Indian car buyers are hitting the brakes: Here's why
What's the story
Retail car sales for February 2025 are expected to be the lowest in recent years (barring September 2024), according to a CNBC-TV18 poll.
The data shows a steep decline across all vehicle categories. Passenger vehicle (PV) retail sales have declined by 14%, two-wheeler (2W) sales by 12%, and medium and heavy commercial vehicle (MHCV) sales by 11%.
This decline is due to four key factors, over and above the prevailing inflationary pressures in India.
Factors
Pre-buying and price hikes contribute to sales slump
The first reason for the sales slump is pre-buying, a trend where customers buy vehicles earlier than usual due to attractive discounts. This was especially the case in December 2024.
The second reason is the subsequent price hikes in January and February 2025, which may have deterred potential buyers due to increased costs.
A downturn in stock markets during this period could have affected consumer confidence, further reducing their willingness to spend on big-ticket items like vehicles.
Challenges
Financing hurdles and weak retail demand add to woes
The fourth factor is how financing companies are responding to rising loan delinquencies. They have cut down Loan to Value (LTV) ratios, capping the amount buyers can borrow against a vehicle's value.
Although wholesale figures for passenger vehicles are expected to rise 2% over February 2024, dealer surveys show retail demand is still weak.
This has resulted in unsold stock piling up, with channel inventory now over 40 days.
Future prospects
Manufacturers may resort to steeper discounts
If the current trend of weak retail demand and high inventory continues, Nomura predicts manufacturers may have to offer steeper discounts starting March 2025 to clear excess stock.
In response to this situation, some two-wheeler makers have already announced bigger discounts or reduced prices in a bid to boost sales.
This strategy could potentially help mitigate the impact of the current sales slump on the automotive industry.