Automakers raise alarm bells about demand despite healthy GDP, cooling inflation

New Delhi: India’s high economic growth and falling inflation have failed to accelerate sales of cars and 2-wheelers, with the country’s largest automobile firms like Maruti Suzuki India Ltd, Honda Motorcycle and Scooter India, Mahindra and Mahindra Ltd, and Hero MotoCorp Ltd flagging weak demand.

Both Maruti and Honda have raised alarm bells about the disposable income available in the hands of consumers, which is hurting demand for their products. Other automakers are pinning hopes on the upcoming festive season and lower interest rates for a revival.

The concerns over the demand environment were repeatedly raised during the April-June earnings calls of companies held in the last one week. This comes even as the country’s GDP grew at a healthy 6.5% in FY25, with the January to March period seeing a 7.4% expansion. Moreover, retail inflation cooled to a 77-month low of 2.1% in June.

“The growth rate of the car industry has become a matter of considerable concern,” R.C. Bhargava, chairman of Maruti Suzuki, said in his yearly message to shareholders as part of the company’s annual report, on Tuesday.

“In FY 2024-25, retail sales growth was 3% and in quarter 1 this year there has been a de-growth of 1.3%. This slowdown in the car industry has happened despite the country experiencing the highest GDP growth amongst large countries and calls for serious consideration.”

Bhargava’s comments come six months after finance minister Nirmala Sitharaman announced income tax exemptions for people earning up to ₹12 lakh, triggering optimism that consumers will have more money in their hands to buy goods such as automobiles, refrigerators, and persobal care.

Limited slowdown

The slowdown has not been limited to passenger vehicles and is visible across nearly all automobile segments, a review of automobile sales data shows. Passenger vehicle sales declined 1.4% to 1.01 million units, two-wheeler sales fell 6.2% to 4.67 million units, and commercial vehicle sales declined by 0.6% to 223,215 units in the three months through June.

“GDP growth is healthy at 6.5%, inflation is low, monsoon has been good and there were also relaxations in income tax slabs. But unfortunately, these positive offshoots are not reflecting at the ground level which is impacting the market,” Yogesh Mathur, director of sales and marketing at Honda Motorcycle and Scooter India, told Mint in an interview.

“The disposable income in the hands of the consumer is still tight,” Mathur noted about the sentiments.

Mahindra and Mahindra, which has been one of the few automakers witnessing strong growth in sales, has also noted that the demand situation is weak but has pinned hopes on a gradual turnaround soon.

“I do believe that given everything that we’ve seen with regard to rate cuts, greater liquidity and the overall sentiment being weaker will likely turn around. We’ve had a good monsoon, again that matters more for rural than for urban. Our sense is we will likely see some sentiment turnaround and us getting back to a stronger growth,” Anish Shah, group CEO at Mahindra and Mahindra, told analysts and investors after the Q1 results on 30 July.“But at this point, it is weaker.”

Agreeing that demand was soft during the April-June period, the Hero MotoCorp management told analysts on Thursday that there were two distinct patterns that were visible in the market during the first few months of this fiscal.

“What we have seen in the last four months is two distinct patterns emerging. When the year started, rural was outpacing urban but for last couple of months, it is urban that is growing a little stronger,” Ashutosh Varma, chief business officer at Hero MotoCorp, said during the earnings call, attributing it to early monsoon arrival.

“With the onset of festival season in August, good sentiments should translate to good market performance,” he said.

Flagging demand

Automobile body Society of Indian Automobile Manufacturers (SIAM) also raised the issue of weak market demand.

“Overall sentiments across categories have remained subdued so far, even as the industry continues to navigate supply-side challenges. With the upcoming festival season coupled with the benefits of Reserve Bank of India (RBI) repo rate cuts, we expect consumer sentiments to improve,” Shailesh Chandra, president, SIAM, said last month.

Automakers like Bajaj Auto, Ather Energy Ltd and TVS Motor Company have been forced to reassess production during the July to September period owing to the rare earth magnet crisis. Both Ather and Bajaj have said that their output during the quarter will be affected.

Bajaj is forecasting production of electric 2-wheelers at 50-60% of the original plan while Ather has said that dispatches equal to seven days of volume will be affected during the quarter.

Jittery about the weak demand situation, the country’s largest retail dealers’ association made a representation to the RBI last month, urging it to instruct banks to pass on the interest rate cuts quickly to boost automobile demand in the country.

Federation of Automobile Dealers Associations (FADA) wrote in a representation to RBI governor Sanjay Malhotra that the central bank should urge for immediate pass-through of the benefit of interest rate cuts of 100 bps to 5.5%.

“RBI has delivered the fastest series of policy-rate reductions in its history—a clear positive signal for the economy. Yet, this benefit is not fully visible in the auto-retail sector,” the body wrote in the representation made on 25 July.

“While public-sector banks pass on repo-rate cuts to auto borrowers immediately, many private banks delay transmission on the pretext of internal cost-of-funds assessments,” the letter added.

Analysts see a mixed outlook for upcoming sales. While tailwinds like the festive season and lower interest rates are expected to boost demand, growth may be limited. This is because sales will be compared against a high-base period from last year, capping any significant growth.

“On the demand side, the entry-level and commuter segments, which account for a significant share in India, were especially sluggish due to affordability challenges, weaker rural sentiment, and tighter financing availability,” analysts at Ashika Institutional Equities said in a 7 August note.

“With easing supply-side constraints, improving financing availability, and the upcoming festive season—which traditionally boosts sentiment—OEMs are hopeful of a demand recovery in H2FY26, though the high base will remain a limiting factor for headline growth rates,” they added.

Investors have remained cautious about auto stocks, with the Nifty Auto index growing 2.8% so far in 2025, as against a 3.6% growth in the benchmark Nifty 50.