Auto loan interest rate cuts may not help festive sales

Written by fe Bureau | Chennai | Updated: Oct 16 2013, 17:03pm hrs
Car salesIn October 2013, some public sector banks announced around 20 basis points cut in interest rates for autos.
The recently announced reduction in auto loan interest rates by certain public sector banks will not have a meaningful impact on auto sales, said India Ratings & Research (Ind-Ra) in its report on Tuesday.

In October 2013, some public sector banks announced around 20 basis points cut in interest rates for autos, with the rates now in the range of 10.45-10.75% for auto loans up to three years for purchase of new vehicles.

The reducing price difference between petrol and diesel has led to a slowdown in demand for diesel vehicles which were largely responsible for driving passenger vehicles (PV) sales in FY12 and FY13, the rating agency said.

The 3% hike in excise duty to 30% on utility vehicles (UV) over 4 metre in length and over 1,300cc engine capacity (announced in the March 2013 Budget) also dampened sales.

While this segment registered a 52.2% y-o-y sales volumes growth in FY13, there was a 4.8% y-o-y decline in sales volumes over April to September 2013. A large proportion of volumes in this segment are contributed by entry level UVs, sales of which have also been adversely impacted by higher on-road prices due to the excise duty hike, the report said.

Quoting RBI Consumer Confidence Survey-June 2013, India Ratings said only 12.8% of respondents wanted to purchase a vehicle, compared with 15.9% in March 2013 and 19.7% in December 2012. This seems to suggest a steadily worsening consumer sentiment which could negatively impact sales over the next few months.

The JD Power Survey, released on August 29, 2013, also suggested that more price conscious, middle class buyers are considering buying a used vehicle instead of a new one. It is believed this is due to the growth of the organised used car market in India along with the presence of major original equipment manufacturers.