Car financiers cut interest rates

Mumbai: In a desperate bid to push up sales of cars and achieve their yearend target, car financiers have decided to bring down interest rates by at least 50 basis points from the current levels of 13 to 14 per cent charged on loans for cars.

Maruti has gone a step further. It has decided to introduce the subvention scheme to sell its cars, which would mean an effective interest rate of 10 to 11 per cent. Compare this with the 30-per cent interest rates on car loans in the mid-nineties and one will get an idea about where interest rates are headed.

Of course, consumers are the happiest lot, but the disappointed are dealers, manufacturers and financiers. The worst part is that despite these measures, the industry is still not sure whether sales would really pick up.

The year has been one of the worst for cars - even the ongoing festival season has done precious little to bring any cheer to the falling sales chart. Sales of passenger cars fell 7.5 per cent in the financial year 2001 to 5.9 lakh cars in comparison to the 6.38-lakh cars sold in the previous year. Compare this with the 55-per cent growth witnessed in car sales in the previous financial year ended 31 March 2000.

The scenario continues to be bleak as in the first six months ended 30 September 2001, domestic car sales dropped 6.10 per cent to 2.77 lakh cars in comparison to the 2.95 lakh cars sold in the corresponding period last year. This is despite the fact that dealers have been offering huge discounts. Sample these: Rs 5,000 on Maruti-800; Rs. 15,000 on Wagon-R; Rs 15,000 to Rs 18,000 on the Santro; and Rs 30,000 to Rs 40,000 on the Matiz.

Two other factors have also have had a say in the falling interest rates on car loans:
1) The falling interest rate regime, especially after the recent RBI credit policy.
2) A large market for second-hand cars.

Of late, second-hand car market has become more organised, with large players entering the same. Mahindra & Mahindra-backed Automart India had rolled on some time back. Now the state-owned Maruti has jumped onto wagon - it has launched True Value in Delhi through DD Motors and in Bangalore through Mandovi Motors. Maruti has also offered to exchange old cars of certain standard with its new products. In Mumbai Sai Services has been in this business for quite some time now.