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Car Loan Interest rates: consumer confidence takes a dip

With buyers undecided whether to take car loans on higher interest rates, car manufacturers are witnessing low off-take.

Apnaloan.com Research Bureau

10 Aug 2007

Higher interest rates have cooled down sales of cars. With buyers undecided whether to take car loans on higher interest rates, car manufacturers are witnessing low off-take. That appears to be hurting the automobile industry, in general, and the passenger car segment, in particular. If the current trend continues, one may well see a real flat growth this year in automobiles.

Demand has begun to soften since the beginning of the current financial year, Arvind Mathew, Managing Director of Ford India was quoted in The Hindu. The rise in interest rates was gradual during November-March. However, rates had shot up since the new financial year. From 7.5 to 8 per cent, the interest rates on car loans have gone up to around 14.5 per cent now in just about six months. "A car loan at over 14 per cent is too much," Mr. Mathew said. This had already impacted sales in the current quarter, with passenger car companies reporting flat growth in the first two months. Ford at least tried to get over this interest rate problem. Ford India did offer consumers assistance on the interest rate front. "Instead of giving them accessories free, we offered to give them relief on interest rates," he said. There were only a few takers for this. "They (consumers) are not willing to trade down," he said. "Nobody is really certain about the interest rates," he said. Consequently, people were deferring their buy decisions, he added.

Mr. Mathew of Ford India stressed the need to bring the confidence back to consumers. "The Indian economy is growing at a very healthy rate of 9.4 per cent and it is the second fastest growing large economy in the world. With rising disposable incomes and a growing middle class, we are hopeful that this is a temporary blip and will correct itself in due course. With the inflation rate returning to below five per cent level, he was confident that things would improve in the coming months. Right now, however, commercial vehicle, two-wheeler and housing segments were witnessing a deceleration. "We have to be careful that we don't kill the economy," he added. If the rising interest rates were putting the customers off, the chery-picking of loan seekers by banks had not helped the cause of the automobile industry, he said. With funds becoming scarce and costlier, banks were leaving out riskier customers. As a consequence things had become a little bit expensive, he said. The rupee appreciation, happening alongside the rising interest regime, had come as a double whammy for many, he said. All these had resulted in the consumer confidence taking a dip, he said. The Ikon and Fiesta were indigenised to over 80 per cent. In the case of Endeavour, the local content was around 20 per cent, he said. As such, the rupee rise had little impact on Ford. "We also export components," he said, tongue-in-check.

"Ford continues to be bullish on India. We have just launched the new Endeavour, in the premium SUV segment. We also have plans to launch the Fusion diesel in the next quarter," Mr. Mathew said. Not just Mr. Mathews. Corporate India is cautiously waiting for things to turn positive in the coming months. At the moment, however, everybody is keeping his/her fingers crossed.