New India drives upmarket: SUV surge marks a seismic shift in car buying habits

India’s car market is undergoing a dramatic transformation, marked by a sharp K-shaped divergence—where the once-dominant small car segment is collapsing, while premium SUVs and MPVs take center stage, even among first-time buyers.

At the heart of this shift stands the Hyundai Creta, a feature-rich SUV priced north of ₹11 lakh. It wasn’t just the top-selling car in June 2025 — it symbolized a new trend. Together with Maruti’s Ertiga, the two utility vehicles accounted for nearly two-thirds of all car sales last month, highlighting the collapse of entry-level demand and the ascent of aspirational mobility.

What’s striking is who’s buying them: Nearly one in three Creta buyers in 2024 was a first-time car owner, a significant leap from just 12% in 2020. According to Hyundai officials, these new buyers range from households with monthly incomes between ₹50,000 and ₹2 lakh — families that might have once turned to hatchbacks like the Alto or S-Presso but now start with SUVs instead.

Entry-level in decline, premiumisation takes over

India’s overall car market hit a record 4.3 million units in FY2024-25, but growth was a sluggish 3% — weighed down by the ongoing collapse in entry-level car sales. Sales of vehicles priced below ₹5 lakh — a crucial indicator of economic vitality and first-time ownership—have plummeted from over 9 lakh units in FY16 to just 25,402 in FY25.

In June 2019, the Maruti Alto alone sold over 18,700 units. This June, Alto and S-Presso combined couldn’t cross 6,100. Meanwhile, Creta topped the sales chart at 15,786 units, despite underperforming its own FY24 monthly average.

Veteran industry insiders call this a textbook case of K-shaped consumption, where the upper end of the market thrives, even as the base erodes.

Behind the numbers: the shrinking affordable dream

This polarisation is stark. According to data from the NGO People Research on India’s Consumer Economy, car ownership among households earning below ₹4 lakh annually fell from 1.9% in FY16 to 1.4% in FY20. Penetration among those earning ₹4–7 lakh annually also dipped — from 12.1% to 8.3%. These two income groups together represent nearly 80% of Indian households.

With entry-level cars now starting at ₹4 lakh-plus, thanks to safety mandates like six airbags, and with scooters costing just a fourth of that, the price jump is turning away millions of potential buyers. Compounding this is sluggish income growth, especially in urban India, where corporate performance and consumption are softening post-Covid highs.

The rise of the feature-first buyer

SUVs remain dominant, but it’s the multi-purpose vehicles (MPVs) like Ertiga that are seeing the fastest growth — especially in rural and semi-urban markets, which now make up over 40% of car sales, a new high.

Consumers may still pick the base or near-base variants, but their expectations have soared. Hyundai says ADAS-enabled cars now make up 15% of its sales, up sixfold since 2020, while half of all Hyundai vehicles sold come with sunroofs. The company is even introducing high-end features in lower variants to appeal to this expanding premium-curious audience.

Two-wheelers slow, four-wheel dreams stall

It’s not just cars. Two-wheeler sales fell 6.2% year-on-year in Q1 FY25 to 46.74 lakh units, led by declines in motorcycles and mopeds. Passenger vehicle sales dipped 1.4%, while passenger car sales dropped more than 11%, underlining the stall in entry-to-mid tier demand.

Once a reliable indicator of India’s growing middle class, the auto sector now tells a more fractured story. First-time buyers still exist — but they're skipping the basics and heading straight for high-end features and bigger cars. Meanwhile, the majority, priced out, are left behind.