India's once-dominant small car segment is facing an unprecedented crisis, rapidly losing ground to the burgeoning popularity of SUVs and premium vehicles. Once the backbone of the nation's automotive industry, offering affordable mobility to millions, the small car is now struggling to survive. This article explores the reasons behind this decline and potential strategies to revitalize this crucial segment.

The Vanishing Act: A Statistical Overview

The numbers paint a stark picture. Entry-level cars priced below ₹5 lakh have seen a catastrophic drop in sales, plummeting from 934,538 units in FY16 to a mere 25,402 units in FY25. Maruti Suzuki, a company synonymous with small cars in India, has witnessed its Alto and S-Presso models sales decline to 6,776 units in May 2025, compared to 9,902 units in May 2024. The overall market share of small cars has shrunk dramatically, from 47.4% in FY18 to just 27.7% in FY24. In contrast, the SUV segment now commands over 50% of the market. This shift signifies a fundamental change in consumer preferences and affordability dynamics.

The Culprits: Factors Behind the Decline

Several factors have converged to create this challenging environment for small cars:

• Rising Costs and Regulations: Stringent safety and emission norms, such as the mandatory inclusion of airbags and BSVI emission standards, have significantly increased the production cost of small cars. This has led to a substantial price increase, making them less affordable for the target demographic. For instance, the price of the Maruti Suzuki Alto 800 rose from ₹2.94 lakh in 2019 to ₹3.54 lakh in 2023 before it was discontinued.
• Income Stagnation: While car prices have surged, income levels, especially in rural and semi-urban areas, have not kept pace. The COVID-19 pandemic further exacerbated this issue, leading to reduced purchasing power for a large segment of the population.
• Shifting Aspirations: A growing middle class with rising aspirations now prefers SUVs and larger vehicles, which offer better comfort, safety features, and road presence. Flexible financing options, such as longer loan tenures and low down payments, have made SUVs more accessible, further diminishing the appeal of small cars.
• Lack of Innovation: The small car segment has seen limited innovation and new model launches in recent years. Instead, manufacturers have focused on introducing new SUVs and utility vehicles, offering consumers more choices in that segment.
• Diminished Aspirational Value: Hatchbacks are losing their appeal as SUVs increasingly dominate consumer preferences with their enhanced features and road presence

The Road to Recovery: Strategies for Revival

Reviving India's small car segment requires a multi-pronged approach involving government support, manufacturer innovation, and a focus on affordability:

• Government Incentives: The government could consider reducing taxes and offering financial incentives specifically for small cars, similar to the "Kei" car program in Japan. This would make them more affordable and encourage consumers to upgrade from two-wheelers. Partho Banerjee, Senior Executive Officer (Marketing & Sales) at Maruti Suzuki India, has emphasized the need for government incentives to rekindle interest in the segment.
• Lower Taxes and Smarter Strategy : Small cars are taxed like luxury goods (29–31%). Lower taxes and smarter strategy can lead to revival.
• Focus on CNG and Electrification: Promoting CNG variants of small cars can help reduce running costs and address environmental concerns. Furthermore, developing affordable electric small cars could be a game-changer, aligning with India's push for green mobility. Hyundai is looking at the small car segment as key to attracting first-time buyers, expanding its CNG footprint and ensuring compliance with CAFE norms.
• Innovation and Design Rethink: Manufacturers need to invest in innovative designs and features that cater to the evolving needs of consumers. This could include rugged hatchbacks for semi-urban areas, compact and durable light commercial vehicles, and stylish, fuel-efficient options for young buyers.
• Innovative Financing Solutions: Offering flexible financing options, such as low-interest loans and attractive EMI schemes, can make small cars more accessible to budget-conscious buyers.
• Safety at an Affordable Price: Automakers need to find innovative ways to offer essential safety features without significantly increasing the price of small cars.

The decline of India's small car segment is a concerning trend with significant implications for the automotive industry and the broader economy. By addressing the challenges of affordability, regulation, and shifting consumer preferences, and with collaborative efforts from the government and manufacturers, it is possible to revitalize this crucial segment and ensure that affordable mobility remains a reality for millions of Indians. Maruti Suzuki Chairman RC Bhargava believes that small cars have to grow for India to be a developed economy, emphasizing that "It's impossible that more than three-fourths of people have no mobility in a developed India."