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News - Market Insight - Market Insight 2011

Market Insight: Tiny tots make an impact

City car growth: Diminutive, sub-$13k cars like the Suzuki Alto are growing in popularity in Australia.

Cheap ‘sub-light’ hatchbacks carve out a growing niche as safety standards rise

Market Insight logo16 Jun 2011

By RON HAMMERTON

SALES of keenly priced entry-level “sub-light” hatchbacks are climbing steadily in Australia, even in the absence of any major fuel price spike.

Record sales of the Suzuki Alto in May and continuing strong performances by the Nissan Micra have underscored the potential for such sub-$13,000 budget cars in local showrooms, especially those with big-car-style crash safety equipment and the stamp of approval from auto clubs.

Despite the hesitancy of many car companies to dive into the most cut-throat sub-segment of the market – below the traditional light cars such as the Toyota Yaris, Holden Barina, Hyundai Getz and i20, Mazda2 and Ford Fiesta – sales of such mini hatchbacks have grown more than 130 per cent in a year while the overall light-car segment has shrunk 1.4 per cent year to date.

In May, the Alto, Micra, Holden Barina Spark and new Chery J1 accounted for 1870 sales, up from just 785 in the same month last year. This translates to almost 20 per cent of light car volumes.

Thanks to the strong Australian dollar, historically low prices are on offer, with prices starting from $11,990 driveaway attracting buyers who otherwise would most likely try their luck in the used car market.

128 center imageFrom top: Nissan Micra, Holden Barina Spark, Chery J1, Kia Picanto, Geely LC.

But price is not the only motivating factor, with otherwise wary buyers apparently convinced to take the plunge by much-improved safety standards and reasonable reviews by motoring critics. Cars without this ring of confidence – including the Chinese-made Chery J1 and Proton Savvy hatch and S16 sedan – have found it harder, although it is early days for the Chery.

Sales of the Indian-built 1.0-litre three-cylinder Suzuki Alto – a four-star crash performer in the Australian New Car Assessment Program safety ratings and with prices starting from $11,790 – has enjoyed modest but steady sales growth since its launch in mid 2009, but really took off last month when NSW motoring club NRMA named it Australia’s most affordable car.

Suzuki Australia general manager Tony Devers told GoAuto that the award – which Suzuki now features in its advertising – enticed buyers to add the Alto to their shopping lists.

“People who aren’t in the market don’t care, but people in the market start to consider,” he said. “I think it had a degree of impact, for sure.” Mr Devers said the growth in inner-city living was encouraging sales of such cars, with ‘empty nesters’ and students among the chief buyers.

“Six airbags, ESC, four-star safety rating, three-year warranty – those mean a lot, especially if dad is buying the car for a son or daughter,” he said. “Why would you buy a five- or six-year-old car? “We have noticed that our enquiry continues to grow each month. We don’t get them all, but I think there are more people moving towards it.” Mr Devers said about 60 per cent of Alto buyers were 45-plus, and the rest were under 24 or 25.

“If you look at what I call Generation SN – social networkers – they will be driving plenty of them in the next few years, I reckon,” he said.

Although cars in this ‘sub-light’ segment are not defined by the official VFACTS sales figures, Nissan’s Thai-built Micra – with a choice of 1.2 and 1.5-litre engines and prices starting from $12,990 – could be considered the king of the crop, with 3145 sales this year, compared with Alto’s 2030 and Barina Spark’s 2003.

One month last year, Micra sales topped 1000 units. Even last month, with 693 sales, it was Nissan’s second best seller behind Navara.

Kia is expected to jump in the shallow end of the pool with its European-styled Picanto, shaking up the market within the next 12 months.

Sitting below the new Rio that is also set for launch in Australia in the third quarter, the Picanto will be offered overseas in three- and five-door configurations with a choice of three- and four-cylinder engines, topped by a 1248cc four-cylinder petrol unit.

Kia is yet to say which powertrains are destined for Australia, but expect only one five-door body style, at least at launch.

Several other motor companies have potential contenders in the zone, but so far, they are keeping their powder dry.

Kia’s parent company, Hyundai, has its Indian-made i10, which shares its architecture with the Kia Picanto.

However, Hyundai seems reluctant to dial up the car for Australia as it pushes up market, sticking with its bigger i20 as its only light-segment contender when its venerable Getz finally runs out this year.

The problem for many other car companies is that while they might have models that would fit the bill, at least in size and features, they don’t have the necessary low-cost manufacturing base to compete on price.

All the current or upcoming sub-light vehicles are made in India, Thailand, South Korea, Malaysia or China.

Toyota’s iQ city car – sold in Europe and Japan – might be ideal if it was made in Thailand or India instead of Japan.

Toyota is ramping up its production base in Thailand, although no plans have been announced for iQ to be made there.

Ford’s Polish-built second-generation Ka would sit nicely under its Fiesta if it made a return to this market at the right price, perhaps powered by its new 1.0-litre EcoBoost three-cylinder engine.

Volkswagen’s forthcoming Up! mini car, which has been shown in numerous concept guises since 2007, will go into production soon in Slovakia, perhaps as a Lupo replacement.

This game-changing city car is a chance for Australia, but with VW engineering and long-distance shipping costs built in, it is hardly likely to dip below $13,000.

On the other hand, if it was sourced from China, where Volkswagen has a major slice of the market and a huge manufacturing presence with partners SAIC and FAW, it could re-shape the Australian light-vehicle market.

In fact, China is set to reshape this end of the market anyway, with several new contenders in the pipeline from the likes of Geely, Great Wall Motors and JAC, among others.

Confirmed is Geely’s LC – known as the Panda in China – that is now scheduled to drop into Australia in early 2012, although it won’t be available in Victoria where its lack of ESC precludes its registration.

For all mainstream manufacturers, the other elephant in the room is the global oil price, and if it starts to stampede, the growth in both models and volumes offered in this sub-light segment could turn into a flood.

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