NEW DELHI, June 6th, 2025: India’s automobile retail sector experienced modest year-on-year growth in May 2025, driven by strong demand for two-wheelers in rural areas, even as passenger vehicles struggled under the weight of rising inventories, tight financing, and muted consumer sentiment.
According to the Federation of Automobile Dealers Associations (FADA), overall retail sales rose by 5% year on year. Two-wheelers emerged as the main growth driver, recording sales of 16.52 lakh units—an increase of 7.31% from the previous year.
FADA President C.S. Vigneshwar emphasized the need for manufacturers to realign production planning with on-ground realities: “OEMs must adjust inventory flow and offer flexible incentives to prevent overstocking pressures,” he said
This growth was fuelled by favourable rural conditions, including a strong Rabi harvest, auspicious wedding dates, and pre-monsoon purchases in semi-urban regions.
FADA’s data indicates that electric vehicle (EV) adoption displayed contrasting trends. EVs captured an impressive 63.21% share of the three-wheeler market, up from 55.72% in May 2024.
In comparison, two-wheeler EV penetration remained modest at 6.07%, while passenger EVs accounted for just 4.07% of retail sales, highlighting persistent concerns about costs and charging infrastructure. FADA also remarked on the widening rural-urban divide in retail EV sales.
Rural India continued to outpace urban markets across all categories. Rural two-wheeler sales grew by 9.85% year-on-year, compared to only 3.6% growth in urban areas. Sales of three-wheelers in rural areas increased by 11.05%, far outpacing the 1.10% growth in urban areas. Over 82% of the retail activity for tractors, a product that is primarily used in rural areas, took place in these areas.
“Although bookings stayed consistent, actual conversions at the retail level were weak due to financing constraints and deferred purchasing decisions,” Vigneshwar added.
Hero MotoCorp had the biggest market share (30.20%) in the two-wheeler segment overall, followed by Honda (23.80%) and TVS Motor Company (18.71%).
Notwithstanding these improvements, dealers stated that stronger momentum was hampered by financing limitations in the entry-level market.
Passenger vehicles experienced an overall decline of 3.1% year-on-year in retail volumes, with 3.02 lakh units sold, down from 3.11 lakh units in May 2024.
Sequentially, PV sales dropped sharply by 13.6%, leading to unsustainable inventory levels that swelled to 52-53 days, far exceeding FADA’s recommended limit of 21 days. Entry-level cars were the hardest hit, hindered by tighter financing and subdued buyer confidence. Dealers in border states such as Jammu & Kashmir, Punjab, and Gujarat reported deferred purchases amid regional geopolitical tensions.
“There’s visible caution among first-time buyers,” said a dealer from Punjab representing Maruti Suzuki. “Demand exists, but conversions are taking longer.” Maruti Suzuki remained the leader in the PV market with a 38.68% share, though this was a slight decline from 39.53% last year.
Mahindra & Mahindra made notable gains, increasing its market share to 14.41% from 11.07%, boosted by strong demand for SUVs.
In May 2025, the commercial vehicle (CV) segment continued to face significant challenges, as evidenced by a drop in retail sales of 75,615 units, or 3.71% year-over-year and 11.25% month-over-month.
FADA ascribed this drop to weak liquidity, slow freight demand, and geopolitical unpredictability. In a calculated attempt to front-load inventory, manufacturers notably increased wholesale volumes before the June 2025 regulation mandating air-conditioned driver cabins.
While India’s macroeconomic fundamentals remain stable and GDP growth is around 6.5%, the auto retail sector is navigating a complex demand environment. A recovery seems plausible—driven by rural growth, monetary easing, and improved liquidity—but it is likely to remain uneven, particularly in segments sensitive to urban sentiment and credit availability.
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