19, which has also led to a spurt in UV sales,” the study said.

The world over, auto companies are going through big revamps as the pandemic takes its toll on their revenues. The trend is shifting to ‘ACES’—autonomous, connected, electric and shared, on which firms need to invest heavily. Auto sales have been registering a combined annual growth rate of just 1.5 per cent in India in the past five years, upsetting the plans of MNCs who have heavily invested in India.

While some firms have exited, a few have made an entry, including MG Motor, a subsidiary of the Chinese automotive manufacturer SAIC Motor. India’s passenger vehicles market remains an underpenetrated consumption segment with 24 vehicles per 1,000 people. A growing middle class and rising per capita income make it one of the preferred target markets for auto players, leading to many original equipment manufacturers (OEMs) setting up presence here, says Crisil. For a long time, the market has been skewed towards small car segments, including micro, mini and compact vehicles. These have predictably drawn the most action from OEMs. Recent years, however, have seen a major shift in consumer preference, especially in urban areas, in favour of UVs.

With Datsun out of its India portfolio, Nissan will be banking on its Magnite sub-compact SUV, launched in December 2020. The vehicle, according to recent media reports, has secured over 100,000 customer orders so far.

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