The Middle Class Isn't Buying Cars Like It Used to. Here's Why

I am told young people don’t buy cars anymore. Not because they don’t want to, but because they can’t afford them.When I was young(er), it was almost a middle-class rite of passage. You bought a car after your first decent raise. Back then – I am talking about the late 1990s and the early 2000s – people got good pay hikes within the first three years of working.And when they bought their own vehicle, they also entered the tricky world of personal loans. When your salary zooms up every year, committing to EMIs doesn’t seem that daunting. So, 20 years ago, if a Rs 5,000 instalment looked big on a Rs 30,000 salary, it didn’t hurt you that much when your salary jumped to Rs 45,000 the next year.The wealth effect of growing incomes made the middle class take loans and buy big-ticket durables – especially cars.The very opposite is happening right now.Why India's Middle Class is Speaking Up AgainYoung people aren’t getting jobs. Those who are, aren’t getting good raises. White-collar professionals, who have risen to middle management, are stuck with the same salary packages for years. And there is the constant threat of pink slips.In such circumstances, who indeed will dare to buy a car and get stuck with a hefty EMI? Only the minuscule minority, the richest 0.5 percent of Indians, are getting richer. That is why, over the past couple of years, the sales of luxury cars and multi-utility vehicles have shot up, while the sales of smaller ‘middle class’ passenger cars have stagnated.I will return to those numbers later, but first, let us look at the scary bit of data released by FADA (Federation of Automobile Dealers Associations of India). FADA says dealers across India have more than seven lakh cars, worth Rs 70,000 crore lying unsold. They say this is twice as much inventory as they normally like to hold.Car makers have contested these figures. Their inventory estimate is closer to four lakh cars. Auto companies admit that this is higher than what it ideally should be, but it is nothing to be alarmed about. Come Dussehra and Diwali, and all will be well.It is possible that dealers are massaging the data to get better bargains from car makers ahead of the festive season, but there is no doubt that the car industry is heading for trouble again. It had a bad time in 2019, and then a couple of terrible COVID years. Sales picked up after the lockdowns were over, partly because of pent-up demand. Now, it is back in the slow lane.What is 'Middle' About the 'Middle Class'?Even when car sales were booming in the past couple of years, the fine print showed that the middle class wasn’t participating.Ten years ago, small and mid-sized cars accounted for 64 percent of all cars sold in India. Today, that has fallen to just 35 percent. In fact, there has been an absolute decline in the sale of such ‘middle class’ cars. In 2013-14, 19.7 lakh small and mid-sized cars were sold in India; last year that number dropped to 17.2 lakh.The exact opposite has happened with respect to the cars bought by richer people. In 2013-14, Multi-Utility Vehicles (MUVs) made up just 18 percent of car sales. In 2023-24, it shot up to 57 percent. In 2013-14, about 5.7 lakh MUVs were sold; last year that number was 27.8 lakh.Of course, part of the reason for this change is cultural. Public culture in India has become increasingly more aggressive and macho. A person driving an MUV on the road commands more respect than someone in a sedan.But the bigger reason is that a lot of affluent families have been buying bigger utility vehicles as their second or third car. Go to any posh locality in any of India’s metros – and you will find two to three cars sitting in the driveways or parking spots of each house. Several Gurugram condominiums, for instance, come with three parking spots. Every affluent family has multiple cars. The MUV is the one for family outings or weekend trips out of the city.On the other hand, go to a more middle-class zone, and you will find people driving models that are now 8-10 years old. And they have no plans of replacing them anytime soon. This is in great contrast to what middle class families expected in the 2000s. Back then, people planned to upgrade their cars every five to six years and start off a new EMI cycle again.Consumption Data Indicates Vanishing Middle-Class & Struggling Low-Income ClassIn fact, even ‘middle class’ cars are not being bought by households. A large number of them are being used as taxis.According to Uber, there are over one million drivers on their app, making India the company’s third largest market. Yet, ask any Uber driver and they will tell you they barely make ends meet. The common thread is that the rates are too low, Uber charges a big commission, and there is too much competition in the market. In fact, as I write this, cab drivers are on strike in Delhi NCR to protest against ride aggregators like Uber and Ola.Uber is a perfect example of the mess India’s middle class is in. Many once upwardly mobile middle-class households have sacked the drivers they used to employ. They simply can’t afford that luxury. The demobilised army of drivers has turned to Uber to make a living. So, we now have a massive oversupply of Uber cabs.On the other side, there are young people who can’t afford to buy cars. They are increasingly taking Ubers, and raising the demand for cabs. Yet, this is true only at a particular price point. Above that, people will switch to public transport, or even avoid ‘casual’ trips.So, Uber has no option but to keep rates deflated. Any higher, and customers will first switch to auto-rickshaws, and then simply get off their app. In fact, despite its huge expansion in India, Uber made a Rs 311 crore loss last year. It is a cost it bears to hold on to its customers while extracting what it can from the drivers.India’s car sales and usage data is a fascinating proxy story for what is happening in our economy, especially with the middle class. Its impact runs deep because the auto sector has long been touted as a key driver of India’s economy. When it falters or grows askew, so does the entire economy. (The author was Senior Managing Editor, NDTV India, and NDTV Profit. He now runs the independent YouTube channel ‘Desi Democracy’. He tweets @Aunindyo2023. This is an opinion piece. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)Wheat Export Ban: Benefit to the Middle Class at the Cost of Farmers?

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The Middle Class Isn't Buying Cars Like It Used to. Here's Why

FADA says dealers across India have more than seven lakh cars, worth Rs 70,000 crore lying unsold.

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