Why Are Indians Holding Back On Buying Cars? ICRA Report Reveals

India’s passenger vehicle (PV) segment recorded a notable dip in retail sales in May 2025, reflecting broader market unease amid geopolitical concerns.

According to the data shared by ICRA, a leading credit rating agency, retail sales of PVs declined by 13.6% last month, largely due to a slowdown in consumer sentiment following recent India–Pakistan tensions in northern India.

Despite continued promotional offers and dealer discounts, PV sales fell from 3,49,939 units in April to 3,02,214 units in May, the agency reported. Inventory levels have also inched up, with the Federation of Automobile Dealers Associations (FADA) estimating stock levels at 52–53 days.

Also Read: Passenger Vehicle Sales Decline 0.19% MoM, Buyers Await New Launches - FADA | Republic World

SUVs still rule the roost 

The sport utility vehicle (SUV) category continued to dominate, accounting for nearly 65% of total PV volumes in May. Utility Vehicles (UVs) are expected to remain the mainstay of the industry in the near term, buoyed by strong consumer preference. 

However, challenges such as rising inventory levels and supply chain disruptions, particularly for electric vehicle (EV) components, are beginning to weigh on sentiment.

One of the key concerns flagged by ICRA is the limited availability of rare earth magnets, a critical component in EV production. With export restrictions from China still in effect, the situation remains under close watch, as per the ratings agency.

Robust Exports 

On the export front, however, the picture is brighter. PV shipments grew 24% year-on-year, albeit from a low base. 

Maruti Suzuki remained the top exporter, followed by Hyundai. But analysts caution that foreign exchange shortages in parts of Africa and rising inflation in some overseas markets could limit further export growth.

In response to these headwinds, ICRA has revised its forecast for FY2026 PV wholesale volume growth downwards to 1–4%, compared to an earlier estimate of 4–7%.

Two-wheelers buck the trend

While PVs faltered, India’s two-wheeler segment held its ground, thanks to strong rural demand and a favourable Rabi harvest. Retail sales in this category rose 7% year-on-year, driven by purchases in semi-urban and agrarian regions. The seasonal uptick was further aided by auspicious wedding dates that typically encourage big-ticket spending.

ICRA expects the momentum in two-wheelers to continue, projecting 6–9% growth in wholesale volumes for FY2026, supported by replacement demand, a gradual recovery in urban markets, and stable rural incomes—provided the upcoming monsoon season remains normal.