Bad News : : Good News - for Auto Market

Bad News for Auto Market:

SBI to hike car loan interest rate by 0.5 percent

n order to bring its car loan interest rates in line with its competing banks, the country’s largest PSU (Public Sector Undertaking) bank SBI (State Bank of India) has decided to increase interest rates by 50 basis points. While the quantum of this interest rate hike is yet to be revealed by the bank, a senior official of the firm has already confirmed the decision of rate hike.

While speaking to the Business Standard, another official of the company said that SBI’s current rates are cheaper as compared to the other major players of this segment, and a hike of 50 basis points will not make bank’s product costly. He added that car loan is not a priority segment for SBI and the segment incurs higher per unit cost due to small ticket size and higher risk of defaults.

In the month of September 2011, SBI’s auto loan portfolio was at Rs 22,025, registering a considerable growth of 25.25 per cent over the same month preceding year.

While the largest private sector bank ICICI’s interest rates on car loans stand at 11.5-17%, the HDFC offers car loans at an interest rate of 11.5-12.25%. In comparison SBI has a lower interest rate of 11.25 percent for the segment.

Good News for Auto Market:

Leading car makers yet to take a final call on price hike as demand continue to slump

In a bid to give a major boost to the sales of their portfolio cars in the Indian market, the leading car makers have decided to skip the previously scheduled customary price hike in the month of January 2012. The car maker including Maruti Suzuki India Limited (MSIL), Hyundai Motors India Limited (HMIL) and Volkswagen India have skipped the customary price hikes in January. This is the first time in last 15 years when leading car makers have decided to sell their new models at the last year’s pricing, a major step to pull crowd to their showrooms.

The Indian automobile industry has been struggling with slowing down car sales since last six months. From the peak of 2.18 lakh units sold in the month of September 2011, the car sales in India dipped to mere 1.59 lakh units in the month of December 2011. The major fall in the sales registered despite a series of freebies and discounts offered by the car makers.

Speaking on the company’s prospective price hike, Maruti Suzuki’s managing executive officer (marketing & sales) Mayank Pareek, said in a recent statement that the company is yet to take a final decision on the matter of price hike, and the firm would soon be increasing the prices of its car models. The similar statement came from Toyota Kirloiskar’s senior executive, saying that The change in price is expected in the next few days.

Conclusion:

So with the increase in Interest Rates for Car Loans and Slump in Demand for the Cars, The Silver Lining is that there may NOT be a price Increase as yet.