Higher auto loan interest rates might impact India's vehicle sales
What's the story
Shashank Srivastava, senior executive director of marketing and sales at Maruti Suzuki, has cautioned that rising auto loan interest rates could negatively impact passenger vehicle (PV) sales in India.
In an interaction with Press Trust of India (PTI), he said that sales in 2024 would likely grow by a single digit despite a strong base of record 41.08 lakh unit sales in 2023.
He further asserted that India's overall economic growth will positively influence the auto industry's expansion.
Dependency
Auto industry growth dependent on overall economy
Srivastava also highlighted the close relationship between the auto industry's growth and the overall economy.
He stated, "The auto industry growth is largely dependent on the growth in the overall economy, the GDP per capita growth that's projected 6-6.5%. There's a very high correlation between the two...so that is a positive side."
However, he acknowledged that sustaining high growth on the current base could be challenging, given growth rates were 23% in 2022 and 8.3% in 2023.
Repo rate increase
Repo rate increases not transferred to retail level
A potential increase in auto loan rates might affect future demand, as Srivastava explained that the 250 basis point hike in the repo rates since last year has not been fully passed on to the retail level.
To date, 130 basis points have been added to retail auto loan rates.
Notably, while home loans with floating rates experience immediate repo rate increases, nearly 98% of auto loans are fixed-rate loans, causing repo rate changes to occur with a time lag.
Effects
End of demand, stock correction could affect sales
Other factors contributing to the moderation of PV sales growth in 2024 include the end of pent-up demand and stock correction efforts undertaken by car makers before 2023 concluded.
Srivastava noted that the massive pending bookings at the start of 2023 have dwindled over the year, with waiting periods vanishing for most models.
This trend will likely result in decreased demand for passenger vehicle sales in 2024.
Facts
Supply constraints, dispatches from OEMs to dealers
Lastly, Srivastava pointed out that the supply chain ecosystem will also impact PV sales in 2024.
However, supply constraints experienced over the past two-and-a-half years, which led to increased stock levels in the pipeline, are not expected to persist in 2024.
This change will affect dispatches from original equipment manufacturers (OEMs) to dealers, ultimately influencing passenger vehicle sales in the upcoming year, he said.