Indian Auto Retail Roars Back in December on Tax Relief

The retail sales of automobiles to consumers in December were up approximately 15% over the prior year, largely due to a combination of tax cuts, year-end promotional activities, and a rush to buy before price increases following the New Year, according to the Federation of Automobile Dealers Associations (FADA). The total number of passenger vehicles sold in December was close to 2.03 million units, with cars increasing 26.6% and motorcycles (or two-wheelers) increasing 9.5%.

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Full-Year Momentum Builds

Sales growth in November was modest, at 2.1%, but growth over the past year (compared to the same month last year) was strong, where annual sales grew by 7.7%, reaching 28.16 million units. The tax cuts in September for SUVs (over 1500cc) from 50% to 40% and the tax cuts for small cars/two-wheelers (up to 350cc) from 28% to 18% were instrumental in stimulating consumer spending in light of U.S. tariff pressures on imported vehicles.

Key Segments Shine

Demand for small cars dramatically increased in November, with Maruti Suzuki reporting nearly a 50% increase in dealer sales versus October. The number of small cars in inventory declined to 37-39 days in November (44-46 days in October), indicating that the supply of small cars is now fairly balanced after a peak in supply following the Diwali season.

Forward Drivers Align

Dealers are optimistic about the short-term outlook with 70.5% who expect growth in January and nearly 75% who expect growth in Q4 ending March 31st. The increases in spending due to the peak wedding season, harvest festivals and decreasing loan interest rates are likely to support continued growth.
Some manufacturers, including Hyundai, JSW MG Motor India and Renault, plan to increase their prices in January; Maruti Suzuki is considering a price increase for their small car products as well.

Policy and Cycle Sync

The combination of tax cuts and the potential risks posed by U.S. tariffs on exports encourages manufacturers and consumers to invest in the domestic automobile market. The auto industry contributes approximately 7% of India's total Gross Domestic Product (GDP). 
The rural market is recovering from the impacts of the recession via two-wheelers, which account for approximately 70% of the total two-wheeler market in India. Urban markets are experiencing an increase in the demand for SUVs. Combined, these two segments are expected to facilitate an increase of 10% compounded annual average growth (CAGR) through FY26, as per reports. 
The Federation of Automobile Dealers Associations (FADA) is optimistic regarding the increase in new car sales, as measured by the IHS Markit Purchasing Managers Index (PMI) for India, and is looking toward reaching a milestone of 30 million new car sales annually by 2027.