NEWS & ADVICE : CAR LOANS
Auto industry may see a rise in sales
By Vaibhav Aggarwal
Nov 12, 2008
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As banks are cutting down on their vehicle loan rates along with infusing liquidity in that segment, auto companies are expecting a recovery in their sales portfolio by the next month. The auto industry has faced a tough time during the past three months as the sales figure have recorded a negative growth.

The financial crunch across the globe has had a substantial impact on the automobile purchases because the banks increased the lending rates along with tightened norms. Now that a low interest rate regime is likely to follow, the auto industry may see a comeback in its status. In fact the executives from auto majors like from Maruti Suzuki, Hyundai, Tata Motors, Bajaj Auto and TVS Motor appreciate the recent moves on rate cut by RBI. These companies now expect the auto loan rates of banks and other financial institutions to come down in the near future. Also there is an expectation of increased availability of credit in the segment.

Banks although are decreasing the interest rates but they are still hesitant in lending due to the rising default rate in the economy. They are revising the lending norms in order to avoid default on repayment. They are raising the margin money as a result of which the borrowers have to pay increased amount of down payment for their purchase. In fact many auto financing companies have reduced their auto lending in the troubled regions like Uttar Pradesh, Bihar and Rajasthan.

Mayank Pareek, Executive Director (marketing and sales), Maruti Suzuki, said, "Interest rate movement will definitely have a positive impact on sales. It will be premature to comment on improvement in sales as a result. We will have to wait and see what steps do bank take and by when."

Presently the auto companies feel that adequate liquidity in the system will be more helpful in reducing the funding despair than the reduced lending rates.

H S Goindi, head-sales (service and marketing) of Chennai-based TVS Motor, said, "Banks will definitely pass on the rate cut to the final customer, which is now just a matter of time. However, we believe that the amount of funding (availability of finance) has to increase. Sales have been lower in the festive month but the expected rate cut may spur up sales."

Despite a slump in demand, the country's third largest two-wheeler maker has said it will go ahead with its planned launches.

"Banks will definitely try to ease liquidity in the market. A major portion of the auto financing is done by public sector banks and also by non-banking finance companies up to a small extent. We expect the revival in December sales posting a positive growth, but November will be in the red," said an Analyst.

The financial crunch has restricted the auto sales growth to as low as 5% in the first half of the current fiscal as compared a growth of 13% during the same period, a year ago.


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