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Monday, Mar 29, 2004

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Are low EMIs for cars eating into the 2-wheeler market?

K. Giriprakash

Bangalore , March 28

WITH car manufacturers offering some of the lowest EMIs in decades to lure customers, it is the two-wheeler industry that is facing competition from outside.

Maruti, the largest car manufacturer in the country, which came out with an EMI of Rs 2,599 for a seven-year tenure for its Maruti 800 model, has directly targeted the two-wheeler customers as the car manufacturer tries to find newer markets to grow its numbers.

"There is definitely a positive impact. Car sales are moving up because of easy finance schemes and some of the lowest interest rates seen so far," the Kotak Mahindra Primus Executive Director, Mr Pankaj Desai, told Business Line.

But auto analysts, admitting that such a trend exists, say that it is more so in the case of those who want to upgrade their two-wheelers to a higher model in the same segment.

According to the Federation of Automobile Dealers (FADA) President, Mr Deshnidhi Kasliwal, low EMIs (equated monthly instalment) have resulted in customers opting for four-wheelers when they had to make a choice between buying either of the two.

He said because of the new trend, two-wheeler customers opting to buy cars are around 2,000 per month and around 10,000 per month in the second hand market. "As of now the numbers are too small but one is beginning to see a definite shift," Mr Kasliwal said.

Mr Desai said such a trend could be dismissed but for the fact that car sales are growing because of the low EMIs being offered by the manufacturers. He said there are three factors, which determine a person to opt for a car. These are extension of tenure to seven years, low EMIs and low interest rates. "But what is pulling a two-wheeler buyer to look at buying a four-wheeler seriously is the low EMIs," says Mr Desai.

But the Kinetic Vice-President for Corporate Communications, Ms Vismaya Firodia, is dismissive of such a trend. "These are two different sets of buyers and it is definitely not a threat," Ms Firodia said.

She said that even motorcycle manufacturers offer extremely low EMIs and top them with discounts to stay competitive among the brands. "If one considers the maintenance cost and mileage, two-wheelers are certainly a better bet," Ms Firodia.

Mr Sanjiv Bajaj, Vice-President of Finance, Bajaj Auto, the second biggest motorcycle manufacturer in the country, said that even if the EMIs are low, they are stretched over a period of seven years. "For the price of a car, one can easily buy two or more two-wheelers at lower EMIs and lower tenures," Mr Bajaj said. "But," Mr Bajaj points out, "the initial payment is nearly half the price of the bike itself."

AT Kearney's Principal, Mr Nagi Palle, who specialises in the automotive sector, said that low EMIs could in fact work against the customer. "If the low EMI is a driver, then consumers have to be aware of the economic implications when they want to turn their car in before the loan matures," Mr Palle said.

He said a longer tenure can force the customer hold on to a vehicle even if he wants to buy another car because of the high depreciation on his car which may not allow him to afford another one. Though two-wheeler manufacturers don't even want to believe that four-wheelers can ever be threat, car manufacturers don't mind casting their net wide to grow their sales.

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