Auto demand may be hit as loans turn dearer
Automobile demand is likely to get impacted as loans are set to turn dearer following RBI’s hike in interest rates by 25 basis points.
Affordability costs of vehicles have risen in the past few months given the increase in vehicle prices, petrol prices and increase in car loan interest rates. “The big concern is what happens if the interest rates continue to rise. If inflation and liquidity tightening continues, RBI may further signal rate hikes. That will definitely impact demand,” said Ajay Seth, CFO of Maruti Suzuki India.
“Car loan rates going up is not good news. It may break the momentum on which the industry has been moving for the past two years,” said Arvind Saxena, director marketing and sales of Hyundai Motor India.
“Market sentiments are turning weak seeing the kind of slowdown the industry had in December. We expect double digit growth, but not as high as last year’s growth of 30-31 per cent. Given the scenario, industry growth will be limited to 13-14 per cent,” said P Balendran, vice-president-corporate affairs of GM India.
“So long as the economy is doing well and the outlook on freight availability is bright, I don’t think the increase in financing costs will have a major impact on sales,” said R Seshasayee, executive vice-chairman of Ashok Leyland.
“The rate hike should not impact smaller towns where the level of dependence on two wheelers is strong,” S Sridhar, CEO of two-wheelers Bajaj Auto, said.
SBI car loan rates started at 8 per cent during February 2008, forcing other banks including private lenders to reduce rates, hence paving the way for auto boom that helped sales grow 27 per cent. SBI has now raised the rates to 9 per cent for the first year, while others are charging 11-13 per cent. Two-wheeler rates have risen to 14-15 per cent on an average, while commercial vehicle financing is 12-14 per cent.
“If issues such as increasing loan rates, high inflation and petrol prices apart from rising input costs for carmakers continue it will have an adverse impact on consumer sentiment,” said Kapil Arora, partner, E&Y.
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