Tighter norms may dent mini-car segment

Source: Business Standard, Nov 04, 2015

Mumbai: Automobile firms are likely to take their focus away from the mini-car segment as fears grow over tighter norms for emissions and crash tests.

The MINI Family. MINI, MINI Clubman, MINI Convertible, MINI Countryman and MINI John Cooper Works.

The MINI Family.
MINI, MINI Clubman, MINI Convertible, MINI Countryman and MINI John Cooper Works.

Currently, India’s vehicular regulations are less stringent than those of developed markets. Regulators are expected to enforce stricter norms over the next few years, which besides addressing pollution, will push up the overall cost of a car.

N Raja, director and senior vice-president (sales and marketing) at Toyota Kirloskar Motors, said: “As a global strategy, we have decided to stay away from the segment below Rs 500,000. Cost of tech will rise significantly in the next five to six years in areas such as new emission norms and crash test. Pressure on pricing will go up.”

The government has decided to roll out the cleaner BS-V (Bharat Stage 5) type fuel from 2019 and BS-VI from 2023, sending a message to the automakers to be ready with the engine technology. It is also working on bringing a more comprehensive crash test exercise.

The government had indicated that all cars will have to sport airbags as a standard fitment. Recently, one of India’s most popular hatchbacks —  Maruti Suzuki Swift — followed by Volkswagen Polo, Ford Figo, Hyundai i10, and Datsun Go failed to clear crash tests carried out by Europe’s Global NCAP.

“Serving customers of the below-Rs 400,000 segment with the same quality as we do with customers of other segments, while meeting all the norms, will not possible without making compromises. This despite increasing localisation content in the cars,” said a top executive of another Japanese company.

Increasingly companies, too, are focusing on the above-Rs 500,000 segment to keep pace with customers who are constantly undergoing natural progression. This has led to creation of new segments such as crossovers, compact sports utility vehicles and compact sedans.

In the past seven years, the below-Rs 400,000 segment witnessed only two additions — Nissan’s Datsun Go and Renault’s Kwid. Though the overall volumes in this segment is on the rise, with the addition of the Kwid, profitability on such models remains a concern for the companies.

“The entry-sedan segment and the compact SUV segment will witness the highest demand in the coming years. As per estimates, SUV volumes will grow to 300,000 units from 15,000 units at present. While the entry-level car segment will witness a decline,” said Raja.

Bengaluru-based Toyota Kirloskar is one of the two companies in India to have provided air bags to every variant of each of its model. German car maker Volkswagen is the other company. After hatchback Etios Liva and sedan Etios, Toyota will focus on other emerging segments such as compact sedan and compact SUV. The company says future models will not be focused only on India, but will be sold in other markets as well.

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