While the GST rate cut bonanza has proved to be a significant tailwind for the passenger car industry, commodity price fluctuations have become a simultaneous headache for most OEMs.The GST rate rationalisation by the government in September last year has ushered in a bonanza, at least for India’s top two car makers–Maruti Suzuki India and Hyundai Motor India. The reduction in GST rates has helped all segments of passenger vehicles but the impact of the cut has been disproportionately large on small cars. It has also spurred first time car buyers, many of whom are two-wheeler owners, to look for an upgrade. In what was termed as GST 2.0, the government had slashed the tax from 28 per cent to 18 per cent for small petrol, diesel and CNG cars. And a new, flat 40 per cent levy had been imposed on large SUVs and luxury cars, reducing taxation on this category of vehicles by up to 10 percentage points.
Small cars were earlier at a negative growth zone, they have moved from red into black and healthy black. Their swing is larger than that of bigger carsRahul Bharti
Speaking to analysts after the Q3 (September-December) results, Rahul Bharti, Executive Director Corporate Affairs at Maruti, singled out the larger impact of the rate cut on small car sales while pointing out that Maruti’s overall domestic sales recorded a significant 22 per cent jump in the quarter against nearly 6 per cent decline in volumes in the previous six months (April-September 2025). “The primary driver (22 per cent domestic volume) of this growth was the small car segment (within the 18 per cent GST bracket), which moved from a ‘negative growth zone’ into ‘healthy black’… we are seeing a healthy demand all across. Of course, small cars were earlier at a negative growth zone, they have moved from red into black and healthy black. So that’s a big swing. Their swing is larger than that of bigger cars. That’s a positive,” Bharti said.
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It is interesting to note that the GST cut “significantly” influenced the profile of buyers entering the market. “There was a 7 per cent increase in the percentage of first-time buyers,” Bharti said while noting that there was another positive trend: two-wheeler owners were seen upgrading to small and compact cars, which led “many helmets in our showrooms”.
Compact SUV with Venue now, you know, coming in full force, and of you course, more models coming up it seems that this is segment which will grow fasterTarun Garg
The GST bonanza helped Hyundai too. In a call with analysts, Tarun Garg, MD and CEO of Hyundai, attributed a 5 per cent sequential growth (in Q3 over the September quarter) in total domestic volumes specifically to the positive momentum generated by GST reforms. Unlike previous periods where certain segments like hatchbacks were declining, the “GST tailwinds” have resulted in growth across all segments, he said, while highlighting that compact SUVs witnessed good volume growth.
“In January to August 2025, if you see hatches, their contribution was 22.4 per cent to the overall industry; September to December, it reduced to 21.4 per cent. This is a 1 per cent reduction. And all this was taken by the compact SUVs because (the share of) compact SUVs in January to August was 22.1 per cent but in September to December it was 23.0 per cent…So, very clearly, compact SUV with the Venue now, you know, coming in full force, and of you course, more and more models coming up, more and more facelifts coming up, it seems that this is a segment which will grow faster,” Garg said.
Hyundai also reported an increase in the share of rural buying in its portfolio, with Garg saying the company achieved its highest-ever quarterly rural contribution in Q3 at over 24 per cent. In other words, nearly one in four Hyundai vehicles are now being sold in rural pockets.
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Commodity headwinds
While the GST rate cut bonanza has proved to be a significant tailwind for the passenger car industry, commodity price fluctuations have become a simultaneous headache for most OEMs.
In their respective Q3 earnings calls, Maruti and Hyundai (HMIL) reported significant headwinds from rising commodity prices. Maruti experienced a larger impact of 60 basis points (0.6 per cent) on its margins while Hyundai reported a 40 basis point (0.4 per cent) impact.
Managements of both companies highlighted precious metals and industrial metals like copper and aluminium as the primary sources of inflation in the September quarter. Anyway, pricing action has already been undertaken in January by Hyundai to offset the impact of commodity inflation on costs while Maruti has indicated the possibility of an impending price increase.
Bharti of Maruti expressed concern about the possibility of the steel industry using the safeguard duties levied by the government as an excuse to raise prices or profiteer. Both the OEMs also reported a 20 basis point (0.2 per cent) impact on margins specifically from rare earth element supply constraints, which forced them to import more expensive sub-assemblies.
