Car buyers in India moving up value chain despite salary cuts, job losses

Carbuyers in India are ditching entry-level models for mid- and top-end variants that are packed with more features.

Bells and whistles like a touchscreen with infotainment applications and Android Auto and Apple CarPlay are available in the top two variants that enjoy a “higher perceived value”.

This is even as disposable incomes have taken a hit amid salary cuts and job losses.

Maruti Suzuki India (MSIL), the market leader, has seen the contribution of mid- and top-end variants as the percentage of a model’s sales mix goes up.

For MSIL, the trend is visible across the categories in which it has a presence. The contribution of such models has increased sharply year-on-year (YoY) in the first 11 months of 2020-21. Other manufacturers, too, have seen demand for costlier variants gain traction at the cost of entry-level ones.

Shashank Srivastava, executive director, sales and marketing at MSIL, said there was no one reason that could be attributed to this trend. There are conflicting theories explaining why consumers prefer the higher variant in a segment. The first is the intuitive logic that people in car-buying segments have fewer avenues to spend like travel or holidays and hence, have higher disposable incomes when it comes to car buying.

“More likely it is the phenomenon of telescoping of demand that is being witnessed,” said Srivastava. In this, the consumer moves to the next cheap option in a category and decides to take the topmost version of that particular segment. For instance, if a customer who had plans to buy a Swift settles for a WagonR, the person will go for the topmost variant of the latter.

The contribution of the ZXi, the top-end variant of the Baleno, has gone up YoY to 51.2 per cent, from 47.6 per cent in the first 11 months of this financial year.

Other models, including the Brezza and Ertiga, have seen a similar trend. The mid-term variants of the Ertiga have climbed 17.4 per cent and account for 66.7 per cent of the Ertiga’s sales. Also, the VXi has seen an increase of 16.7 per cent and constitutes 46.1 per cent in the Alto’s sales.

But experts say the trend is not a natural pull but a function of the push strategy carmakers have adopted to sell the more profitable higher-trim variants.

“We have seen a recent trend where product marketers are setting low prices on entry-level trims to attract buyers to showrooms. It’s a classic bait-and-switch strategy,” said Ravi Bhatia, president and director, JATO Dynamics — a global supplier of automotive business intelligence with headquarters in Uxbridge, London.

The feature packaging for a higher trim offers a greater perceived value, specially infotainment and connectivity, he said. These also represent higher profit for original equipment manufacturers and dealers. Typically, the supply of entry-level variants is controlled to build a waiting list, said Bhatia.

The above two are responsible for the trend of sales of higher-trim models. The chip shortage the car market is facing may also affect availability, he added. The waiting period for models of all manufacturers has gone up sharply in recent months owing to a deepening shortage of chips, which are used in most of the smart functions of a car.