Tax cut pays, car sales on fast track
With the government playing Santa and reducing the central value-added tax rate by 4%, sales of small cars have risen smartly, giving beleaguered automakers just the Christmas gift they needed. In just over a week since the rate cut, rebates by car companies have resulted in more customers walking into showrooms, enough for a 20-25% increase in sales this December over last month, top auto financiers said. Inventories with dealers, too, are down from 45-50 days in November to around 30 days now.
Ashok Khanna, executive vice-president and head of the auto loans unit of HDFC, said the discounts resulting from the lower tax rate have improved buyer interest, particularly in the past five days. But it is only the small-car segment, accounting for nearly three-fourths of sales, which appears to be benefiting, said Sumit Bali, CEO of Kotak Mahindra Prime, the vehicle financing unit of Kotak Mahindra Bank.
The country’s top two carmakers, Maruti Suzuki and Hyundai, which get bulk of their revenue from small cars such as the Alto and the Santro, are obviously pleased — both companies have cleaned up inventory with dealers on the back of aggressive discounts.
Among the makers of sedans, only Honda has done well, riding on the success of its just-launched new City. Premium and luxury cars are the worst hit despite hefty discounts: the Mercedes Benz E Class is being offered with a 20% rebate and the BMW 7 Series at a 25% discount, auto financiers said. Although interest rates haven’t softened much and hover between 12.5-16%, it is the rebates which have caused the improvement in sentiment. The big auto financiers are also reporting significant increase in business this December. HDFC, which did just Rs 636 crore in November, is expecting business of Rs 720-730 crore this month.
Ravi Narayanan, the head of the car and commercial vehicle loans unit at ICICI Bank, said the country’s largest private sector lender’s average interest rate has only dropped marginally to 15%. He attributed improved sales to price cuts, promotions and discounts. Kotak’s average lending rate is around 13.25%, down 75 basis points down from last month, while HDFC provides loans at 14.5% although select customers get it at 12.5%.
What hasn’t improved is the interest from taxi operators, who form a substantial market for companies such as Tata Motors and Toyota. The big financiers are chary of financing sales for cab fleets and as a result, models like the Tata Indica, Toyota Innova, Mahindra Renault Logan and Chevrolet Tavera have been badly hit.
Ashok Khanna, executive vice-president and head of the auto loans unit of HDFC, said the discounts resulting from the lower tax rate have improved buyer interest, particularly in the past five days. But it is only the small-car segment, accounting for nearly three-fourths of sales, which appears to be benefiting, said Sumit Bali, CEO of Kotak Mahindra Prime, the vehicle financing unit of Kotak Mahindra Bank.
The country’s top two carmakers, Maruti Suzuki and Hyundai, which get bulk of their revenue from small cars such as the Alto and the Santro, are obviously pleased — both companies have cleaned up inventory with dealers on the back of aggressive discounts.
Among the makers of sedans, only Honda has done well, riding on the success of its just-launched new City. Premium and luxury cars are the worst hit despite hefty discounts: the Mercedes Benz E Class is being offered with a 20% rebate and the BMW 7 Series at a 25% discount, auto financiers said. Although interest rates haven’t softened much and hover between 12.5-16%, it is the rebates which have caused the improvement in sentiment. The big auto financiers are also reporting significant increase in business this December. HDFC, which did just Rs 636 crore in November, is expecting business of Rs 720-730 crore this month.
Ravi Narayanan, the head of the car and commercial vehicle loans unit at ICICI Bank, said the country’s largest private sector lender’s average interest rate has only dropped marginally to 15%. He attributed improved sales to price cuts, promotions and discounts. Kotak’s average lending rate is around 13.25%, down 75 basis points down from last month, while HDFC provides loans at 14.5% although select customers get it at 12.5%.
What hasn’t improved is the interest from taxi operators, who form a substantial market for companies such as Tata Motors and Toyota. The big financiers are chary of financing sales for cab fleets and as a result, models like the Tata Indica, Toyota Innova, Mahindra Renault Logan and Chevrolet Tavera have been badly hit.
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