Bangalore: The Indian unit of Suzuki Motor, Japan’s largest mini-car maker, said Tuesday that car sales have begun to sag after banks raised the cost of auto finance.
Eighty percent of car sales used to be financed by bank loans but that has dropped to 70% in the past three months, said Jagdish Khattar, managing director of New Delhi-based Maruti Udyog Ltd, majority owned by Suzuki.
“And the overall pie hasn’t grown by much,” Khattar told reporters in this southern Indian city after launching the SX4, Maruti Udyog’s first sedan offering in seven years.
“Customers will have to accept the high rates,” he said, without giving figures to illustrate slowing growth. “But the tendency on the part of car buyers is to postpone purchases in the hope that things will improve.”
Car loans have become more expensive after the Reserve Bank of India raised its key lending rate five times in less than a year to 7.75% in a bid to curb bank credit from stoking inflation.
Interest rates for car purchases have risen to 15% to 16% from 11%. Maruti’s closest rival Hyundai India said last month it expects “very slow” sales growth.
Higher rates slowed total passenger car sales growth to 2.89% in March from a year earlier — the lowest rate in 13 months. March, the end of the financial year in India, is traditionally a good month for car sales.
“We, as manufacturers, and dealers are trying to do as much as we can to make customers overcome their reluctance to even visit the showroom,” said Khattar.
Dealers are dangling extras such as free insurance and extended warranties to sell cars and reduce inventories amid increasing competition.
Maruti Udyog, which had its best year ever in terms of sales, financials, investments and model launches in the 12 months to 31 March, plans to invest Rs90 billion ($2 billion) until 2010 to introduce new models and ramp up production capacity to maintain its lead.
The SX4 is targeted at customers who bought Maruti compacts and sedans four to five years ago and are looking to upgrade, said Khattar.
The new model is making its debut in India before being launched in Europe and Japan.
India’s booming economy, growing at an annual pace of 9% has created an affluent middle class that has spurred car demand, creating one of the world’s fastest growing automobile markets.
Automakers are aiming for sales of $145 billion in 10 years or an average 16% annual growth, according to a government mission plan.