Vanishing Dreams on Four Small Wheels: What Ails India’s Small Car Segment?
As a child, my fauji father’s bicycle was aspirational. In college, I desired a Yezdi from the army canteen. My mother wouldn’t allow a motorcycle due to safety concerns, so we settled for an Explorer.
In my first job, I fought hard for a Suzuki Samurai over the company’s standard Rajdoot. The company obliged — thanks to a gentle nudge from my boss.
Soon, I graduated to company cars: Premier Padmini, Maruti 800, and then a Fiat Uno.
I’ve travelled that path. For my generation, mobility was a journey — linear, symbolic, and aspirational.
For Gen Z, it’s not quite the same. And not as linear.
But one thing still intrigues me: How did India’s small car market shrink from 460,000 units sold in FY2019 to just 133,397 units in FY2025? Mint
Media reports offer data. But little insight. So what are we missing?
🚧 What Ails the Small Car Segment?
1. Affordability Has Eroded
Regulatory upgrades — BS6 norms, dual airbags, crash test requirements — have made small cars significantly more expensive. A car that once cost ₹3 lakh now starts at ₹5 lakh. That leap has left behind many first-time buyers.
2. OEMs Have Moved On
Margins on entry-level models are razor-thin. Auto manufacturers are shifting focus to where the money is: SUVs and premium hatchbacks. Even Maruti Suzuki, the face of India’s small car revolution, is moving toward hybrids and larger vehicles.
3. The Used Car Boom
Platforms like Spinny (fronted by none other than Sachin Tendulkar and his “God Promise” campaign during IPL) have made used cars aspirational, trustworthy, and value-rich. Why buy a no-frills new car when you can get a well-specced pre-owned vehicle at the same price?
4. EVs Are Coming, But Not for All
Yes, EVs are the future. However, most are priced above ₹10 lakh. Tata has led with entry EVs like the Tiago EV, but India still lacks a robust sub-₹6 lakh electric car that can truly replace the small petrol car for the masses.
🧲 China, Rare Earths & The EV Dilemma
EVs rely heavily on rare earth magnets, especially for motors. China controls over 90% of this supply chain — mining, refining, and production.
That’s a strategic vulnerability. Without investment in:
- Indigenous rare earth processing
- Domestic EV component manufacturing
- Battery and magnet tech independence
…India could end up swapping oil dependence for magnet dependence.
👥 Gen Z’s Relationship With Cars Has Shifted
Let’s face it — owning a car isn’t cool anymore. (Rapido ads during IPL to the convenience of Uber & Ola, and other niche players)
- Ride-hailing apps like Ola and Uber offer convenience without the hassles of ownership.
- Remote work and hybrid lifestyles have reduced the need for daily commutes.
- And status is now signalled via gadgets, travel, and experiences, not vehicles.
For this generation, a car is not a dream — it’s a decision. And increasingly, the decision is: “Why bother?”
What Can We Learn from Japan?
Japan tackled a similar challenge with vision. The Kei car initiative created a thriving segment of small, efficient, city-friendly vehicles, with lower taxes, fuel efficiency, and tight design constraints. It wasn’t just about size — it was a system built around purposeful mobility.
India needs a Kei car-type initiative of its own. We must stop lumping all cars under one policy lens. As Mint rightly said:
“We need to look at small and big cars differently.”
We’ve selectively adopted Japanese technology. But there’s more to emulate — especially their culture of precision, purpose, and hard work. As we overtake Japan to become the world’s fourth-largest economy in size, let’s not forget that the quality of growth matters just as much.
🚦 Should the Government Step In?
Yes — and not to prop up automakers. But to preserve mobility access for a wide base of Indians.
Some policy ideas:
- Lower GST rates on true entry-level vehicles.
- Incentivize hybrid and EV models under ₹10 lakh.
- Launch a Rare Earth Mission for mineral independence.
- Invest in smart public and shared transport for urban youth.
Because mobility isn’t just about roads and cars — it’s about economic dignity.
🧭 Final Thought: Small Doesn’t Mean Less
Two of my friends today own large SUVs — a Defender and a Toyota. But what I admire more? The small cars that quietly sit next to them — a Toyota and a Honda. Both no longer in production. I’d have gladly bought one — but I can’t. They simply don’t make them anymore.
We’ve designed out the very vehicles that helped India move forward.
The small car wasn’t about luxury. It was about starting somewhere — your first job, your first EMI, your first taste of freedom.
And as The Economic Times aptly put it:
“The industry is drawing a lot of attention over futuristic plans. It would be a pity if mainstream carmakers lose their voice in the bargain.”
That includes the voice of the aspirational class — those who still wish to migrate from two-wheelers to their first small car. Despite changing consumer behavior and digital disruption, this segment still matters.
All stakeholders — including government, OEMs, financiers, and urban planners — need to view the issue holistically, rather than transactionally. Only then can we arrive at a win–win–win solution: for the industry, the economy, and the everyday Indian.