Affordable small cars in India are set to make a much-awaited return in 2025. According to a recent report by global financial services firm Nomura, the demand for budget-friendly small cars, which has been weak in recent years, is expected to pick up.
While countries like the United States and Japan are still struggling to meet automobile demands, India might be on the path to recovery.
The report highlights that the Indian passenger vehicle market is facing a slowdown due to lower interest in small cars, limited new launches, and the end of pent-up demand caused by the pandemic.
Despite discounts and promotional campaigns by car manufacturers, the short-term outlook remains sluggish. However, things are expected to improve gradually by 2026, as new models hit the market and rural demand grows.
Current Situation in the Car Market
Nomura adjusted its estimate for India’s passenger vehicle growth for the third quarter of the 2025 financial year. Originally set at 4%, it has now been lowered to just 1%. However, the firm maintained a more optimistic forecast of 6% growth for 2026.
One of the key reasons for the current slump is that people’s desire to buy new cars, which surged during the post-pandemic recovery, is now fading. Additionally, there haven't been many exciting new small car models launched recently.
This has led to slower sales, even with car companies offering attractive discounts and spending heavily on advertising.
SUVs and Premium Cars Drive the Market
Interestingly, while small cars are struggling, SUVs and premium cars are seeing a steady rise in sales. These more expensive vehicles have helped push up the average price of cars being sold. Many buyers now prefer larger and more feature-packed vehicles over budget-friendly options.
Another trend that’s catching on is the increasing popularity of CNG (compressed natural gas) cars. More people are choosing these vehicles because they offer lower running costs compared to petrol and diesel cars.
Electric Vehicles: The Future Is Slow but Steady
Electric vehicles (EVs) are still finding their place in India. So far, EV adoption has been modest, with many buyers hesitant to switch due to concerns about cost, charging infrastructure, and range.
However, Nomura believes that a wave of new electric models set to launch in the coming years could boost EV sales significantly by 2026.
In rural areas, demand for two-wheelers is also picking up. Factors like a good crop season and rising incomes in rural areas are helping boost sales. Nomura raised its growth forecast for two-wheelers from 10% to 12% for 2025, and it expects the market to continue growing by 10% in 2026.
Challenges the Industry is Facing
Between 2019 and 2024, the passenger vehicle market grew at a decent rate of 5% annually. But in 2025, the growth is anticipated to slow down. The lack of new small car models, combined with weaker demand, has led to this decline. Even though car companies are offering big discounts, unsold inventory remains high.
On a global scale, car manufacturers are losing the power to set high prices due to increasing supply. After the pandemic, new car production was limited, allowing manufacturers to charge higher prices. Now, as production returns to normal, competition is heating up, and prices are coming down.
Global Uncertainty and Its Effects
The report also touched on the global automobile market's challenges. The policies of the US president-elect are causing uncertainty, especially around trade tariffs. If the US imposes more tariffs on imported cars, prices could rise, making cars less affordable for buyers.
This could hurt overall car demand in the US. Other countries might retaliate with their tariffs, creating a cycle that harms the global automobile industry.
In Europe, political issues and job losses in countries like France and Germany are affecting car sales and the transition to greener, more eco-friendly vehicles.
What’s Next for India’s Car Buyers?
Despite these challenges, India’s affordable small-car segment is expected to recover in 2025. New model launches and increasing rural demand will likely drive this growth. If electric vehicles and CNG options become more widely available, buyers might have more choices that are budget-friendly and eco-friendly.
For now, car manufacturers need to stay focused on offering the right products at the right prices to meet the needs of Indian buyers. The comeback of affordable small cars could bring relief to millions of families looking for economical transportation options.
In conclusion, affordable small cars have been a staple for Indian families for decades. After a period of slow demand, the segment is poised for a comeback by 2025. With new launches, rising rural prosperity, and a growing interest in cost-efficient alternatives like CNG and electric vehicles, the future looks promising.
While challenges remain on the global stage, India’s car market has the potential to bounce back, offering hope and better options for budget-conscious buyers.
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