Where does the sub 4-metre compact segment stand? Amidst rumours of companies winding up product offerings in this segment, we take a look at what this segment holds for a market such as India. After all, this is a segment that has been created by the Government. It was regulation that specified that to gain a benefit in excise duty an automobile manufacturer must make a vehicle that is less than 4 metres in length, have a petrol engine that does not exceed the capacity of 1300cc and the diesel engine cannot exceed a capacity of 1500cc. These were the broad rules and automobile manufacturers rushed in to make the most of this ‘new’ segment.
While a lot of the manufacturers already had hatchbacks that fell into this segment, they wanted to have more products in their portfolio in order to give potential customers enough choice for a vehicle to suit their needs. After all, not everyone wants a hatchback and this led to automobile manufacturers investing big sums of money in developing compact three box cars and SUVs. The first movers were obviously the big guns, namely Maruti Suzuki, Tata Motors and Hyundai. They were followed by Ford, Mahindra, Honda and Volkswagen. Clearly this is a segment to reckon with, however there is a lot of talk about buyer behaviour changing and companies pulling the plug on certain brands. This got me thinking about the ever changing market place and I honestly feel that these allegations couldn’t have been further from the truth.
A market has its ups and downs, however what keeps it going is constant innovation and automobile companies excel on this front. The sub 4-metre segment is the perfect example of this. When the rules were first announced, the cars that came out looked disproportionate and seemed to be the work of engineers running in overtime to meet a deadline. Design took a back seat and cars like the Dzire solely worked because of the price point. That was where this segment started out. Then came along cars like the Ford Aspire and Volkswagen Ameo which ushered in a new level of design, finish, performance and features. The segment expanded to include SUVs as well. Ford had the first mover advantage with the EcoSport which still does great numbers today. Maruti Suzuki jumped in with the Vitara Brezza and now we have the Mahindra TUV300 and XUV300 also fighting it out in this space. Hyundai is ready to introduce a compact SUV in May this year and from the looks of it, this is where all the action is taking place! Add to that, we already have 2nd generation cars in this segment as well, namely the Dzire and Amaze which are doing great numbers and boast of a high level of fit and finish, powerful engine options and are extremely feature-rich offerings.
On the other end of the spectrum, the sub 4 metre compact segment is also the vehicle of choice for fleet owners. Given a major boost by Uber and Ola, stripped down models of the Dzire and Hyundai Xcent are what are likely to show up at your doorstep. For the taxi business, these cars are great. They are frugal to run, comfortable for the passenger, an overall easy on the pocket from an ownership perspective as well.
Keeping all this in mind, we stand at a very important juncture in the Indian automobile industry today. What was once a small segment kick-started by an opportunity to benefit from lower excise duty rates has spawned into a massive marketplace. There are different levels to this segment now and it is no longer about only offering cheap cars that are low on features. Yes, those models exist primarily for the fleet businesses, however you also have the premium compact sedan offerings and the compact SUV offerings as well. For the automobile manufacturer, the sub 4 metre segment is actually a huge opportunity to cash in on, depending on how they would like to play their cards. It isn’t about conforming to a broad rule sheet any more. There are categories within this segment for manufacturers to go after and honestly that is what we are witnessing today. Elaborating on this, Mr. Steffen Knapp, Director, Volkswagen Passenger Cars, said, “The sub-compact sedan segment is driven by aspirational customers, that are stepping up in their life, moving away from the entry level segment. However, over the years, the segment has also been dominated by the fleet business, which Volkswagen has consciously steered away from and prefers selling for private ownership. Owing to this, the Brand witnesses a steady growth in this segment by customers looking for a German engineered and safe carline.”
Tata Motors, Maruti Suzuki and Hyundai cater to the fleet business with their three-box sub 4 metre compact offerings, while Ford, Honda and Volkswagen play a more premium game with the Aspire, Amaze and Ameo respectively. Manufacturers have that choice and we are only going to see the offerings get better with time.
Think about it. If you asked anyone, they would have written off the Honda Amaze as a product a few years ago, however when the new one came out last year, it has gone on to do big numbers month-on-month. What changed? It is still a compact sedan, however it now comes with a premium look and feel and is big on features as well. Clearly customer demand has led to cars such as this being very high on features. Today, depending on which premium compact sedan you choose you get everything from high-end touchscreen infotainment systems, 100 bhp engines to rain sensing wipers on board. You also get smart technologies like automated manual transmission (AMT) for that added convenience. It is also worth noting that Volkswagen offers is premium DSG technology on the Ameo!
So where does the market go from here? Firstly, the small car segment continues to be the biggest selling segment in the country. Purchasing power determines this fact. What will change is customer expectations from small cars. The size might stay the same as it is rather convenient as well, especially in crowded cities where parking is always at a premium, but the features will definitely change. As we move forward these cars will get more premium with time. Enhanced features, modern design, frugal yet powerful engines, comfort, convenience and a heightened level of connectivity is what we should expect and it is clear that just about every car company operating in India is moving in this very direction.
Yes. It is a challenging space to be in, but what would be the point of a business if it didn’t face a challenge! After all, challenges breed innovation and the only outcome of this is better products and that is a win-win for everyone.