Car sales soar 32% year-on-year in October driven by festive demand and SUV popularity

October 2024 saw the rare convergence of two major festivals, Navratri and Diwali, both falling in the same month. These festivals typically contribute 30-35% of annual auto sales, making October a highly anticipated period for the industry. With dealerships fully prepared and carrying record-high inventory levels, the month exceeded expectations.

Overall retail sales rose by 32% year-on-year (YoY) and 64% month-on-month (MoM). All vehicle categories posted positive growth, with two-wheelers (2W) up 36%, three-wheelers (3W) up 11%, passenger vehicles (PV) up 32%, tractors (Trac) up 3%, and commercial vehicles (CV) up 6% YoY. Rural markets played a pivotal role in driving growth, especially in the 2W and PV segments. Furthermore, the Government of India’s announcement of an increase in the Minimum Support Price (MSP) for Rabi crops added to positive market sentiment, further fueling demand during the festive season.

Despite a strong 32% increase in sales during the October festival season, Indian automobile dealers are preparing for a more challenging outlook in the coming months. A recent survey by the Federation of Automobile Dealers Associations (FADA) reveals that only 37.15% of dealers expect growth in November 2024, while 39.69% anticipate flat sales, and 23.16% predict a decline. The cautious outlook is driven by persistently high inventories of passenger vehicles, which remain at 75-80 days of stock. This surplus is likely to lead to significant year-end discounts across the industry.

The survey, which represents over 15,000 dealerships across India, paints a mixed picture of dealer sentiment. While 50.64% of dealers express a positive outlook, a substantial 34.86% remain neutral, and 14.50% are concerned about the future. In terms of liquidity, nearly half of the respondents (48.35%) report healthy financial conditions, while 38.93% are neutral, and 12.72% are facing liquidity challenges.

Looking ahead, the Indian auto industry is poised for both opportunities and challenges. With an estimated 4.8 million weddings scheduled across the country in November and December 2024, there is expected to be a surge in demand for wedding-related purchases, which will particularly benefit the two-wheeler and passenger vehicle segments.

However, the passenger vehicle segment continues to grapple with high inventory levels, which have only decreased by five days despite strong festival season sales. This ongoing surplus remains a major concern, with the Federation of Automobile Dealers Associations (FADA) urging manufacturers to adjust production to avoid prolonged oversupply. Without supply rationalization, substantial discounts may continue into the year-end, putting pressure on margins.

The commercial vehicle segment faces its own set of challenges. Dealers are cautious due to sluggish construction activity, financial constraints among customers, and the expected drop in demand after the festive season. Additionally, rising vehicle prices and higher EMIs have dampened customer sentiment, further complicating the outlook for this segment.

For the two-wheeler segment, several positive factors are expected to drive demand in the coming months. Strong crop yields, favorable rural sentiments, and the upcoming wedding season are likely to boost sales. Additionally, the government’s decision to raise the Minimum Support Price (MSP) for Rabi crops has further lifted market optimism, especially in rural areas, where sales are expected to see a positive impact.

The ongoing urban-rural divide continues to influence sales trends across vehicle categories. In October 2024, rural areas accounted for 55.5% of two-wheeler sales, while urban regions held a dominant 61% share of passenger vehicle sales. This split underscores the distinct market dynamics that shape vehicle demand in different regions of India.

The strong festival season performance is also reflected in motor vehicle road tax collections, which surged to Rs 9,707 crore in October 2024, marking a notable 33.4% year-over-year increase and a 63.2% jump compared to the previous month.

While the industry remains optimistic about near-term growth, driven by the wedding season and favorable market conditions, dealers are mindful of potential challenges that could affect sales momentum as the year draws to a close. The mixed sentiments captured in the FADA survey highlight the need for strategic planning and cautious optimism as the auto sector navigates the final months of 2024.