Mint Primer: Why car sales have hit a festive speed-breaker

Just ahead of the festive season, passenger vehicle sales have fallen for two consecutive months in July and August. With inventories at dealerships at an all time high, the outlook is bleak. Mint explains the reasons for this sudden slide. Is it just a temporary blip?

How have car sales fared this year?

Within automotives, cars were the fastest off the block post-pandemic. In 2023-24, wholesales—cars dispatched from factories to dealers—were at a record 4.2 million units, a growth of 8.4% over 2022-23. In the first quarter of this fiscal year, too, sales grew, although at a sedate 3%, in line with the overall forecast for the full year. In July and August, however, wholesale inventories fell 2.5% and 1.4%, respectively. Actual retail sales also declined 4.5% in August. With retail showrooms reporting high inventory of 780,000 units worth ₹77,800 crore, equivalent to over 2 months of sales, the short-term outlook is bleak.

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What is the reason for the slowdown?

A number of factors are at play here. After three consecutive years of strong growth, a high base effect has resulted in a moderation in growth. At the same time, the pent up demand from the pandemic era, which was the reason for much of the growth in the past three years, has tapered off. This has coincided with easing of supply chain issues like semiconductor shortages, so manufacturers have doubled efforts to ramp up production, ensuring greater availability of vehicles. Additionally, local factors like heat waves and excess rainfall in parts of the country have also made customers delay purchases.

Have all segments been equally impacted?

Growth in car sales in the past decade has been led by utility vehicles. That continues to be the case even now. Multi-utility and sports-utility vehicles are the only cars that have grown this year while entry-level cars and sedans have declined. Another large segment that has started to struggle is the compact car, which includes models like Swift, Dzire, Grand i10, Baleno and i20.

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How is the industry reacting to this?

Typically, the industry builds up stock at dealerships in the run-up to the festive season, but with inventories already high, clearance is in focus here. Manufacturers are offering big discounts on some models. The festive season is also when new vehicles are launched. Already Tata Motors has launched the Curvv SUV in EV and petrol/diesel versions, while Mahindra has launched the five-door Thar Roxx. In the next few weeks, Hyundai will launch the new Alcazar, MG its next EV, Windsor, and Kia the refreshed Carnival.

What is the forecast for the festive season?

With the twin festivals of Dussehra and Diwali falling in the same month—​October—​this year, sales are likely to shoot during the month at least at the retail level. Thereafter, it is expected to slow down over the year end when consumer demand is anyway low. Good rainfall should spur demand in rural parts of the country, and although sales may still fall in September and October at wholesale level given the high base from last year, an uptick in retail should liquidate stocks and correct the imbalance in the industry. ​

Read more: Maruti not to deepen discounts for festive season even as sales fall