Sluggish Car market

High interest rate and falling sales continue to haunt auto manufacturers and dealers alike. No wonder, the two – auto manufacturers along with the auto financiers have come up with lower interest rates schemes on selective models to boost sales in the sluggish industry.

In an effort to create and sustain customers’ interest, General Motors India is offering loans at 7.5% on all models of Chevrolet Optra and Chevrolet Aveo. Hyundai Motors India (HMIL) is giving loans for Santro at 8.99% in Pune after its national scheme ended last month and Ford India is offering the same at 9.9% on Ford Ikon and Ford Fiesta as against the existing rate which is hovering around 14%. Others like Honda Siel Cars India are in talks with nationalized banks that offer loans at a comparatively lower rate.

It means a win-win situation for all. While customers can save anywhere in the range of Rs 1,000 to Rs 1,200 per month on their EMI on a loan of Rs 3 lakh for a period of three years, auto manufacturers expect to see a spurt in sales and auto financiers can expect more customers walking in afresh.

This despite the fact that the trio – manufacturers, dealers and auto financiers will have to put in around a substantial amount each to compensate for the lower interest rates. For GM cars, the total amount is in the range of Rs. 15,000 to Rs. 40,000 for Hyundai Santro over Rs 30,000 while for Ford cars, it works out to be Rs 30,000 to Rs. 40,000. While the banks are doing this by lowering their interest rate by 100 basis points, dealers will do away with their commission and the manufacturers may let go of free insurance schemes during the offer period.

Schemes like this are always worked out to generate volumes on a sluggish market. As such the difference is compensated once the sales start picking up according to a few leading manufacturers.

The move will enable manufacturers and dealers to liquidate their stocks along with enhancing the number of buyers at their outlet according to a leading banker.

This is just the beginning. With no relief in sight, auto manufacturers are set to either review their schemes or come out with more offers to revive. Industry will continue to witness a 12-15% dip in sales over the next two months with sales expected to pick up only after monsoon in India prior to festival season. The Auto companies might review current offers and decide whether to extend or not.

Since a very high percentage of cars (about 85-90%) are financed, the rise in interest rates does lead to a slowdown – at least temporarily. But auto manufacturers are optimistic of greater volumes in days to come. The way industry is moving, more such packages are likely at the regional level.

The spate of interest rate hikes has squeezed the customers who are feeling the heat at all ends. They are literally sitting on the fence hoping that this may cool down.