Auto Sector Eyes 5% Growth in 2025

Auto Sector Eyes 5% Growth in 2025
Passenger vehicle sales in India are expected to grow by 5% in calendar year 2025, underscoring healthy consumer demand despite a high base. This growth projection stems from factors such as increased government spending, a favorable monsoon, and strong rural market sentiment bolstered by robust crop yields, according to senior industry executives.

While the SUV segment continues to dominate, there are signs of a resurgence in demand for entry-level small cars, as evidenced by a notable uptick in two-wheeler sales in recent months. This trend suggests a broader recovery in consumer confidence, particularly among price-sensitive buyers.

Recent Performance and Growth Drivers
Passenger vehicle sales faced subdued growth during the initial months of the fiscal year, with sales rising by only about 1% in October and 4% in November. The first quarter of FY25 witnessed a modest 3% growth. However, the industry has demonstrated resilience, particularly in the aftermath of the pandemic, when India emerged as one of the few markets globally to witness a sharp rebound in auto sales. In 2023, car sales surpassed the 4 million mark for the first time, a milestone repeated in 2024.

With the general elections concluded, automakers anticipate a pickup in government spending, further fueling demand. Additionally, a better-than-expected monsoon is set to enhance rural consumption, providing a critical boost to passenger vehicle sales in 2025.

Industry Insights
Hardeep Singh Brar, Senior Vice President and Head of Sales and Marketing at Kia India, expressed optimism about the coming year. “I feel next year the industry will grow by 5%. Government investments will be back. IT layoffs are behind us,” he said. Brar highlighted early signs of recovery in the sector, including fresh hiring initiatives by leading companies and favorable monsoon conditions.

Economic activity in 2025 is expected to rise, primarily driven by rural consumption and an anticipated increase in government expenditure. In its latest report, HDFC Securities emphasized India’s economic resilience, noting that the country is likely to outperform its global peers in GDP growth. Dhiraj Relli, Managing Director and CEO of HDFC Securities, commented, “India will largely be an outlier in GDP growth compared to its global counterparts. We anticipate the growth for FY26 to be volume-led, with BFSI, industrials, cement, energy, and IT sectors being the engine drivers.”

The Indian economy is projected to expand by 6.7% in FY26, creating a conducive environment for sustained growth in the automobile sector. According to an industry veteran, the market dynamics in terms of demand and supply have normalized, paving the way for steady growth. “While the percentage growth is likely to be small, it is important to factor in that this growth is coming on a very high base of about 4.3 million units,” the veteran noted. Encouragingly, small car sales, which had been under pressure, appear to be stabilizing, as indicated by the strong performance in two-wheeler sales.

Two-Wheeler Sales: A Positive Indicator
Sales of motorcycles, scooters, and mopeds rose significantly by 16.2% to 18.44 million units between January and November 2024, according to data from the Society of Indian Automobile Manufacturers (SIAM). This growth reflects improving consumer sentiment, particularly in rural areas, and bodes well for the broader automotive market. A rise in two-wheeler sales is often a precursor to increased demand for entry-level passenger vehicles, as it signals improved affordability and mobility aspirations among consumers.

Seasonal Impact and Inventory Replenishment
In December 2024, car dispatches from factories to dealerships surged by an estimated 10-12%, reaching 315,000-322,000 units. This uptick was primarily driven by manufacturers replenishing stocks at dealerships following robust festive season sales. The festive period traditionally accounts for a significant portion of annual automobile sales in India, and the strong performance during this time further underscores the sector’s recovery.

Outlook for 2025
The Indian automobile market’s growth prospects for 2025 are bolstered by several factors:

Government Spending: With elections concluded, an uptick in infrastructure and development projects is expected, which will indirectly support automobile sales by boosting economic activity and disposable incomes.

Favorable Monsoon: A good monsoon not only ensures robust agricultural output but also strengthens rural purchasing power, a key driver for small car and two-wheeler sales.

Economic Stability: The stabilization of global macroeconomic conditions, coupled with India’s projected GDP growth of 6.7%, provides a solid foundation for sustained demand.

Normalization of Supply Chains: After grappling with supply chain disruptions in recent years, the industry is now operating in a more stable environment, ensuring timely deliveries and reducing waiting periods for popular models.

Consumer Sentiment: The return of hiring activity in key sectors and the resolution of IT layoffs have improved consumer confidence. This, combined with increased affordability due to stable financing options, is likely to drive demand across segments.

Challenges Ahead
Despite the optimistic outlook, the industry faces certain challenges. High interest rates and elevated fuel prices could weigh on affordability for some consumers. Additionally, the push towards electric vehicles (EVs) and stricter emission norms may require significant investments from automakers, potentially impacting their short-term profitability.

Nonetheless, the industry is well-positioned to navigate these challenges. Automakers are increasingly focusing on product innovation and expanding their EV portfolios to align with evolving consumer preferences and regulatory requirements.

Conclusion
The Indian passenger vehicle market is set to maintain its growth trajectory in 2025, driven by favorable economic conditions, strong rural demand, and increased government spending. While challenges remain, the industry’s resilience and adaptability, coupled with supportive macroeconomic factors, are likely to ensure a steady pace of growth. With sales projected to rise by 5% on a high base, the coming year promises to be another milestone in the Indian automotive sector’s recovery and expansion.

The image added is for representation purposes only