India’s Auto Sector Faces Supply & Retail Challenges Amid Global Uncertainty

India’s auto dealers face supply and demand headwinds amid global tensions

India’s automobile dealers are expressing caution as a combination of geopolitical tensions, global trade policies, and raw material shortages threaten to hamper retail sales and supply chains in the months ahead.

The Federation of Automobile Dealers Associations (FADA) has flagged concerns that rising global uncertainties, such as the ripple effects of U.S. tariffs and China’s export restrictions on rare earth materials, may negatively impact both vehicle availability and consumer sentiment in India. These developments have already started to show an effect, with retail vehicle sales in June falling 9.4% compared to May.

Another worrying indicator is the rise in inventory levels. The average number of days a car remained unsold in showrooms, known as inventory days, increased to 55 in June, up from 52–53 in May. This is significantly higher than FADA’s recommended inventory level of 21 days, highlighting the supply-demand imbalance faced by dealers.

According to FADA, sentiment among dealers remains cautious as the new quarter begins. About 43% of dealers foresee a slowdown, while only 31% are optimistic about growth. The uneven pace of new bookings further reflects the lack of a consistent recovery in demand.

Rare earth materials, essential for manufacturing electric vehicles and advanced auto components, have become a critical chokepoint. China’s decision to restrict exports of these materials has disrupted supply chains globally, and Indian manufacturers are feeling the pressure, especially amid already constrained financing conditions and uncertain international trade dynamics.

Nonetheless, there are some positive signs on the horizon. A stronger-than-usual monsoon season could spur rural demand, particularly in agricultural regions. FADA expects this agrarian boost to partially offset urban market sluggishness but cautions that overall growth in July may remain mixed due to high vehicle prices and seasonal factors.

Last month, FADA had already warned of tepid demand heading into June, pointing to reduced financing options, high inventories, and the looming threat of supply bottlenecks tied to rare earth materials.