Higher auto loan interest rates could impact car sales, says Shashank Srivastava

Srivastava said that with the high base of record 41.08 lakh units of passenger vehicles sold in India in 2023, PV sales in 2024 could grow by a single digit. He also reportedly said that the overall economic growth of the country is going to play a positive factor in the growth of the auto industry in 2024. Srivastava reportedly said that the auto industry’s growth is largely dependent on the growth in the overall economy and the GDP per capita growth, which is projected at 6-6.5 per cent. “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,” he said.

The Maruti Suzuki official also said that the auto industry has reached a very high level of base in 2023 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 further added. His comment comes at a time when the Indian auto industry registered a record in 2023 by witnessing sales of 41.08 lakh units of passenger vehicles, among which a major chunk was contributed by SUVs, thanks to the rising demands for utility vehicles across the country.

High auto loan interest rates could impact car sales

While the auto industry in the year 2023 witnessed a record number of passenger vehicle sales, there are some factors that are keeping the industry players worried. These include rising inflation, dampening demand for small cars etc. In such a situation a possible increase in auto loan interest rates could impact the demand of passenger vehicles negatively.

Srivastava said that a possible increase in auto loan rates will dent future demand as an overall hike of 250 basis points in repo rates since last year has not been fully transferred to the retail level. He also explained that in the case of home loans which are floating rates, the repo rate increase comes immediately into the retail loan rates. However, in the case of auto loans, almost 98 per cent is fixed rate loans. There the transfer of repo rates changes happens with a lag of time, he further added. “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.

Other factors to play key roles in PV sales growth in 2024

Besides the possible increase in interest rates, there are other factors that would play a role in the growth moderation of passenger vehicle sales in 2024, said Srivastava. He said that the end of pent-up demand and stock correction that car manufacturers have undertaken before the end of 2023, will also impact the passenger vehicle sales in 2024. He explained that there were huge pending bookings at the beginning of 2023, but it has been reduced over the course of the year and it will not be there in 2024.

Another factor to plays a key role in this situation is the condition of the supply chain ecosystem. The supply constraints in the last two-and-half years that made the auto industry build up the stock levels in the pipeline will not be there in 2024, which will have an overall impact on dispatches from OEMs to dealers, Srivastava added.

First Published Date: 07 Jan 2024, 13:38 PM IST