The latter part of FY25 has seen a sharp sales slowdown in urban areas – the growth engine of Indian auto since the COVID lockdowns were lifted, with its premium bias. What will be the impact on the industry, and can the rural market come to the rescue?
07 Apr 2025 | 1576 Views | By Shruti Shiraguppi & Angitha Suresh
India’s auto industry is undergoing a subtle but significant transformation. Urban auto sales, which have fueled growth since the lifting of COVID-19 lockdowns with strong demand for premium models, are beginning to slow, while rural markets are showing initial signs of stabilization. This shift could reshape the fortunes of automakers ...
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India’s auto industry is undergoing a subtle but significant transformation. Urban auto sales, which have fueled growth since the lifting of COVID-19 lockdowns with strong demand for premium models, are beginning to slow, while rural markets are showing initial signs of stabilization. This shift could reshape the fortunes of automakers in the coming years if current trends persist.
Companies like Kia, with a strong focus on urban SUV and premium buyers, may face a potential deceleration in growth, whereas rural-centric brands like Hero MotoCorp and Maruti Suzuki could see a relative revival due to stronger demand for lower priced vehicles.
Adding complexity to this outlook, the Indian stock markets—a key driver of the 'feel good' factor for the urban middle class—have started falling in recent months, threatening to further dampen urban demand.
Urban Cooling, Rural Steadying
For years, urban spending has been the backbone of India’s auto sector recovery post-pandemic. However, recent data from the Federation of Automobile Dealers Associations (FADA) signals a loss of momentum. In FY’25, passenger vehicles (PVs) grew by a modest 4.87%, two-wheelers (2W) by 7.71%, and commercial vehicles (CVs) remained nearly flat at -0.17%. Overall auto retail growth reached 6.46%, a respectable figure but one that hints at a broader tempering of demand.
The urban slowdown contrasts with rural resilience:
While rural markets are outperforming, they may not fully offset the urban decline, particularly since urban areas likely represent a larger share of total sales, especially for PVs and CVs. This uneven dynamic sets the stage for divergent outcomes among automakers.
Stock Market Decline
A fresh challenge is emerging from India’s financial markets. In recent months, Indian stock indices have begun to decline, eroding the optimism that has buoyed the urban middle class—a critical demographic for auto sales.
This drop threatens to undermine the 'feel good' factor that drives discretionary spending on vehicles, particularly in cities. If the downturn persists, it could amplify the urban slowdown, hitting companies like Kia hardest while adding pressure across the sector.
Potential Impacts on Automakers
The evolving urban-rural divide could lead to a reshuffling of growth rates, depending on companies’ market focus and adaptability. This can be understood with the help of some players:
Kia: Urban Strength at Risk
Kia India, renowned for its urban-oriented SUVs like the Seltos and Sonet, has enjoyed solid performance—6.86% growth in FY’25 (2,41,859 units) and 9.47% in March’25 (21,997 units). Yet, warning signs loom: PV inventories have risen to 50-55 days, and urban demand is softening. If this persists, Kia could face a notable slowdown in its growth trajectory, despite its current strength.
Maruti Suzuki: Rural Roots as a Buffer
Maruti Suzuki, India’s PV leader with a 40.25% market share, grew by 3.95% in FY’25 (16,71,559 units). While this lags the segment average, its robust rural presence—driven by affordable models like the Alto and WagonR—could provide a lifeline. If rural stabilization strengthens, Maruti might see a relative uptick in growth, though it hasn’t yet materialized significantly.
Hero MotoCorp: Rural Potential, Mixed Reality
Hero MotoCorp, a two-wheeler giant with deep rural penetration, posted a sluggish 0.89% growth in FY’25 (54,45,251 units), underperforming the 2W segment’s 7.71% rise. Its market share dipped to 28.84%, reflecting challenges beyond market exposure, such as competition and product mix. Still, if rural demand gains traction, Hero could see a revival, though it’s not guaranteed.
Standouts: Adaptability Pays Off
Not all outcomes hinge on geography. Mahindra & Mahindra (19.94% PV growth), TVS Motor (11.28% 2W growth), and Honda Motorcycle (16.9% 2W growth) have thrived through new launches and flexibility, appealing to both rural and urban buyers. This suggests that innovation, not just market focus, will determine future success.
Looking Ahead: An Uncertain FY’26
FADA’s projections for FY’26 reflect cautious optimism tempered by risks:
Dealers voice concerns about financing constraints, weak rural liquidity, and cautious consumer sentiment, with 60% reporting soft booking pipelines. External factors like heatwaves and global trade tensions add further uncertainty.
FADA suggests that new model launches, EV adoption, and rural income growth could sustain momentum, but the urban-rural imbalance and stock market woes loom large.
What Lies Ahead
India’s auto sector stands at a pivotal juncture. Urban sales are cooling, rural markets are steadying but not fully compensating, and a falling stock market is clouding urban confidence. If these patterns hold, growth rates could diverge sharply: urban-focused Kia may face challenges, while rural players like Hero and Maruti could gain ground. If the urban slowdown deepens and stock market declines continue, Kia’s urban SUV success could falter, potentially leading to a sharp deceleration in growth.
Conversely, Hero MotoCorp and Maruti Suzuki might benefit from rural stabilization, seeing a modest revival—though their recent struggles highlight that rural exposure alone isn’t a silver bullet.