Increase in auto loan interest rates could impact PV sales

Sales Grow Single Digit

• PV sales this year could grow in single digit
• Auto industry growth largely dependent on overall economy
• Increase of 250 basis points in repo rates not been fully transferred to retail level

New Delhi: Passenger vehicle sales in India could be weighed down by increase in interest rates for auto loans, if there is no reduction in repo rates going forward as the industry gears up for a single-digit growth this year, according to Maruti Suzuki India Senior Executive Officer (Marketing and Sales) Shashank Srivastava.

With a high base of record 41.08 lakh units in 2023, passenger vehicle (PV) sales this year could grow in single digit with the overall economic growth of the country being a positive factor, he said. "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 per cent. There's a very high correlation between the two... so that is a positive side," Srivastava said. However, he said, "We have reached a very high level of base, and on that base a continuous high growth may be a little difficult. We saw in 2021 the growth to be almost 27 per cent, in 2022 it was 23 per cent. In 2023 it is 8.3 per cent. So I would expect growth next year to be in the single digit."

Srivastava said a possible increase in auto loan rates could have an impact on future demand as the overall increase of 250 basis points in repo rates since last year has not been fully transferred to the retail level. In home loans which are floating rates the repo rate increase comes immediately into the retail loan rates but in case of auto, almost 98 per cent is fixed rate loans. There the transfer of repo rates changes happens with a lag of time, he explained. "So far 130 basis points have crept into the retail auto loan rates and another 120 basis points can be expected. If there is no rate cut this year, that means it is a little negative for the auto industry," Srivastava said.

Besides the possible increase in interest rates, other factors that would play a role in the growth moderation of the PV sales is the end of pent up demand and stock correction that manufacturers have undertaken before the end of 2023. In the beginning of 2023 there were huge pending bookings, but it has been reduced over the course of the year and it will not be there in this year, he said, adding, "the waiting periods have disappeared for most of the models". Also, the supply constraints in the last two-and-half years that made the industry build up the stock levels in the pipeline will not be there this year having an overall impact on dispatches from OEMs to dealers, he added.