India’s largest car maker, Maruti Udyog Ltd (MUL), bracing for a possible slowdown in sales from expensive car loans, is offering a lower rate of financing to its component suppliers and their employees, to fuel demand.
MUL managing director Jagdish Khattar was in Mumbai a few weeks ago, personally promoting a new plan where the company will make a range of models available to vendors and their employees, at lower than market interest rates. Maruti has a network of more than 230 direct vendors.
It wasn’t clear how many people Maruti would be able to reach out to through the vendors and their workforce.
Under the plan, vendors will be able to finance their car purchases for as little as 8% interest and can use the opportunity to provide their managers with cars. It is also aimed at those employees who have been wanting to buy a car, but have been delaying the decision due to the rising interest rates. The vendor will stand guarantee to the loan.
Current interest rates on normal car loans range between 12.5% and 13%. “It is a win-win situation for everyone. While Maruti gets incremental sales, the manager who gets a car from the employer has an incentive to stay back, which is great to control attrition in these times of high attrition rates,’’ said a company official who did not wish to be identified, as he is not authorized to speak to the media.
According to the plan offered to the vendors, the equated monthly instalment for the loan would be paid to Maruti by its vendors, who will then adjust the outstanding amount against the employee’s salary. It is not clear how the vendor community have reacted to the proposal.
Rising car-loan rates have damped purchases, especially in the smaller entry-level car segment, where buyers are sensitive to small increases in their instalments. The small car segment has been growing at 11%-12% quarter on quarter compared with the premium car segment, which has been growing at more than double those levels at 25%-30%.
Maruti’s offer to vendors will be for its entire portfolio, barring the models for which there is a waiting list, such as the new top-end of the SXi sedan and the Swift with a diesel engine. Maruti is hoping to generate incremental sales for its small car segment with the new plan, especially in the monsoon, when sales tend to slump. The car maker sold 56,000 vehicles in the domestic market in June compared with 44,626 in the same period the previous year.