Passenger car sales—a bellwether for consumer confidence—slipped for the fourth straight month in August. Dispatches to dealerships fell to 330,000 vehicles, a 7 percent decline from August 2024. This is significant since the economy unexpectedly grew at 7.8 percent for the April-June quarter year-on-year, while goods and services tax collections for August rose 6.5 percent.
This disconnect between economic indicators is perhaps because of aspirational changes among the middle class. The small car and hatchback have been weakening as a status symbol of having arrived in the world of mobility, to be replaced in the role by sturdier sports utility vehicles.
This segment, which accounted for just 13.5 percent of sales in 2015, dominated the market in 2024-25 accounting for a 55 percent slice of the pie. At the same time, expensive motorbike brands like the Rs 36-lakh Roadmaster have been performing well in the South.
But that is not good enough. This June saw even SUV sales declining for the first time in years with a 2.1 percent fall. The most recent slump in sales has been explained as potential customers holding back after the Prime Minister announced a tax bonanza this Diwali.
The market expectation is that the levy on cheaper models would go down to 18 percent from 28 percent, while that for luxury cars would rise to 40 percent. Perhaps a 10 percent cut in this price-sensitive market may be lubricant enough for sales to move ahead again.
On the broader landscape, car sales in reverse gear must be seen as a result of ‘sticker shock’. The under-Rs 5-lakh small car is a myth of the past. No decent model can be had for less than Rs 10 lakh today.
Prices have more than doubled in 5 years as higher steel and other component prices, relentless tax hikes, and changing safety and emission norms have added to costs. For instance, just adding the mandatory six airbags costs about Rs 60,000 a unit.
Car manufacturers, too, have taken customers for granted and have continued to increase their margins. Strangely, we keep forgetting India is an extremely price-sensitive market and consumers have their way of hitting back.
The GST cutback could not have been timed better for this $240-billion industry that contributes about 6 percent to India’s GDP. Both the government and manufacturers will have to find ways of making cars more affordable.