Share of utility vehicles in the overall sales of new cars is expected to be on an upward trajectory amid growing popularity of such vehicles and automakers' reduced focus on compact hatchbacks owing to rising production costs, Fitch Ratings said on Friday.
The increasing share of higher-margin UV (Utility Vehicle) sales will help carmakers cushion the impact on production cost due to high commodity prices and compliance to additional safety standards, it said.
Citing SIAM (Society of Indian Automobile Manufacturers) data, Fitch said that UV's volume share in overall car sales increased to 49 per cent in the previous fiscal, up from 28 per cent in the year-ago period.This underscores the rising popularity of UVs over hatchbacks and sedans, whose combined share dropped from 66 per cent to 48 per cent.
Within the UV category, the share of entry- and mid-level UVs in overall car sales rose to 38 per cent in the financial year ended March 2022 from 20 per cent in FY19, underscoring customers' shift in favour of vehicles offering more space and versatile road capabilities, it said.
The agency said that higher numbers of new launches in UVs compared to hatchbacks in the past few years have supported growth. Fitch Ratings believe UVs are well-positioned to gain further share in overall car sales as UVs remain popular, particularly among upgraders and high-income customers who are typically less price conscious than buyers of entry-level cars. Entry- and mid-level UV sales rose by 21 per cent year-on-year in FY21 and 35% in FY22, reflecting resilient demand despite the COVID-19 pandemic, it stated. Still, the rising production costs will weigh on demand and profitability for the price-sensitive compact hatchbacks and sedans, according to the ratings agency. High commodity prices and more stringent vehicle safety and emission standards have caused 20—30 per cent increase in entry-level car prices since 2018, it said.