MUMBAI, 18th August 2025: A soft first quarter masks deeper churn: premium shifts in new cars, a surge in used vehicles, cautious optimism in tyres, and exports holding steady. The industry is on the verge of stalling, but not stopping.
India’s auto industry began FY26 with a quiet sigh rather than a roar. According to the Society of Indian Automobile Manufacturers (SIAM), passenger vehicle (PV) sales fell nearly 6% year on year in the first quarter, owing to high base effects, muted rural sentiment, extreme weather, and cautious consumer spending.
Yet beneath the slowdown lies a shifting engine. Used cars are booming, tyre makers are leaning on premiumisation and exports, and auto brands are banking on a festive season to pull demand back into the fast lane.
“The auto industry’s Q1 performance has been somewhat subdued,” said Rajesh Menon, Director General, SIAM. “Passenger vehicles faced headwinds due to high base effects and subdued rural sales. However, categories like three-wheelers and commercial vehicles are showing signs of stability,” he said
The New-Car Market: A Pause, Not a Panic
Passenger vehicle wholesales dropped to 9.1 lakh units in Q1, from 9.68 lakh units a year ago. Within that, entry-level hatchbacks continued their long slide as demand shifted further toward compact SUVs and premium sedans.
Analysts believe this softness reflects not just macro pressures but also a maturing market.
India Ratings & Research, in its latest auto sector outlook, noted, “While growth in FY26 will moderate from post-pandemic peaks, we expect rural demand to rebound and exports to provide an offset. The structural premiumisation of the PV segment is well underway.”
That premium shift is visible on the ground. Maruti Suzuki, Hyundai, Tata Motors, and Mahindra are all focusing on higher-value models like the Brezza, Creta, Punch EV, and XUV700—vehicles with stronger margins and aspirational appeal—even as entry-level variants stagnate.
Used Cars: A Parallel Engine of Growth
While new car sales cool, India’s used-car market is revving up. Platforms like Spinny, Cars24, CarDekho, and OEM-backed players like Mahindra First Choice and Maruti True Value are expanding rapidly, helped by rising digital trust, better financing, and younger inventory.
“The improvement in the used-to-new car sales ratio to ~1.4x from under 1.0x five years ago signals a structural shift, driven by rising consumer confidence and digital adoption,” said Anuj Sethi, Senior Director, CRISIL Ratings. “The supply too remains strong, with the average age of used cars steadily dropping and expected to reach around 3.7 years, reflecting quicker upgrade cycles and a growing preference for utility vehicles, mirroring new car trends.”
The secondhand boom isn’t just about value. It’s about choice, speed, and availability, all wrapped in tech-enabled experiences that increasingly mirror new car showrooms.
Tyres: Gaining Traction on New Ground
While OEM demand may be tepid, the ₹90,000-crore tyre industry is riding other growth levers, especially replacement demand and exports.
“Replacement demand will remain the key growth driver for the tyre industry, supported by higher vehicle utilisation and improved road infrastructure,” said CRISIL Ratings in a recent note. “Exports and premiumisation will also support profitability, even as OEM demand remains flattish.”
Poonam Upadhyay, Director, Crisil Ratings, has also said that strong cash accruals and a conservative capital structure will keep the balance sheets of Indian tyre makers healthy and credit profiles stable. Interest coverage and debt-to-EBITDA ratio are expected to improve to ~8.0 times and ~1.0 times, respectively, from ~7.0 times and ~1.3 times last fiscal year.”
This trend is pushing players like MRF, Apollo, JK Tyre, and CEAT to invest in R&D for quieter, EV-compatible tyres and durable high-mileage products, even as they hedge against OEM-linked cyclicality.
Exports: Holding the Line
Amid domestic softness, vehicle exports provided a modest cushion in Q1. Two-wheeler makers like TVS Motor and Bajaj Auto saw overseas shipments stabilise after facing geopolitical and currency challenges last year.
Passenger vehicle exports, too, are gaining from demand in Latin America, Africa, and parts of Southeast Asia markets that value India’s cost-quality balance.
India Ratings noted that “exports are expected to offer some offset to sluggish domestic growth in FY26, particularly for two-wheelers and compact SUVs.”
The Road Ahead: Hope Rides on Festivals and Monsoon
The next quarter, which includes Onam, Ganesh Chaturthi, Dussehra, and Diwali, is critical. Automakers are pinning hopes on festive cheer, government spending, rural recovery, and aggressive new launches.
Most companies are managing inventories carefully, mindful of Q1’s overhang, while dealers are offering more flexible financing schemes and exchange bonuses to lure hesitant buyers.
“The sector is cautiously optimistic about the festival season,” said Shailesh Chandra, President of SIAM and Managing Director of Tata Motors Passenger Vehicles and EV business. “A normal monsoon, government spending, and better financing should support a stronger second half.”
Final Gear: A Sector in Silent Transition.
Even in a slow quarter, the Indian consumer, like the industry, is learning to switch gears without stalling.
Passenger vehicle manufacturers are shifting their focus towards premium offerings and urban strongholds. Used car platforms benefit from faster upgrade cycles. Tyre manufacturers are benefiting from strong replacement and export markets. And, while not roaring, exports keep the flywheel spinning.
None of this makes the first quarter a blockbuster. But it indicates movement, not a breakdown, but a transition.
If the monsoon arrives and the festival season brightens the showrooms, India’s auto story could shift from neutral to drive, one turn at a time.
