How climate change has led to dip in automobile sales, inventory flooding

The key reasons? Climate change, and subdued consumer sentiment, despite an impending festive season. A major dealer association said that the auto market is “under significant strain”.

It’s not just Hindustan Unilever Ltd, the country’s largest FMCG company, for which weather is the “single biggest business risk” today. From carmaker Hyundai to skincare company Emami and PepsiCo bottling firm Varun Beverages, unseasonal showers in summers, irregular weather patterns, and diverse rainfall patterns have started impacting the bottom line of Indian companies, The Indian Express had earlier reported.

For automakers, the climate change impact is visible in the sales volumes in key states such as Kerala and Telangana, where extended spells of heavy rains have dented demand significantly.

Slowing automobile sales, across segments

According to data collected by the Federation of Automobile Dealers Associations (FADA), passenger vehicle retail sales in India witnessed a close to 5 per cent on-year decline in August on account of delayed customer purchases, poor consumer sentiment and persistent heavy rains.

“Inventory levels have reached alarming levels, with stock days now stretching to 70-75 days and inventory totalling 7.8 lakh vehicles, valued at an alarming Rs 77,800 crore,” FADA said. The situation is so dire that the association does not expect the upcoming festive season to play enough of a catalyst to offset the sluggish demand, and rising inventory levels.

While the association said that India’s auto retail market saw a modest increase of 2.8 per cent over August last year, that was primarily led by a 6.2 per cent increase in sales of two wheelers over last year. Retail sales in the segment, however, fell by over 7 per cent compared to July 2024.

The four-wheeler passenger vehicle market saw a year-on-year decline of 4.5 per cent. Commercial vehicles too saw a falling demand, with sales declining by more than 6 per cent over last August. Tractor retail sales also witnessed a drop of 11 per cent as compared to the year-ago period.

The overall passenger vehicle registrations last month stood at 309,053 units, as compared to 323,720 units in August 2023.

The climate impact

A key reason behind the dismal numbers, as per FADA, is erratic weather patterns, which are a factor of climate change.

“In August, India witnessed 15.9 per cent excess rainfall across the country… This monsoon season brought unpredictable weather, starting with extreme heat waves which delayed monsoon and transitioned into heavy rainfall, leading to flood-like conditions in several areas… These weather anomalies have had a direct impact on India’s auto retail market,” FADA said in a statement.

“The two-wheeler market saw a month-on-month decline of 7.29 per cent, largely due to excessive rains and flooding, which disrupted demand across various regions,” FADA added.

Commercial vehicles sales, too, were not immune to the climate impact. However, in their case, reduced construction activity and sluggish demand in industrial sectors also played a role.

“Commercial vehicle sales experienced a sharp drop, with an 8.5 per cent month-on-month decline and a 6.05 per cent year-on-year fall. Members have pointed to key challenges, such as heavy rains, floods and landslides, which have severely impacted market activity. Additionally, reduced construction activity and sluggish demand in industrial sectors have further strained sales,” FADA said.