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Reserve Bank of India’s (RBI) move to hike the key lending rate could see banks increasing rates on auto loans which would likely strain retail level demand — especially for two-wheelers — even as demand for cars and SUVs continue to surge.
Auto loans, in recent years, have hit the lowest-ever, becoming one of the reasons behind the record orderbook for the passenger car industry. As of April-end, the car industry had an outstanding order of 7,50,000 units.
Impact on demand
Shashank Srivastava, Senior Executive Director — Marketing and Sales, Maruti Suzuki India, said, “Around 80 per cent of the passenger vehicles (PV) retails are through financing. An increase in rates will have an adverse impact on demand. But it depends on the extent of the increase.”
April saw domestic PV sales grow by 2.35 per cent to 2.93 lakh units as compared to 2.86 lakh units sold in the same month previous year. A hike in auto loans will have a steeper impact on two-wheeler buyers rather than car buyers. Market watchers believe that the hike comes just as the two-wheeler demand was turning the corner on the back of marriage season purchases.
Vinkesh Gulati, President, Federation of Automobile Dealers Association (FADA), said, “While the PV segment may be able to absorb this shock due to long waiting periods, the two-wheeler segment — which has been a non-performer — will not be able to take one more blow of high vehicle loan costs.”
Blow on purchases
Two-wheeler demand has remained subdued due to an underperforming rural market, price hikes by manufacturers and high fuel costs. Besides, automakers are worried about the rising inflation which has eaten into the consumer sentiment and purchasing power.
Rakesh Sharma, Executive Director, Bajaj Auto, said, “I would be more concerned about inflation and if that gets curbed, then it protects the customers’ purchasing power.”
Two-wheeler sales in the domestic market during April reported their first growth in 10 months. Six manufacturers collectively sold 15.3 per cent more two-wheelers that month at 1.09 million as against 9.53 lakh units sold in April 2021.
Mitul Shah, Research Analyst, Reliance Securities, said, “With the industry already under stress due to the fuel price hike, commodity inflation-led price hike and weaker demand, this (RBI move impact) would have a negative impact on automobile purchases. Two-wheeler segment is relatively more sensitive to price hikes and rate increases.”
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