Rising car prices: In tough times, used looks better

Written by Sandeep Singh | New Delhi | Updated: Sep 16 2013, 13:53pm hrs
Used carsAs the economy navigates a slowdown, consumers are moving away from the fancied car market and in the five-month period between April and August of the current financial year. (Reuters)
In a climate of rising car prices, costly fuel and high interest rates, prospective buyers are looking at cheaper options within a segment and are increasingly favouring used cars that have seen rising sales

As the economy navigates a slowdown, consumers are moving away from the fancied car market and in the five-month period between April and August of the current financial year, it was only in August that the passenger vehicle segment witnessed a marginal rise in sales when compared with the same period last year.

In the first four months of this financial year, the sales witnessed a slowdown. For the five month period the sales of passenger vehicles stood at 9,82,847 units down by 5.5 per cent over that registered in the same period last year.

The slowdown in the economy, rising car prices, high interest rates and rising high fuel cost are all having an impact on the buyers sentiment. The result has been a change in the consumption pattern of individuals when it comes to buying cars. If the new car sales are on a decline, the used car sales are on a rise as consumers feel that the saving on buying a used car would save them enough to fund their fuel consumption for at least three years.

Industry insiders say that in the five-month period when the aggregate sales have dipped by 5.5 per cent, the used car sales have gone up between 22 and 25 per cent.

There has also been a change in the consumers behaviour as insiders say that they are going for cheaper options in the same segments and not going for the ones that they may have planned to buy earlier.

Financial planners say that car buyers in these times can either defer their plan and go high on savings or if they have decided to buy one then they should raise their own contribution and go for as less loan as possible.

Indian rupee on Sept 5

While consumers are not rushing to the dealer, the banks financing passenger vehicles too are facing a drag in the demand for auto loans.

Ashok Khanna, business head, vehicle loans at HDFC Bank, which is the market leader with around a quarter of the market share, told The Indian Express that there is a definite slowdown in demand and he expects his growth to come down to around 5 per cent as against its average growth in the recent past of about 15 per cent. Excerpts:

How do you see the stress on your auto loan business

Our growth is linked to the industry and while the growth of industry has declined we cannot continue to do well. The overall growth has suffered with decline in sales. We are working on strategies to maintain growth. While we were growing at over 15 per cent earlier, we now hope to grow by 4-5 per cent that too after putting in three times the effort. This is also leading a rise in our costs.

How long do you think would the current environment prevail

Growth is going to be tough and pain will continue for at least one year and may extend to two years. If 2008 was bad, this is worse on all aspects. The current situation is more a self created one and even as the United States is coming out of recession, we are in problem.

How do you see the rupee depreciation impacting the industry

With the value of rupee depreciating, the imports have become costlier for the manufacturers making their input costs higher. I see the prices of cars going up by atleast 10 per cent over the next one year.

How have you seen the behaviour of buyers changing

With significant rise in prices of various cars, sales are getting affected and buyers are shifting towards cheaper options within the segment and that is happening in various cases.

What are the reasons for this decline

While manufacturers put the blame on financiers, I dont buy that argument as 10.5-11 per cent rate of interest is not a very high rate that can deter the buyer from buying the product.

While the broader slowdown and decline in sentiments has impacted auto sales, I think the manufacturers themselves too are responsible for the same to some extent as they have raised their prices significantly over the last few years.

Every year in anticipation of the Budget, they raise the prices and every time there is dip in sales, they would raise the prices and the prices stand to high levels as of now.

What measures can help revive the industry

Auto industry is the barometer of the economy and an overall revival is required. The governments increase in spending will be important. While the customer is bearing all the brunt higher interest rates, higher cost of cars, higher fuel prices and even higher taxes and registration charges he needs to be brought into the market.