Indian Auto Sales Grow 6.1% in Q2, Aided by GST Cut on Two-Wheelers

India's automobile industry recorded mixed sales performance in the second quarter of fiscal 2025-26, with overall domestic sales growing 6.1 percent to 70.70 lakh units between July and September. However, while two-wheelers benefited from a mid-year GST reduction, the crucial passenger vehicle and utility vehicle segments continued to struggle, raising concerns ahead of the festive season.

The quarterly sales growth represents an improvement from the first half's 0.6 percent increase, with total domestic sales for April-September reaching 131.46 lakh units. Yet, the uptick has been driven largely by two-wheelers and commercial vehicles, while passenger vehicles—a key profitability driver for automakers—remain under pressure.

Passenger Vehicle Sales Decline Despite Production Surge

Passenger vehicle sales fell 1.5 percent in Q2 to 10.39 lakh units, continuing the downward trend from the first half when sales dropped 1.4 percent to 20.51 lakh units. This marks a significant setback for an industry that had expected festive-season demand to revive the segment.

Utility vehicles, which have been the star performers for years, saw domestic sales decline 2.1 percent to 6.83 lakh units in Q2. For the April-September period, UV sales grew just 0.7 percent to 13.53 lakh units—a sharp deceleration from the double-digit growth rates the segment enjoyed in previous years. The near-stagnation suggests the UV boom may be losing steam as the market approaches saturation.

Passenger cars remained the worst-performing category with flat sales in Q2 at 3.19 lakh units. For the first half, sedan sales declined 5.8 percent to 6.22 lakh units, reflecting continued consumer preference for SUVs and crossovers over traditional sedans.

The production-sales gap in passenger vehicles widened significantly. While PV production rose 4.2 percent in Q2 to 13.26 lakh units (and 3.8 percent in H1 to 25.70 lakh units), the divergence from sales indicates growing inventory at dealerships. This could force manufacturers to offer steeper discounts in coming months to clear stock.

Two-Wheelers Show Recovery in Q2, GST Cut Provides Relief

The two-wheeler segment provided some relief with domestic sales growing 7.4 percent in Q2 to 55.62 lakh units. For the full first half, sales rose just 0.7 percent to 1.02 crore units, suggesting the recovery is relatively recent and coincides with the GST rate reduction implemented earlier this year.

The government's decision to lower GST on two-wheelers appears to have provided a much-needed boost to the segment, particularly in the latter part of Q2. The tax cut made entry-level motorcycles and scooters more affordable, helping stimulate demand in price-sensitive rural and semi-urban markets.

Scooters led the charge with Q2 sales up 12.4 percent to 20.60 lakh units, the strongest performance among major categories. For April-September, scooter sales grew 6.4 percent to 37.22 lakh units, indicating steady demand in urban markets where the GST benefit was quickly passed on to consumers.

Motorcycles recorded 5 percent sales growth in Q2 to 33.70 lakh units, though the first-half performance remained negative at -2.1 percent (62.74 lakh units). The segment's recovery in recent months suggests rural demand may be stabilizing after a weak start to the fiscal year, with the GST reduction helping offset inflation pressures on farm incomes.

Mopeds continued their decline with Q2 sales falling 4 percent to 1.32 lakh units. First-half sales dropped 7.2 percent to 2.41 lakh units, indicating persistent challenges in entry-level mobility segments despite the tax relief.

Two-wheeler production rose 10.6 percent in Q2 to 69.26 lakh units, significantly outpacing sales growth. For the half-year, production was up 5.8 percent at 1.28 crore units. Manufacturers appear to have ramped up output in anticipation of stronger demand following the GST cut, though the production-sales gap suggests the stimulus may not have been as strong as expected.

Commercial Vehicles Sustain Growth Momentum

Commercial vehicles emerged as the most consistent performer with Q2 sales rising 8.3 percent to 2.40 lakh units. Half-year sales grew 3.9 percent to 4.64 lakh units, supported by infrastructure projects and logistics expansion.

Medium and heavy commercial vehicle sales increased 6.2 percent in Q2 to 88,049 units, driven by a 6.9 percent jump in goods carriers to 74,332 units. For the full half-year, M&HCV sales grew 1.9 percent to 1.72 lakh units.

Light commercial vehicles posted stronger growth with Q2 sales up 9.5 percent to 1.52 lakh units, led by goods carriers which grew 10.5 percent. LCV sales for April-September rose 5.1 percent to 2.92 lakh units.

Production of commercial vehicles surged 10.9 percent in Q2 and 6.8 percent in H1, outpacing sales and indicating manufacturers are ramping up capacity in anticipation of sustained demand.

Three-Wheelers Clock Double-Digit Growth

Three-wheeler sales grew 9.8 percent in Q2 to 2.29 lakh units, with passenger carriers up 12.4 percent to 1.94 lakh units. First-half sales rose 5.5 percent to 3.94 lakh units.

The segment's production jumped 18.3 percent in Q2 and 14.6 percent in H1, significantly ahead of sales, suggesting aggressive capacity expansion for both domestic and export markets.

Export Surge Masks Domestic Weakness

The industry's export performance remained robust, with overseas shipments growing 26.2 percent in Q2 to 16.86 lakh units and 24.3 percent in H1 to 31.43 lakh units. This has helped manufacturers maintain production levels despite sluggish domestic demand.

Passenger vehicle exports rose 23.1 percent in Q2 and 18.4 percent in H1. Motorcycle exports jumped 26.6 percent in Q2 and 27.7 percent in H1, while three-wheeler exports surged 50.7 percent in Q2 and 43.1 percent in H1.

Outlook Remains Cautious Despite Policy Support

While Q2 showed improvement over Q1, aided in part by the GST relief on two-wheelers, the overall sales picture for the first half remains subdued. The widening gap between production and sales across passenger vehicles and two-wheelers suggests manufacturers may need to adjust output or increase promotional activities to stimulate demand.

The passenger vehicle segment's continued weakness is particularly concerning as it contributes significantly to automaker profits. The UV segment's stagnation after years of explosive growth indicates that market dynamics are shifting, forcing brands to compete more aggressively for a limited pool of buyers.

The two-wheeler recovery in Q2 offers hope, and the GST cut appears to have provided some cushion against demand headwinds. However, full-year performance will depend on sustained rural demand—which remains vulnerable to monsoon patterns, inflation, and employment conditions—and whether the tax benefit translates into sustained purchase decisions or merely advanced buying.

With the festive season now underway, industry stakeholders are hoping for a strong October-November to salvage the year. The GST reduction should continue to support two-wheeler sales, but passenger vehicle manufacturers will need fresh stimulus or aggressive product launches to revive their fortunes. If the production-sales gap continues to widen, the sector may face pricing pressure and margin compression in the second half of the fiscal year.