Domestic passenger vehicle retail sales declined 1 per cent year-on-year in May, as blistering summer heat and elections impacted demand, automobile dealers' body FADA said on Monday.

Passenger vehicle registrations dipped to 3.03 lakh units last month compared with 3.35 lakh units in May 2023.

"Dealers cited the impact of elections, extreme heat and market liquidity issues as major factors for the dip in sales last month," the Federation of Automobile Dealers Associations (FADA) president Manish Raj Singhania said. Sales declined 8 per cent on a month-on-month basis.

Increased customer postponements and low enquiries further contributed to the challenging market conditions. Due to the extreme heat, the number of walk-ins to showrooms dropped around 18 per cent.

The two-wheeler segment grew 2.5 per cent on a yearly basis but declined 6.6 per cent month-on-month. The commercial vehicle segment showed a 4 per cent annual growth but a negative 8 per cent growth on a monthly basis.

The segment faced challenges from government policy effects and negative market sentiment. Good freight movement cement, iron ore and coal sectors contributed positively.

The near-term outlook is ‘cautiously optimistic’, influenced by a mix of positive and challenging factors across various segments.

Post-election results are expected to bring stability and improve market sentiment, while continuity in government policies could boost economic activities.

Dealers are hopeful about better supplies and positive movement in key sectors such as cement, coal and iron ore.

The India Meteorological Department (IMD) has forecast above-normal rains this year, which is expected to enhance rural demand and support the economy.