Lower interest rates may not add sparkle to Diwali car sales

Written by Roudra Bhattacharya | Shashidhar Jayakumar | New Delhi/Mumbai | Updated: Oct 12 2013, 16:02pm hrs
Aided by lower interest rates by banks, auto companies have lined up a bevy of attractive offers inducing customers to loosen their purse strings during the ongoing festive season, which began with the Navratras on October 5 and will peak with Diwali in early November.

Still car makers like Maruti Suzuki, Tata Motors and Hyundai remain extremely cautious about predicting any strong boost to sales after the prolonged slump this year. They are expecting only a 10-15% jump in volumes over other months of this fiscal, compared with the 20-30% rise normally seen in the festive months of a good year.

Mayank Pareek, COO, marketing & sales at Maruti Suzuki, said, After such a bad period of the last seven-eight months, there are some signs of improvement. Bookings are increasing, but we still need to keep our fingers crossed. At this time of the year, everybody stocks up completely. Maruti has a 40% share of the 27-lakh-unit domestic passenger vehicle market.

We expect volumes to be about the same as last year, maybe a 3-5% growth over the same period in FY13, another Maruti official added.

Nalin Kapoor, group head for marketing at Hyundai Motor India, confirmed, There is definitely some improvement as compared to other months. But as compared to last year it is subdued. Some clarity will emerge after the Navratras.

I do not think car makers expect much to happen this festive season. Firstly there are not too many launches, and also the market is not going up on an overall basis, said Kumar Kandaswami, senior director of Deloitte Touche Tohmatsu India. Usually festive months see multiple launches, but this year Hyundai Grand i10, Skoda Octavia and the Nissan Terrano are the only cars to debut in the period.

However, successful new launches of the past few months, like the Honda Amaze and the Ford EcoSport, have left some companies more hopeful. We have a very good feeling. Every month our contracts for the Amaze is increasing as customers spread good word about the brand, Jnaneswar Sen, senior VP, marketing & sales at Honda Cars India, said.

Two-wheeler makers, however, are far more enthusiastic of strong performance with rural demand rising after the strong monsoons. We are hugely optimistic of this festive season. So far the going has been great, said Pawan Munjal, MD & CEO, Hero MotoCorp. Two-wheeler market leader Hero is launching 10 face-lifted versions of its models for the festive season.

A major factor behind some optimism for sales to perk during the festive season despite a declining trend since the beginning of the year is the recent move by banks to lower interest rates and processing fees on auto loans at the behest of the government.

The country's largest bank State Bank of India during announced this week that it was reducing interest rates for auto loans from 10.75% to 10.55%, while reducing the processing fees for cars from 0.51% of the loan amount to a flat rate of Rs 500. SBI is also running a special festival offer for its salary account holders and giving two-wheeler loans with interest rate starting at 12.05%.

Punjab National Bank has also slashed its car loans rate to 10.65% and two-wheeler loans rate to 12.2% and waived processing fees on both of them. Bank of India said it cut its interest rates for two-wheelers to 11% with no processing fees, while Central Bank of India said it was waiving processing fees of Rs 2,000 on car loans and Rs 500 on two-wheeler loans.

At IDBI, auto loans are now being offered at the base rate of 10.25% and processing fees have also been waived. Indian Bank as part of its festive season offer is giving a combo deal for home loans at its base rate and car loans at a discounted rate of 10.20%. While Corporation bank reduced its interest rates for car loans by 1% to 10.65% and is waiving 50% of the processing fees, Dena Bank is offering a combo deal for car and consumer durables with housing loan. The government lender is offering consumer durables loans along with housing credit at 11.75%.

Private lender Kotak Mahindra Bank said it is hopeful that the pent up demand will help drive growth for auto loans during the season and said that it is working closely with car manufacturers and dealerships for offers.

Federal Bank is running a scheme on auto loans portfolios and as a part of its scheme, the bank is waiving processing fees. Axis Bank is also readying schemes for Maruti and Hyundai cars where the lender will offer a combination of benefits, including lower processing fees and softer interest rates. It is also working on a special scheme targeted at government employees.