Get extra mileage with a good bargain

Get extra mileage with a good bargain

The festive season is not yet around the corner, neither the year-end is anywhere near. Typically, you will spot discount and offers during these periods across sectors. However, car companies have made an exception this season and are offering discounts and freebies in the most unlikeliest of months.

So if you plan to buy a car, this may be the right time to get a good deal.

Why now

You may be wondering why companies have become so generous now. The reason is simple: lagging sales and piling inventory.

The automobile industry’s growth has almost halved this year compared with last year, when it grew at an average of 30%. Mint conducted a survey of 12 dealerships across the country and found that sales have slowed in the last four months due to the twin impact of rising fuel prices and costlier bank loans. Since December, petrol prices have risen by at least 10 per litre to 63 in Delhi.

On the other hand, the Reserve Bank of India has raised the repo rate by 125 basis points (one basis point is one-hundredth of a percentage point) since November 2010.

Return of discounts signals the re-emergence of a strategy that paid rich dividends to companies and dealerships in the period that preceded the auto boom in 2009 and 2010. “A similar process was followed during the slowdown in 2008. That year the situation was even worse but the discounts along with the government’s fiscal package had helped companies bounce back in the market," says Sugato Sen, senior director, Society of Indian Automobile Manufacturers.

The inventory: The three factors together have resulted in a pile-up of inventory of up to 40 days, according to the survey conducted by Mint in May. In May itself, retail sales of cars fell by at least 15% compared with the previous month, despite better discounts. To the existing stock, car companies will add more as they release a monthly quota. This surplus will force companies to offer more and more discounts.

“Dealerships are already seeing a fall in enquiry bookings due to the twin impact of rising fuel prices and interest rates," says Shashank Srivastava, chief general manager (marketing), Maruti Suzuki India Ltd. Generally, actual bookings are a half of what people enquire about.

“Discounts are the most common strategy followed by the dealers to boost sales during off season," adds Srivastava.

What’s on offer

The discounts are accompanied by a strong sales pitch. For instance, a Hyundai Motor India Ltd’s advertisement assures that the petrol price hike will not pinch you for the rest of the year since it is offering a discount of 44,000 on i10 and 27,000 on Santro. Other car makers are also lining up with discounts up to 60,000 and freebies such as iPads and iPhones.

Maruti, Hyundai, Fiat, Ford, Tata and General Motors are among those that provided higher discounts in May and the trend is continuing even in June. Honda Siel Cars India Ltd, which lost its market share generated by the City model to Volkswagen’s Vento over the last two months, introduced free car insurance and gizmos in May.

According to the survey, car companies are lining up discounts of up to 40,000-50,000, apart from offering various schemes such as loyalty bonus, easy financing options and free insurance (see graph). The best deals, however, are not applicable for new launches.

Dealerships offer cash benefits by taking a hit on their margins, usually about 5-15%, depending on the car model. So if a dealer has a higher margins on any particular car, he has the liberty to offer more discounts on it. Generally, if the car is cheaper the margins of dealers will be lower and vice-versa.

“This is because a slowdown in demand puts a dealer under pressure to clear the stock in order to meet his monthly sales target. One should be smart and take this into account as buying a car is, perhaps, the second most expensive investment one makes other than the home," said Jatin Chawla, sector analyst, India Infoline Ltd.

There may be terms and conditions with each offer and what you actually get may depend on how well you negotiate.

Bankers’ incentives: Though bankers say that they do not see a slowdown in car loan offtake, some of them are coming up with strategies to incentivize customers.

Says Pratip Chaudhuri, chairman, State Bank of India (SBI), “We are not witnessing any slowdown in auto loan offtake. In fact, with our recent initiatives such as increasing car loan repayment tenor to as high as seven years and abolishment of prepayment penalty, we are witnessing significant interest from customers for our car loan product."

SBI accounts for close to 14% of the overall auto loan market and last year, its car loan portfolio increased from 14,127 crore to 20,910 crore registering a growth of about 48%. “Last year, our car loan portfolio grew by 48%; in the current year, the growth may not be as high," says Chaudhuri.

Some other bankers are waiting for things to settle down. Says Vivek Mhatre, general manager (retail banking), Union Bank of India (UBI), “At the moment, we are not witnessing any slowdown in car loan offtake. With higher interest, there will be some impact, but it is too early to say to what extent the impact will be. Car sales have fallen only during the last few months and it takes some time to figure it out."

When asked whether UBI, too, is planning to increase the repayment tenor or abolishing prepayment penalty, Mhatre said, “We provide benefits for loyalty. If a customer has already taken, say, a home loan from our bank, we provide him a concession of 150 basis points in the interest rates, if he applies for a car loan."

Better your bargain

While the market is on fire, keeping in mind a few more things may help you better your bargain.

Month-end: Dealerships establish monthly quotas for their sales team, so the month-end is an excellent time for negotiation on the price of a car.

“This is typically the deadline for sales people to meet their quotas and earn bonuses so they will be more motivated to sell and willing to negotiate generously," says a New Delhi-based General Motors India Pvt. Ltd (GM) dealer, who did not want to be named since he is not authorized to speak to the media.

Slow days: Another strategy is to pick up “slow" days, such as middle of the month or on Mondays, when the weekend rush is over. “The weekend can be one of the worst times because it is when most people shop and sales staff have plenty of prospects," says Abdul Majeed, auto practice leader, PricewaterhouseCoopers India Pvt. Ltd, a consultancy firm.

“But if you must go on a weekend, show up early before other customers arrive when employees will be most motivated to get started towards winning weekend sales competition," adds Majeed.

The laggards: Find out which companies or models are lagging in sales. Newspapers usually publish reports on the sales performance of car companies on the first or second of every month and can be of help. “If a particular car has seen a decline in sales, this can be the best time to negotiate for a deep discount," said the GM dealer quoted earlier.

End of day: A salesman may not want to be kept late at work and may make an attractive offer to close the sale quickly at the end of a day.

However, before you go out negotiating, make sure you know your budget and why exactly you need a car.

Abhishek Anand contributed to this story.

Graphic by Jayachandran/Mint