The Hindu Business Line : Car financing skids despite higher sales

New Delhi, July 8 The car finance industry finds itself stagnating despite a robust 13 per cent growth in the passenger car segment in the first quarter of the financial year 2007-08.

With the growth being driven through increasing car purchases on cash, discounts and new launches, it does not seem to have helped the annually estimated Rs 40,800-crore car finance industry. However, some of the major car finance companies have managed to stay afloat riding on value instead of volumes, with consumers going in for larger sized loans for high-end cars.

“In the first quarter this year, car sales have been up by 12 per cent as compared to the same quarter last year when the industry grew at about 22 per cent. Last fiscal, 82 per cent of vehicles were financed as compared to 18 per cent that were purchased on cash. Now, cash purchases have gone up to 30 per cent, while sales through finance have come down to 70 per cent,” said Mr N.R. Narayanan, Group Business Head, Vehicle Finance, ICICI Bank.

However, the finance ratio has remained the same. “Even with a high EMI, customers still prefer 80-85 per cent of the cost of vehicle to be financed. But they are certainly preferring to increase their loan tenure from three years to about four years to manage their cash flows,” he said.

While the State Bank of India has seen car loans grow by around ten per cent in the high-end segment, HDFC Bank estimates the growth of loans in this segment to have gone up from about 3 per cent last quarter to 8-9 per cent.

Large volume deals

“While the industry has remained stagnant, what has driven our growth is the large volume deals. So instead of financing the low-end segment with cars like Alto and Wagon R, we have witnessed increased loan offtake in the high end car segment,” said Mr Rajan Pintal, Head, National Sales, Auto finance, HDFC.

“Interest rates have certainly played havoc in the growth of the small cars segment, which is growing at about 12-15 per cent quarter-on-quarter, as compared to luxury car segment that is recording a steady rise at the rate of 25-30 per cent. With the volumes of the small car segment being high, banks may not be able to offset the impact completely. However, car finance companies may start seeing growth by the last quarter of 2007 or the first quarter of 2008,” said Mr Abdul Majeed, Executive Director, PricewaterhouseCoopers.

More Stories on : Cars | Consumer Finance

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Fresh rain alert for Konkan, Mumbai, Gujarat

Rising rupee may impact export earnings target: Assocham

‘Economic activity in SEZs will offset likely tax loss’

D6 gas block: RIL says it has permission to retain entire area

MSPL setting up steel plant at Hospet

Now, one-stop shop for students going abroad

Car financing skids despite higher sales

Top IT executives enjoy 20-90% pay hikes in FY07

Stung by rising rupee, IT firms look to automation

Near-term weakness in gold; medium-term bullish

ATM withdrawals outnumber credit card spend: Survey

Undercurrent still favours bulls