Indian automakers grapple with waning demand

In 2024, India's automotive industry have faced a notable downturn, with passenger vehicle sales declining for several consecutive months. Despite manufacturers offering substantial discounts to stimulate demand, the market remains sluggish.

The year has been a challenging ride for India’s automotive industry, with passenger vehicle sales stalling after years of steady growth. Despite aggressive promotions and festive offers, consumer interest seemed to hit a speed bump, leaving dealerships struggling with unsold inventory. From subdued demand for entry-level cars to disruptions in global exports, the industry faced headwinds on multiple fronts. As automakers grapple with a shifting market, the question looms: is this a temporary slowdown or a longer-term shift in buyer behaviour?

For the first time in 10 quarters, Indian automakers’ sales to dealers witnessed a decline during the July to September period of 2024. Data from the Society of Indian Automobile Manufacturers (SIAM) highlights a 1.8 pc year-on-year dip, marking a significant moment in a sector that has otherwise enjoyed robust growth over recent years. The decline, from 1.08 million units in the same quarter last year to approximately 1.06 million units this year, underscores a shift in market dynamics that industry experts are closely monitoring.

At the retail level, the situation is even more challenging. Data from the Federation of Automobile Dealers Associations (FADA) reveals a sharper 4.5 pc drop in dealers’ sales to consumers during the July to September period. Many dealerships are struggling with growing inventory levels as vehicles remain unsold for longer periods. Salesmen at these outlets report dwindling inquiries and fewer serious buyers walking through their doors.

Rajesh Mehra, a car salesman in Pune, describes the frustration of dealing with cautious customers.

“We have noticed a significant drop in footfall, especially for larger cars and SUVs. People are worried about the costs beyond just the sticker price, like taxes, fuel, and maintenance. Many potential buyers are postponing their decisions or opting for pre-owned vehicles,” Mehra tells Media India Group.

Several factors have contributed to this downturn. Heavy and prolonged rains in June and July disrupted consumer activity across large parts of the country. These unseasonal weather patterns not only dampened dealership visits but also shifted consumer priorities toward essential purchases and repairs. Additionally, the pre-festive season, typically considered inauspicious for major purchases, fell entirely in September this year, compared to October in 2023. This shift led to a subdued market during what would otherwise be a crucial sales period.

Broader economic conditions have also played a role. Inflationary pressures, coupled with rising interest rates on car loans, have made financing more expensive. Fuel prices, which remain volatile, have added another layer of uncertainty for consumers says Vikas Malhotra, a car dealer in Chandigarh.

“We are seeing more customers inquire about smaller, fuel-efficient models, but even those sales are slower than expected. The economic environment has made people hesitant to commit to big-ticket purchases,” Malhotra tells Media India Group.

Automakers are trying to adapt to these challenges with mixed strategies. Some are introducing attractive financing options and extended warranties to lure buyers, while others are focussing on clearing inventory with discounts and promotional offers. However, dealers argue that these measures are not enough to address the underlying issues.

“Manufacturers need to align production with actual market demand. We are already sitting on excess stock, and adding more vehicles to the pipeline will only worsen the situation. There needs to be better coordination between automakers and dealers,” Arvind Kumar, a dealership owner in Bengaluru, tells Media India Group.

In September, the industry recorded sales between 355,000 to 360,000 units, marking a 1-2.5 pc decrease compared to the same period last year. This downward trend persisted into November, with passenger vehicle sales experiencing a sharp 14 pc year-on-year decline.

Major automakers felt the impact of this slump. Maruti Suzuki, the country’s leading car manufacturer, reported a drop in sales from over 150,000 units in September 2023 to less than 145,000 units in September 2024. Similarly, in October, Maruti Suzuki’s sales decreased to 159,591 units from 168,047 units in the same month the previous year.

Maruti Suzuki dealers are bearing the brunt of the ongoing slowdown in India’s automotive market, as reduced consumer interest and financial uncertainties weigh heavily on their operations. Amit Sharma, a dealer in Delhi, sheds light on the challenges faced by dealerships during what is traditionally a high-sales season.

“For us, this year has been one of the most challenging in recent memory. Footfall in the showroom has significantly declined, with customers hesitant to make big-ticket purchases. Many are holding off, either waiting for better deals or citing financial uncertainties. Meanwhile, we are struggling to manage high inventories, which is putting immense pressure on our finances. If this trend persists, it may compel us to revaluate our strategies or even scale down operations,” Sharma tells Media India Group.

Hyundai Motor India, the second-largest carmaker in the country, has also faced a challenging year with a significant 16.5 pc drop in quarterly profits. The decline is attributed to sluggish domestic sales and disruptions in exports caused by geopolitical tensions around the Red Sea. Despite being a market leader in the SUV segment, the company is grappling with reduced demand and rising operational costs, reflecting the broader challenges faced by the Indian automotive industry. Dealerships, too, are feeling the heat of declining consumer interest.

“It has been tough to meet sales targets this year. Even models like Creta and Venue, which usually sell themselves, are seeing fewer takers. Customers are hesitant, citing financial pressures and uncertain economic conditions. We are trying to push offers and benefits, but it is clear that the market sentiment has shifted,” Rajesh Khanna, a Hyundai salesperson in Bengaluru, tells Media India Group.

Many dealers and sales executives had pinned their hopes on the festive season to revive sluggish sales, traditionally a time when consumers splurge on big-ticket purchases like cars. However, this year, the anticipated boom failed to materialise. Despite attractive discounts, exchange offers, and festival-themed promotions, footfall in showrooms remained disappointing. Dealers are grappling with higher-than-usual inventories, leading to financial strain. The lack of demand during this crucial period has left the industry wondering if consumer confidence is undergoing a deeper shift.

“We were expecting a strong rebound during Diwali, but the turnout was nowhere near our expectations. In past years, festive months were the busiest, with families buying new cars as part of the celebrations. This time, even loyal customers seem hesitant,” Ajay Sharma, Sales Manager at Nexa, a premium dealership brand of Maruti Suzuki, tells Media India Group.

For prospective buyers, rising costs have made car ownership increasingly elusive. Rumaisa Lone, a working professional in Delhi, shared her disappointment.

“I have been saving for a new car for over a year, but the high road tax and increased registration fees have made it nearly impossible. Even with discounts, the total cost is just too high for a middle-class family like mine,” Lone tells Media India Group.

As 2024 draws to a close, the automotive industry remains in a slump as sales in December too have failed to meet expectations, leaving dealers and manufacturers disappointed. Many had hoped that year-end offers and New Year promotions would revive the market, but the response has been lukewarm at best. Bookings that typically surge during this time have been scarce, compounding worries about sustained weak demand.

“December has always been a crucial month for us. We count on last-minute buyers and year-end deals to boost our numbers, but this year, it has been quieter than ever. Customers are still cautious, citing financial uncertainties and waiting for clarity on economic policies. As we look to 2025, the hope is that a combination of new launches, improved economic sentiment, and better coordination between stakeholders will bring the industry back on track. However, it is clear that we have to adapt to a market that is no longer driven solely by discounts and promotions. There is a shift in consumer priorities that we need to understand and address,” Sharma adds.