[MileCruncher]

With the rising petrol prices, car companies like MUL and Honda who have a predominantly only petrol models are facing the brunt. Hence they have worked out cheaper interest rates for Petrol cars.

Cos offer cheaper interest rates as petrol cars lose pace - The Economic Times

MUMBAI/DELHI: Carmakers rush to court buyers with cheaper finance options to rev up sales of petrol cars as rising petrol prices have fuelled demand for diesel products.

While interest rates on auto loans have risen to as high as 12.5%, they are lower by up to 2% for petrol cars. Multinational companies such as Volkswagen and Honda Siel have been offering a special rate of 6.99%. VW Financial Services , Volkswagen's car financing arm, has been offering an interest rate of 6.99% for its Vento (petrol version) to preserve leadership in the mid-size segment.

"The lower interest rate was a measure to offset the higher cost of ownership of petrol cars. The scheme into its second week has increased footfalls in our 71 retail dealerships across the country and higher demand for the petrol Vento," said Neeraj Garg , director, Volkswagen Sales India .

Honda Siel, which does not sell diesel cars, is providing similar interest rates on its highest selling City sedan and Jazz hatchback. The company has posted dwindling sales as demand veered towards diesel cars and shortage of spare parts hampered production. "Dealers are providing special incentives with lower interest rates to some models," said Jnaneshwar Sen, senior VP (marketing), Honda Siel Cars .

Besides these three brands, other petrol variants which come with competitive rates are Ford Figo , Mercedes Cgi and VM Polo. Industry experts say that the lower interest rates are not given by the financiers. Car dealers are helping financiers to dole out cheaper rates by passing on part of their commissions.

"The cost of borrowing is same for all financiers ," said a leading Maruti dealer in Mumbai. Financiers said that manufacturers have built incentives into the pricing of the car. "The interest rates depend on the life cycle of the product and pressure on the manufacturers ," said Sumit Bali , chief executive officer of Kotak Mahindra Prime, the car financing arm of Kotak Mahindra.

Though private banks and financial institutions have not changed their rates, lower rates provided by financing companies owned by carmakers will trigger a rate war in the longer term amid car sales slowing down to 7% in May from a record high of 30% in March. With another interest rate and fuel price hike in the offing, financiers do not expect a double digit growth rate this year.

"This slowdown has taken the manufacturers by surprise. Many of the car manufacturers such as Maruti Suzuki, Hyundai , Tata Motors have increased the subventions on some of their models to beat the slowdown ," said Bali. Even luxury carmaker Mercedes has increased promotional activities to bolster sales of its petrol models.

[mayankjha1806]

This is good news, just spoke to the Dakshin Honda SA, will ping him later in the evening and enquire about this as well. Dwindling sales is good time for buyers

[snaronikar]

This was expected and was bound to happen. Now that Diesel prices are also on cards to go up, would like to see how the car companies will behave. However, the increase might not be so substantial (near to petrol prices), but there will be an increase. You people have got any idea on the goodies rolled out by these dealers?

[GTO]

Cheaper car loans are, well, indirect discounts! Remember, someone has to bear the difference in discounted & actual finance rates. A lower interest rate, however, helps the manufacturer stay away from the "discount brand" tag as the ex-showroom prices remain the same on paper. BMW was amongst the first to aggressively market rock bottom interest loans in India.

The fiercer the competition, the quicker the reaction times. Within days of the fuel price hike, I saw VW & Hyundai introduce their promotions. Hyundai's offer was actually very unique; it offered to "price protect" the custom against future petrol price hikes (for a specified period of time, obviously).

[rtandon]

One thing which I'm surprised that a lot of companies are not resorting to is interest rate arbitrage. Borrow in low yield, price falling currencies (USD) and lend in EMs - high yield currencies.

The interest rate differential and hedging should take care of fx rate moves.

May be they have and are doing it or abandoned it due to risk or government regulations. I'd like to know the cost of funds for 6.99% loans. I assume these are fixed interest and tenure loans.

Here in SG, you can get a royal (step up FD) rate of UPTO 2%. No wonder inflation is high here - by local standards.

[Motoringlover]

Originally Posted by rtandon

One thing which I'm surprised that a lot of companies are not resorting to is interest rate arbitrage. Borrow in low yield, price falling currencies (USD) and lend in EMs - high yield currencies.

The interest rate differential and hedging should take care of fx rate moves.

May be they have and are doing it or abandoned it due to risk or government regulations. I'd like to know the cost of funds for 6.99% loans. I assume these are fixed interest and tenure loans.

Here in SG, you can get a royal (step up FD) rate of UPTO 2%. No wonder inflation is high here - by local standards.

Sorry for my partly OT comment - Could not resist it.

@ rtandon - Pardon me - Dont quite agree with your comment - Most (read as big) Corporates have succesful treasury deployment, with dedicated staff working on hedging strategies, the reason we dont see extreme volatitlities in earnings is partly a credit to them.

Some of the succesful corporations have been known to borrow at near risk free rate (read as the rate of t-bill (A US example)) and have very efficient operating margins and returns on equity.

The cost of funds (Given the VW example) looks like a play with sops with the banks than a direct effect of infation or the monetory policy (At least in the short run). Just my 2 cents.

Best - ML.

[Xryder]

Cheaper car loans for Petrol Cars is a good move. But whatever said and done, the price of Petrol is not going to come down anytime soon. I think what we need immediately is Petrol Loans to fill em Petrol Cars up.

[ghodlur]

Originally Posted by GTO

The fiercer the competition, the quicker the reaction times. Within days of the fuel price hike, I saw VW & Hyundai introduce their promotions. Hyundai's offer was actually very unique; it offered to "price protect" the custom against future petrol price hikes (for a specified period of time, obviously).

@GTO,

Is there some hidden charges under this low car interest scheme. If the intention of the manufacturer/dealer is to increase the sales volume, would such schemes existed even before the petrol price rise. Now that the manufacturer themselves are offering the lower rates which until now was the domain of the banks and Finance companies would there be a possibility that the bank would reduce their loan rates to fuel the competetion.

[Motoringlover]

Mates - any news of low cost financing for Skoda cars (especially - Laura TSI) ? I am trying the help a Friend . Thanks in advance for your help.

Best - ML

[msvg]

Any cheaper car loans for VW POLO ? if yes please intimate me at the earliest.

thanks
MSVG

[arup.misra]

Originally Posted by Motoringlover

Mates - any news of low cost financing for Skoda cars (especially - Laura TSI) ? I am trying the help a Friend . Thanks in advance for your help.

Best - ML

@Motoringlover - +1 to that. In case you have any news on Skoda financing do let me know. I've been hunting around for a new car and financing is the need of the hour ...

[Motoringlover]

Originally Posted by arup.misra

@Motoringlover - +1 to that. In case you have any news on Skoda financing do let me know. I've been hunting around for a new car and financing is the need of the hour ...

I havent heard anythig specific in finance schemes, I did hear about a discount of a Lac rupees. I will keep you posted. My info is specific to Hyderabad.

Best - ML

[Warhound]

If someone has the capacity to make an outright purchase, settling for EMI will actually save him money ?

FD rates are around 10%. and premium cars are charging around 7% in interest ? Interesting.

[arup.misra]

Originally Posted by Warhound

If someone has the capacity to make an outright purchase, settling for EMI will actually save him money ?

FD rates are around 10%. and premium cars are charging around 7% in interest ? Interesting.

Excepting the Vento / Polo, I dont think any car in the 10-12L segment is offering 7% interest. AFAIK the lower interest rates are only being offered in the 20L+ plus.

Plus FD rates are all pre-tax which will shave off the yield by 50-75bps at the end of the tenure. Besides this getting into an EMI would mean staying at the mercy of floating rates and incurring extra costs like processing fees.

Better than this is cash is surplus its bet to look at an OD against FD.