Indians are buying more SUVs than ever: Key reasons

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India’s enthusiasm for SUVs is not simply a matter of changing consumer preferences; there are more significant factors at play. While it’s true that Indians are increasingly opting for SUVs over small cars, the shift is also driven by automakers’ strategic decisions to focus on SUVs, even if it means downsizing them in various aspects, as the small-car segment faces challenges.

Indians are buying more SUVs than ever: Key reasons

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In recent times, the popularity of SUVs in India has surged, accounting for a remarkable 48.3% of total vehicle sales in the first half of this fiscal year, up from 41.5% in the same period a year ago. In contrast, the share of hatchbacks has decreased to 30% in H1FY24 from 35.1% in the previous fiscal. Even sedans, despite the launch of new models like the Hyundai Verna, Volkswagen Virtus, and Skoda Slavia, have experienced a decline, falling to 9.3% in the fiscal’s first half, down from 10.3% in H1FY23.

SUVs have come a long way, transforming from off-road vehicles favored by adventure seekers to urban rides of choice. These modern SUVs, including compact versions, have lost some of their rugged functionality but retained the popular SUV shape, making them appealing to urban consumers. However, the transition from small cars to SUVs is not solely due to consumer preferences. Carmakers have strategically embraced the SUV trend, making them more affordable, despite some reduction in their traditional SUV attributes. Small cars, on the other hand, have faced challenges, leading to declining sales.

Interestingly, SUVs have witnessed a four-fold increase in popularity among first-time car buyers in India over the past decade. More Indians are opting for SUVs with higher ground clearance, attracted by greater affordability and a broader selection of options. Today, about a third of first-time car buyers choose SUVs, a significant shift from less than a tenth a decade ago when hatchbacks ruled the market.

SUVs offer several advantages, including a commanding road presence, ample interior space, and additional features. Their design suits Indian road conditions, which often include potholes and speed bumps. Furthermore, as SUVs accommodate more passengers, they align with Indian driving habits. Their higher ground clearance is ideal for navigating worsening road conditions due to the growing number of vehicles.

As consumer preferences shift away from low-slung sedans, SUVs have found a sweet spot in overlapping price segments. The new safety regulations have increased the prices of entry-level hatchbacks, making it easier for buyers to stretch their budget slightly for the road presence and comfort that SUVs offer. Automakers are thus prioritizing SUVs over premium hatchbacks and entry-level sedans, with the flexibility to incorporate engines and drivetrains from these segments into compact and mid-sized SUVs.

The availability of more compact SUV models within the same price range has also contributed to the rise of SUVs in India. Entry-level SUVs accounted for 22% of overall market sales in 2022-23, a considerable increase from 1% in 2014. Yet, the shift away from small cars isn’t solely about the aspirations of Indian consumers. Challenges related to purchasing power, particularly for vehicles priced up to INR 10 lakh, have put pressure on small car sales.

Young consumers starting their careers are not opting for vehicles priced below INR 10 lakh, and buyers transitioning from two-wheelers to four-wheelers face financial stress, partly due to increased interest rates. This changing landscape, marked by challenges at the lower end of the customer spectrum and premiumization in the middle segment, has led automakers to prioritize SUVs over smaller cars. Today, the Indian market offers only about 13 hatchback models compared to 12 SUVs each in the entry and midsize segments.