Sri Lanka’s once-recovering vehicle market has suffered a sharp reversal, with sales falling by nearly 50 percent following Cyclone Ditwah, according to industry leaders and provisional import and registration data for December 2025. The downturn has exposed structural weaknesses in the sector and raised concerns about broader economic effects heading into 2026.
Prasad Manage, President of the Ceylon Automobile Importers Association, said the cyclone’s aftermath has left many potential buyers unable to complete purchases already underway. Hard-hit districts such as Kandy saw customers withdraw from deals as household repairs and recovery costs took priority over vehicle ownership. “When homes are flooded, buying a car becomes the last concern,” he noted.
Preliminary comparisons between December 2025 and the monthly average for 2025 show vehicle imports and new registrations down by around half. While 2025 as a whole benefited from a gradual reopening of imports—boosting tax revenue and registrations earlier in the year—the momentum slowed sharply by mid-year and collapsed after the cyclone. Importers report that letters of credit opened for vehicles in December were significantly below the 2025 monthly average, mirroring the fall in showroom sales.
The decline has created financial stress for dealers. Unsold vehicles held for more than three months attract a 3 percent monthly penalty, in addition to interest costs of around 10 percent on import financing. With margins already thin, importers say these costs are unsustainable amid weak demand. Many buyers have requested refunds of advances, further tightening cash flow.
Beyond weather-related damage, analysts point to ongoing macroeconomic constraints. Exchange and import controls, imposed following monetary instability, have continued to affect consumer confidence. Despite periods of current account surpluses in 2025, the rupee weakened after a mid-year policy rate cut, increasing uncertainty around future vehicle prices and financing.
The vehicle trade has been a key contributor to government revenue through import duties and registration fees. The December 2025 slump suggests a revenue gap that could widen in 2026 if demand does not recover. Industry estimates suggest that without policy relief such as temporary extensions on penalties and improved credit conditions vehicle imports in 2026 could remain 30–40 percent below 2025 levels.
However, there are cautious data targets for next year. If reconstruction spending revives household incomes and credit flows stabilize, registrations could recover modestly by late 2026. Importers project a gradual rebound only if exchange rate volatility eases and financing costs fall.
For now, Cyclone Ditwah has done more than disrupt roads and homesit has derailed a fragile automotive recovery, with implications for employment, tax revenue, and consumer confidence across Sri Lanka’s economy.
