Passenger Vehicle Sales Dip Amid Tensions: What’s Driving the Market?

Decline in Passenger Vehicle Sales

New Delhi: In May, retail sales of passenger vehicles experienced a 3% decline compared to the previous year, as consumers postponed purchases in various states due to the ongoing India-Pakistan conflict and a decrease in demand for entry-level models, according to the Federation of Automobile Dealers Associations (FADA).

Last month, the total number of passenger vehicle registrations reached 302,214 units, down from 311,908 units in May 2024.

Entry-level vehicles were particularly affected, with limited financing options and a lack of consumer confidence exacerbating the downturn, FADA reported.

Increased concerns over war and border tensions in regions like Jammu & Kashmir, Punjab, Rajasthan, and Gujarat led many buyers to delay their purchases.

While bookings remained relatively strong, the conversion rate lagged due to challenges with margin money and postponed decisions, the dealers' association noted.

FADA emphasized that Original Equipment Manufacturers (OEMs) should adopt a careful approach to production planning and channel incentives to avoid placing undue financial pressure on dealers, who are already facing rising carrying costs and the need for excessive discounting.

In contrast, two-wheeler sales saw a 7% increase year-on-year in May, totaling 1,652,637 units, compared to 1,540,077 units during the same month last year.

Dealers attribute this growth to a higher number of auspicious marriage dates, a robust Rabi harvest, and pre-monsoon demand, particularly in semi-urban and rural areas.

However, financing challenges in the economy segment limited the full potential for growth. Looking ahead, stakeholders are advised to keep an eye on liquidity access and model availability to maintain momentum.

Commercial vehicle sales fell by 4% year-on-year to 75,615 units in May, impacted by sluggish freight cycles, tight liquidity, and negative geopolitical sentiment.

While bus sales provided some relief, segments related to passenger carriers and commodities like cement and coal experienced significant declines due to delayed financing and a decrease in total industry volume.

Despite this, wholesales increased as OEMs and dealers prepared their inventories ahead of the mandatory AC driver-cabin regulation set for June 2025.

Three-wheeler registrations rose by 6% year-on-year, reaching 104,448 units in May.

Regarding the business outlook, FADA warned that global supply chain challenges—from rare-earth material shortages in electric vehicle components to ongoing geopolitical tensions—could dampen urban consumer sentiment.

To navigate this challenging yet resilient month, OEMs and financiers need to align production planning with actual demand signals, implement well-calibrated channel incentives, and ensure sufficient working capital support.

Overall, these factors suggest a cautiously optimistic outlook for auto retail in June, according to the dealers' association.