Car dealers struggle as demand slows, inventory piles up

Car dealers are offering discounts, usually available during festivals like Diwali, to clear inventory that has piled up from about a fortnight at the start of the year to up to 55 days in March as demand slows, according to industry executives and brokerages.

“Retail sentiment in the automotive sector has evidently turned negative, marked by double-digit drop-in walk-ins and inquiries,” Amit Hiranandani of PhillipCapital wrote in a 30 March note. “Inventory levels have risen, and discounts are approaching those seen during the Diwali season in an effort to clear stock. Additionally, the duration from inquiry to conversion has lengthened.”

While the inventory levels are close to about 50-55 days seen a year earlier, sales declined 10% in February this year compared with a growth of 12% in the same month in 2024.

Also read | Demand slowdown hurts auto sales in Feb, high inventory a challenge: FADA

The country’s largest carmaker Maruti Suzuki India Ltd sold about 17.95 lakh passenger vehicles in the financial year 2025, showing marginal growth compared with a 9% increase in the previous fiscal.

Maruti Suzuki’s leadership, in a call with reporters on Tuesday, said the passenger vehicle market is not that great, and the double-digit growth seen previously will not be normal as the numbers stabilise.

“Consciously, the firm has been committed to helping dealers reduce inventory and we have aligned the dispatches to dealers accordingly. Retail sales continue to post growth for Maruti,” said Partho Banerjee, head of marketing and sales at Maruti Suzuki.

The second-largest carmaker, Hyundai Motor India Ltd, sold about 5.98 lakh units, 16% lower than the previous fiscal year. Tata Motors Ltd’s passenger vehicle sales declined 3% to 5.56 lakh in FY25.

Bigger discounts

That has prompted bigger than usual discounts.

“Discounts remain elevated across OEMs, particularly at the dealer level, with average price discounts nearly 75-80% higher year-on-year,” wrote Aniket Mhatre and Amber Shukla of Motilal Oswal Financial Services.

Weak consumer sentiment in the market is hurting the carmakers and increasing the pain for dealers.

“Dealer sentiment turned cautious during [January to March period], with increasing reluctance toward inventory buildup amid slowing retail demand and recent OEM price hikes, which further weighed on consumer sentiment,” Sahil Churi of KR Choksey wrote in a 28 March note. “The domestic demand environment remained under pressure, adversely impacting overall industry growth.”

Maruti Suzuki, Hyundai, Tata Motors and Mahindra & Mahindra Ltd have announced price hikes of 3-4% from this month. For Maruti Suzuki, it was the third increase this year.

“Amid sluggish growth in sales, few automakers are undertaking price hikes to protect their margins,” said Rajat Mahajan, partner and automotive sector leader at Deloitte India. “The demand environment should improve from the second half of this financial year after the tax incentives have had some effect and the festive season is in full flow.”

Maruti held about 40.26% market share of the passenger vehicle in 2024, according to per Federation of Automobile Dealers’ Association. Hyundai held about 13.75%, while Tata Motors and Mahindra had about 13.21% and 12.03% share, respectively.

The country sold about 41 lakh vehicles in 2024.

Piling inventory

Dealers have started complaining about the piling inventory.

“Dealers raised issues about inventory being pushed without consent. While this can support OEM market objectives, aligning wholesale with genuine demand is crucial for healthy dealer viability,” FADA said in its statement on 6 March.

According to PhillipCapital, inventory levels at Maruti have risen from nine days as of 1 January to around 40-45 days. Hyundai and Tata’s inventory have risen to 50-55 days. Mahindra’s inventory is about 30 days.

With price hikes incoming, the retail sentiment in the auto sector is increasingly turning negative.

Also read | Festive mood lifts automotive purchases in October, eases inventory pressure

There is hope that the government’s tax incentives kicking in from the financial year 2026 will bring about some relief for the sector. Moreover, Society of Indian Automobile Manufacturers data for April to February showed that domestic sales have grown about 2% with 38.21 lakh sales.

“There are structural challenges, but the demand scenario is not all too negative,” said Gaurav Vangaal, associate director-light vehicle production forecasting, Indian Subcontinent at S&P Global. “We need to monitor the sales in the upcoming quarters. The bottomline is that the market continues to grow despite some stress at the consumer level.”

The BSE Auto index has declined by over 9% in 2025 against a 3% fall in the Sensex.