Auto sector braces for GST cuts as car sales decline 7% in August

By: Shantanu Bhattacharji

Hyundai Motor India sold 44,011 vehicles last month, reclaiming the No. 2 spot ahead of M&M at 39,399 units. Tata Motors followed with 41,001 units, down 7% from a year earlier, while M&M sales slipped 9%.

Passenger vehicle (PV) sales declined for the fourth consecutive month in August as carmakers reined in dispatches to dealerships, bracing for a potential tax cut that could reset the dynamics of the country’s auto market. 

Industry estimates show about 330,000 vehicles were dispatched from factories to showrooms last month, down 7 per cent from 356,000 units a year earlier. Automakers are deliberately moderating shipments in anticipation that the Goods and Services Tax (GST) Council may soon ease levies on cars to stoke demand. 

The Council, meeting on September 3-4, is expected to weigh reducing GST on small cars to 18 per cent from the current 28 per cent. Larger cars and SUVs, which now face a combined tax burden of 43-50 per cent including cess, may see rates capped at 40 per cent. Any cut would directly trim showroom prices, improving affordability at a time when inflation and high borrowing costs are squeezing household budgets. 

Maruti Suzuki, the country’s largest carmaker, reported sales of 131,278 vehicles in August, an 8 per cent decline from a year earlier. Still, demand signals were encouraging during festivals. Bookings rose 16 per cent during the Onam season in Kerala, while traction was strong in Maharashtra during the Ganesh festival. 

Hyundai Motor India sold 44,011 vehicles last month, overtaking Mahindra & Mahindra (M&M) to reclaim the second spot in the market. Tata Motors followed with 41,001 units, a 7 per cent drop from a year earlier, while Mahindra & Mahindra (M&M) clocked 39,399 units, slipping 9 per cent. 

Hyundai’s domestic sales declined 11 per cent in August, though exports rose 21 per cent. The company said it aims to position India as a key manufacturing base for emerging markets and Hyundai’s largest export hub outside South Korea, a strategy that it claims is gaining momentum month by month. 

The SUV segment was a bright spot, cushioning some of the industry-wide weakness. Carmakers noted that August demand was underpinned by SUV purchases even as wholesale volumes slowed. Executives acknowledged that supply discipline was intentional, aimed at avoiding dealer inventory build-up ahead of a possible tax reset. 

August saw relatively resilient demand in the SUV segment, even as anticipation of GST rate changes shaped industry strategy. Automakers deliberately scaled back wholesale billing ahead of the Council’s decision to limit inventory exposure at dealerships. The expectation is that any tax rationalisation will serve as a strong demand catalyst during the upcoming festive season. 

The alignment of festive buying momentum and a possible GST rate cut could prove pivotal for the industry, which has seen sales contract through the summer. Dealers are cautiously optimistic that clarity on taxes will help unlock demand as the festive calendar—traditionally the strongest sales window for autos—gathers pace from September. 

Analysts say the government faces a delicate balancing act. Lowering GST could spur consumption in the auto sector, one of the country’s largest employers and contributors to manufacturing output, but it would also trim tax revenues at a time when fiscal pressures remain elevated. 

For automakers, the coming weeks may determine whether August’s slowdown marks the bottom of the current cycle or merely a pause before a stronger festive-season rebound. With Maruti, Hyundai, Tata, and M&M all signalling that they are holding back supply rather than losing demand outright, much now hinges on the Council’s decision — one that could reshape pricing, demand, and competition in the world’s fourth-largest auto market.