Car Sales In India: Festive Surge Masks Structural Challenges For Automakers

The car was delivered on Dhanteras, an auspicious day for vehicle purchases, and Trisha drove to Goa over the Diwali long weekend.

For the Hyundai outlet, Trisha was a minority. Of the 650 cars the dealership sold over the Oct. 3-Nov. 1 festive period, only 10-15% were hatchbacks, according to a sales executive. That’s despite the near-Rs 1 lakh discount on offer.

“Creta, Alcazar and Venue were the best-selling [models],” this executive told NDTV Profit on the condition of anonymity as he isn’t allowed to discuss sales data. “Hatchbacks are slow-moving for some time now.”

The anecdote, while tiny, is emblematic of how India is buying cars. The sub-Rs 10 lakh segment remains under pressure, despite discounts, and newer SUVs dominate sales. Even in the SUV space, regulation and feature-loading is impacting profitability. The fallout is record-high inventory: 7.9 lakh cars worth Rs 79,000 crore are languishing at dealerships. That’s 80-85 days of unsold stock, as on Sept. 30.

Consequently, carmakers have aligned their production with demand. That reflects in the muted rise in dispatches to dealerships for the third straight month in October, even as retail sales—vehicle registrations on the VAHAN website—surged to an all-time high.

Retail sales of passenger vehicles rose for the first time in three months, clocking a 33.61% year-on-year increase to 4,74,199 units in October, according to VAHAN data compiled by Jato Dynamics, an automotive business intelligence platform. Wholesales, over the same time, grew 1.82% to 3,97,947 units. 

That gap may have eased the inventory situation by nearly a fourth, according to industry watchers. A Maruti Suzuki Nexa dealer in Mumbai said inventory levels are now at 45 days as against 60 days earlier.

“India's automotive sector experienced a classic relief rally in October 2024, driven by festive sentiment and aggressive discounting,” Ravi Bhatia, president and director at Jato Dynamics India, told NDTV Profit.

Maruti Suzuki India Ltd., India’s largest carmaker by volume, led from the front: retail sales rose 35.12% year-on-year to 1,99,663 units. At 55.37%, Mahindra & Mahindra Ltd. clocked the highest rate of growth. Toyota Kirloskar Motor Pvt., which derives nearly 40% of its volumes from Maruti Suzuki rebadged cars, grew its sales by nearly 50%.

The surge in retail sales, according to Bhatia, can be attributed to customers delaying their purchases to coincide with the festive season—nearly one third of their annual sales take place during this time. Strategic discounting to address affordability propped up sales. A spillover into November may have also contributed to volumes.

The wholesales, while muted, showed “encouraging growth trends”, aided by the shift in festive season, Arvind Sharma of Citi Research said in a Nov. 4 note.

“Headline auto volumes in October were healthy,” he said. “Given the festive season this year was advanced by 12 days, there could be some YoY impact of inventory-stocking period, but even accounting for this shift, overall volume print looks positive.”

Citi Research noted that Maruti Suzuki’s volumes—excluding sales to Toyota India—fell 5% year-on-year, but they have come off of a high base in October 2023 when wholesales rose 20% year-on-year to 1,47,764 units. At 25% year-on-year growth, M&M continues to see robust demand for its SUVs but that cannot be said for Tata Motors Ltd., whose Punch and Nexon topped monthly sales charts only a few months ago.

To be sure, the festive outperformance may just be a flash in the pan.

Volumes may just come off a cliff, Bhatia of Jato Dynamics indicated. The demand just may not sustain as the calendar year draws to a close.

“October’s relief rally, while impressive, faces immediate headwinds from the VIN year change and persistent entry-level segment challenges,” he said. “The industry needs to address these structural issues for sustainable growth.”

VIN is short for Vehicle Identification Number, a unique 17-character code that identifies a vehicle. It contains information on when and where a vehicle was manufactured, and by whom. It includes details on the engine type, original features and specifications.

Maruti Suzuki’s RC Bhargava echoed Bhatia in a post-earnings call.

“The market under Rs 10 lakh is not growing,” the chairman of India’s largest carmaker said. His company makes and sells the highest number of small cars in the country. In October, Maruti Suzuki’s SUV sales surged 19% but those of small cars fell 20%. 

“Affordability is a primary concern for slowing sales in the sub-Rs 10 lakh segment,” he said. “If that segment does not grow, it stops feeding the higher segments.”

Then there’s the matter of discounts.

Carmakers will persist with discounts to prop sales in the second half of fiscal 2025, according to Bhatia. As it is, an overload of features and regulations is impacting affordability. A sticky inventory situation is yet another overhang.

Bhargava said as much.

“If you create a large inventory, discounts will happen,” he said. It’s worth mentioning here that Maruti Suzuki’s operational profitability margin fell to a five-quarter low of 11.9% in July-September, due to lower average selling price brought on by discounts. “But discounts are likely to stop after the festive season, as production is now aligned with demand.”

Bhargava even warned of lower-than-expected industry growth in fiscal 2025.

“The industry is not optimistic of an upsurge in demand in the second half [of the ongoing fiscal],” he said. “The industry will grow at 3-4% in FY25 and Maruti Suzuki will grow inline.” To be sure, industry body Society of Indian Automobile Manufacturers, or SIAM, has pegged this figure at 5-6%.

Is the world’s third largest automotive industry, which clocked a record 4.2 million units in the previous fiscal, staring at an impending slowdown, then? Only in the small car segment, Bhargava said. “No one likes a slowdown, but fluctuations are part of a business cycle.”