SUV and MUV makers may avoid tax bump

The outbreak of covid-19 in March 2020 dealt a blow to vehicle sales. Once movement restrictions were lifted, four-wheelers bounced back better than two-wheelers. In October 2020, registrations of four-wheelers for personal use first crossed the January-March 2020 average. In the 25 months since, they have stayed above that baseline in 20 months. By comparison, October and November 2022 was the first time that two-wheeler registrations crossed their pre-pandemic baseline.

UVs have been the growth anchor among personal cars, which the government is now looking to tax more. Although popular for a while, post-pandemic, UVs have overtaken compact and hatchback cars in the set of 25 top-selling models. Further, the share of SUVs/MUVs in this set has risen from 39.3% in the first half of 2021 to 49.5% in the second half of 2022.

They may still not hit a tax bump. The traditional definition of SUVs was cars with a higher ground clearance, which left room for interpretation. Now, the government has specified a vehicle is an SUV if it meets four criteria: popularly known as an SUV, engine capacity above 1,500 cc, length more than 4 metres and ground clearance of 170 mm or more. Expect manufacturers to recalibrate their offerings to sidestep this framework.

Commercial Clouds

FOR PASSENGER-CAR manufacturers, SUVs and MUVs are important from the perspective of maintaining sales. They have seen other segments suffer setbacks in the collateral damage wreaked by covid-19. A big and important segment that suffered a complete collapse was commercial cars. Further, recovery has been slow and painful. It is only in the last six months that there has been some semblance of recovery. 

In 2019, commercial cars were averaging about 15,000 new monthly registrations. In the 12-month period beginning April 2020, the first month after covid-19 struck, the monthly average was just 3,600. It was only in July 2022 that registrations again crossed 10,000, a mark they have maintained since, amid a rising trend. This collapse of commercial cars affected car manufacturers that create models specifically for the commercial segment—typically, sedans and hatchbacks.

UV Variance 

UVS SOFTENED the blow for passenger-car manufacturers who were big in the commercial cars segment. Most carmakers that are big on sedans and hatchbacks also have a portfolio of UVs. Notable among them are the three leaders: Maruti, Hyundai and Tata. What varies is the share of UVs in their sales mix.

Here, we have considered the 25 top-selling models, which account for about 75% of all passenger car sales. At one end is Maruti (25% share of UVs in sales). At the other end is Tata (69%). Slotting between them is Hyundai (56%). 

In the past few years, car manufacturers have ridden the consumer preference for UVs, and shaped them as well. Mahindra was almost always about UVs. Similarly, Kia has a single model, the EV6 electric sedan, which accounts for just 1% of its total sales. In light of the new tax rates and definitions, all manufacturers will now reexamine their offerings, keeping their target consumer and target price point in mind.

Utility and Style

THE GROWING consumer preference for UVs meant that manufacturers reconfigured around features and price points. Thus, for example, models like Tata Punch and Mahindra KUV 100 lowered the entry price point, to levels where they started competing with some hatchbacks. With car manufacturers shifting their strategy to SUVs, the consumer now has more choices in this segment. Among the 25 top-selling cars sold in the country in the second half of 2022, 16 are SUVs or MUVs. There are just two sedans, Maruti Dzire and Honda Amaze, both of which cater to the commercial segment too. While hatchbacks continue to hold four of the top five positions, options are receding. In the 10 top-selling models, there are four hatchbacks and five UVs. As the government moves to tax the SUVs more, expect manufacturers to review, reconfigure.

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