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Auto financing gives fuel to car sales - Views on News from Equitymaster
 
 
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  • Apr 26, 2000

    Auto financing gives fuel to car sales

    India's passenger car segment has witnessed very good growth rates over the last couple of years. Infact over the last four years its has grown at a CAGR of 18.5%. The major reasons for this surge in the car segment are a rise in disposable incomes, availability of easy and large number of auto financing schemes and the fact that the second hand car market has picked up due to shift in consumer preferences and larger choices available in the small, medium and luxury car segments.

    The car financing schemes today are available in plenty. Foreign banks have entered this field aggressively, this area was earlier the domain of car finance companies. Even financial institutions and public sector banks have made their entry into this segment. With the fall in the interest rate scenario as well as higher competition, car finance is available at very attractive rates. The rates are varying from 12%-14% currently as compared to 17%-18% a couple of years ago.

      Passenger car sales
      Unit nos. % growth
    FY95 300,000 -
    FY96 345,380 15.10%
    FY97 411,411 19.10%
    FY98 416,408 1.20%
    FY99 521,974 25.40%

    Many of the banks and finance companies have tied up with the large passenger car dealers and manufacturers directly for providing finance to their customers. This has helped the auto dealers and car manufacturers to increase their sales as customers who earlier could not afford to buy a car on their own now have the courage to do so due to the attractive schemes available. Car financing has also helped in increasing car sales for companies wanting to purchase cars for their employees and "fleet financing" has become very common now.

    The other factors which have contributed to the growth in the passenger car segment are:

    • Auto loans are now available for different time periods to suit the customer's needs,
    • 100% financing is available for cars currently as compared to the earlier 70%-80%,
    • Finance is available for second hand cars,
    • Professional advice and valuation on the second hand car market,
    • Competition has ensured that car prices have remained more or less flat,
    • There has been a migration from the high end two wheeler market to passenger cars

    As competition is very intense the rates on car financing should continue to be very attractive. Also as new products and models are being introduced very rapidly this will help in increasing volumes in the passenger car segment by offering a wider choice to customers and keep price increases at the minimum level.

     

     

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