The good news is that compact car sales are expected to rise 11-13 per cent this fiscal but profit margins will come under pressure, says a CRISIL Research study.
Increasing competition and new launches in the segment, says the report, will result in a 6-7 per cent drop in the sales of individual models. And the decline in sales per model will increase the cost pressure on manufacturers due to declining economies of scale.
With new launches, the total number of compact car models could go up to 25 this year.
"To preserve margins and benefit from scale efficiency, manufacturers need to increase sales per model in the compact car segment rather than focus on overall sales by introducing more models," said Manoj Mohta, head, CRISIL Research.
"The competition is intense and it's not possible to increase prices. As a strategy we have weaved the pricing with functional benefits such as free maintenance," said, P Balendran, VP, General Motors India.