Automobile sales slump, but vehicle loans on a high

At a time when automakers are struggling with a sales slowdown, banks have managed to clock an impressive growth in vehicle loans showing that more buyers are opting for credit to buy vehicles than going for all-cash deals.

Vehicle loans in India grew 26% to ₹ 1.14 lakh crore by the end of April 2013 from ₹ 90,200 crore in the year-ago period, according to the Reserve Bank of India (RBI) data.

Car and utility vehicle sales in the country grew 2.15% to 2.63 million during 2012-13.

"During the slowdown, more individuals prefer to buy vehicles on loans and the number of customers opting for all-cash purchase goes down," said AK Verma, CFO, Bank of India.

Automakers are struggling with slowing growth in vehicle sales due to overall slowdown in the economy.

"Last year (2012-13), we saw it (the number of people opting for auto finance) rise to 71% from 68%," said Mayank Pareek, managing executive officer, marketing, Maruti Suzuki.

While auto sales have further declined in the first quarter of current financial year, the ratio between purchase through financing and cash purchase seems to have further tilted towards the former.

"Currently, the percentage of buyers depending on loans must be holding steady or has slightly gone up. It must be 71%-72%," said Pareek.

Car and utility vehicle sales slipped 7% to 607,469 units in the first quarter of the current financial year as low economic growth hurt sales.

Another reason for strong growth in vehicle loans is that some popular vehicle models such as Duster and Ertiga in car the segment outperformed growth in the auto industry.

"There were some models launched last year which became very popular," said KVS Manian, president, consumer banking, Kotak Mahindra Bank. "These models helped banks to grow vehicle loan portfolios."