The Indian car market, the third-largest in the world, experienced a modest growth of 2% in financial year 2025. This marks a significant deceleration from the impressive growth rates of 12% in FY 2022 and 27% in FY 2023. Despite the slowdown, the market still achieved a record-breaking 4.3 million units sold, according to the Society of Indian Automobile Manufacturers (SIAM). This trend highlights a key shift in the car industry, where the growth in sales of sport utility vehicles (SUVs) is counterbalanced by a decline in demand for small cars and sedans.

SUVs Fueling Growth Amid Weakness in Smaller Cars
In FY 2025, larger vehicles, particularly SUVs, continued to see strong demand. This increase in SUV sales helped offset the downturn in the sales of smaller cars and sedans. The shift towards SUVs can be attributed to changing consumer preferences, with a growing inclination towards more spacious, versatile, and premium-feeling vehicles. Although smaller car segments have traditionally been the backbone of the Indian automobile industry, the steady rise of SUVs is becoming a dominant force in shaping market dynamics.

Factors Behind Slower Growth and the Need for Discounts
The sales growth has drastically slowed down in FY 2025, with analysts noting that the surge driven by pent-up demand post-pandemic has largely dissipated. As a result, car manufacturers have been forced to offer extended discounts and promotions to maintain sales momentum. Industry insiders suggest that these aggressive marketing tactics are necessary to counteract the effect of reduced consumer spending power and the end of pandemic-driven buying frenzies.

Economic Influences on Car Sales
Several external factors are at play in influencing the growth of the Indian car market. The Indian economy has been dealing with challenges such as inflation, which has affected consumers' purchasing power. However, SIAM anticipates that successive rate cuts by the Reserve Bank of India (RBI) and the personal income tax cuts announced in early 2024 could provide a much-needed boost to domestic demand. These fiscal measures are expected to lower borrowing costs, making cars more affordable for consumers. Furthermore, such initiatives may restore some of the consumer confidence that had been lost due to previous economic disruptions.

Challenges in Forecasting Future Growth
The automotive industry is notorious for its dependence on precise forecasting, and while SIAM initially predicted a 1-2% growth for FY 2025, analysts are labeling these projections as conservative. The slow pace of recovery has made it difficult for manufacturers to predict future sales trends accurately. The industry is keenly awaiting the full impact of recent tax reforms and interest rate adjustments to determine whether they will have a tangible effect on boosting consumer demand.

Conclusion and Outlook for FY 2026
While car sales in India have slowed in FY 2025, there remains optimism that the market will recover in the coming years, driven primarily by the continued rise in demand for SUVs and government initiatives aimed at stimulating growth. Industry stakeholders are keeping a close eye on the developments around monetary policies and taxation, as these could play a significant role in reshaping the market's trajectory in FY 2026 and beyond.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst.