India’s Small Car Market Faces Another Blow

India’s already stressed small car market faces another challenge—the six airbags rule.

In January, The Ministry of Road Transport and Highways approved a draft notification for mandatory six airbags in vehicles with up to 8 passengers, including two in the front and two on the sides. The minister in charge, Nitin Gadkari, reiterated in parliament in March that the rule, applicable after Oct. 1, will include small cars.

Last month, RC Bhargava, chairman of the nation’s largest carmaker Maruti Suzuki India Ltd, told PTI that the company wants the government to reconsider its proposal for six airbags. The norms, he said, will severely hit the struggling small car market because of the increase in cost.

Maruti did not respond to BQ Prime’s emailed queries.

The new rule threatens to be a setback for small cars that, according to Crisil, contribute 43% to India’s passenger vehicle sales. The category lags with 7% growth in 2021-22 compared to 38% year-on-year rise in volumes of premium cars. That’s because rising prices amid global commodity surge and a rural economic slowdown has made such entry-level vehicles less affordable.

There will be a 3-5% cost impact from October 2022 when the regulation comes into force, Fitch Ratings said in a report. Indian carmakers will focus more on the utility vehicle segment after considering its expanded share in overall sales, it said.

“This could result in a lower number of new launches and potential model discontinuations in the entry-level segment, decreasing growth prospects,” the report said.

The auto executive quoted earlier said that some of the models may have to be put on hold to adhere to the rule.

According to Hemal Thakkar, director at Crisil Ltd., already the vehicle cost has gone up in the last two years coupled with higher operating cost due to rising fuel prices. “There will be further escalation to the tune of Rs 30,000,” he said, adding that premium hatches and higher segments will not face a major challenge.

Cost escalation is not the only concern for automakers.

Not only the prices are expected to go up but the vehicles, especially small cars, will need to be re-engineered, an executive at one of the automakers said on the condition of anonymity to speak candidly.

The impact will vary with each model and companies will need time to make changes, the executive said. In some cases, models may have to be discontinued, the person said.

Thakkar, however, doesn’t foresee companies phasing out models because of the addition of airbags.

Some of the small cars will have to go through tweaks and design changes to ensure they accommodate the changes, he said. That would need a lead time of two to three months.

BQ Prime awaits a response from the Ministry of Road Transport and Highways to its queries.