India's retail auto sector registered 2.61 per cent growth Y-o-Y in May, highlights Federation of Automobile Dealers Associations (FADA) in its vehicle retail data on Monday.

The data highlights that the two-wheeler sales registered positive growth of 2.5 per cent Y-o-Y, however, the passenger vehicle sales declined by 1 per cent. The sales of three-wheelers increased by 20 per cent and Commercial Vehicles (CV) segment also experienced a growth of 4 per cent YoY.

However, in the rural economy, the sales of the tractor declined marginally by 1 per cent Y-o-Y in May.

"In May 2024, the Indian Auto Retail sector achieved a modest 2.61 per cent YoY growth. The two-wheeler (2W), three-wheeler (3W) and commercial vehicle (CV) segments grew by 2.5 per cent, 20 per cent and 4 per cent while passenger vehicle (PV) and tractor (Trac) were in red by 1 per cent each YoY. Dealers reported supply constraints, lack of OEM (Original Equipment Manufacturer) marketing activities and impacts from extremely hot weather and elections" said Manish Raj Singhania, FADA President.

He further added, "Overall, while the auto retail sector saw mixed results, the industry is navigating through significant challenges with cautious optimism for the coming months.

"The FADA highlights that the near-term outlook for the automobile retail sector remains cautiously optimistic. The post-election period is expected to bring stability and enhance market sentiment, with the continuity of government likely to boost infrastructure projects and economic activities.

Above-normal rains forecasted by the India Meteorological Department (IMD) at 106 per cent of the long-period average (LPA) are anticipated to increase rural demand and support economic activities. Nevertheless, extreme weather conditions, such as heatwaves and heavy rains, alongside the reopening of schools in July, might delay purchase decisions.

Despite these positive indicators, FADA said significant challenges persist. Intense competition, the lack of new model launches, and poor marketing efforts by OEMs continue to affect the market. Liquidity issues and high inventory levels are straining dealership profitability, and while discount schemes and good product availability offer some respite, low customer enquiries and postponements due to seasonal factors remain concerning.

Additionally, the forecast of above-normal rains, while generally positive, raises the risk of possible floods in certain regions, which could disrupt the market. The uneven monsoon rains have previously impacted the farm sector's growth, and although this year's forecast is promising, it introduces potential uncertainties.

Overall, FADA highlights that while there is potential for growth driven by favourable economic conditions and the new government formation, addressing these ongoing challenges will be crucial for achieving sustained improvement in the automotive market.