India’s automotive retail industry closed the financial year 2024–25 with a modest growth of 6.46%, underscoring the beginning of what could be a turbulent period for automakers and dealers. According to the Federation of Automobile Dealers Associations (FADA), while growth was achieved across key segments, the momentum has failed to inspire confidence amid a mix of internal and global pressures.
- Passenger Vehicle (PV) sales grew by 4.87%
- Two-Wheeler (2W) sales rose by 7.71%
- Commercial Vehicle (CV) sales remained largely flat at -0.17%
This deceleration in growth, compared to stronger recoveries in previous years post-pandemic, is raising red flags for industry stakeholders heading into FY26.
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Rural India Drives Sales — But Urban Lag Persists
A key highlight of FY25 was the resurgence of rural demand, particularly in the two-wheeler and entry-level passenger vehicle categories. This indicates a partial recovery in rural purchasing power, often influenced by monsoon patterns, agricultural income, and festive sentiment.
Rural vs Urban Sales Growth Breakdown:
| Segment | Rural Growth | Urban Growth |
|---|---|---|
| Two-Wheelers | 8.39% | 6.77% |
| Passenger Cars | 7.93% | 3.07% |
The widening gap suggests that urban markets may be approaching saturation or are being restrained by factors like rising fuel costs, higher financing EMIs, and reduced consumer sentiment in metro areas.
Industry Outlook: Rising Costs, Financing Woes, and Global Trade Pressures
FADA President CS Vigneshwar acknowledged the resilience of India’s auto sector but flagged significant concerns for the year ahead. Several factors could dampen growth momentum:
- Financing constraints: Higher interest rates and tighter lending norms are affecting vehicle affordability.
- Temperature volatility: Climate-linked disruptions are expected to impact agricultural cycles and logistics.
- Geopolitical tensions: With global trade facing turbulence, particularly due to recent U.S. tariff hikes, input costs and supply chains may be hit.
U.S. Tariffs Unlikely to Directly Impact India, but Ripples Remain
The U.S. government’s decision to impose 25% tariffs on imported automobiles is not expected to directly affect Indian automakers, given their limited export exposure to North America. However, the indirect consequences could be significant:
- Disrupted global supply chains
- Higher costs for imported components
- Competitive pricing pressures in export-friendly regions
India’s auto industry is tightly integrated into global manufacturing ecosystems. Any major shifts in trade routes, tariff policies, or sourcing strategies can create long-term ripple effects, even for domestic players.
FY26: The Road Ahead Looks Uneven
Despite a generally positive sentiment in early FY25, the latter half of the year saw momentum taper off. Looking forward, FY26 may pose the toughest test yet for automakers, suppliers, and dealers.
Key Risks on the Horizon:
- Weather-dependent rural demand
- Continued regulatory tightening
- Global inflation and shipping cost spikes
- Consumer affordability amidst high inflation
While electric vehicle adoption and tech-enabled retail channels offer glimmers of opportunity, the sector may require policy support, strategic pricing, and dealer-level innovation to stay resilient.
