MANDOVI MOTORS PVT. LTD. EXECUTIVE SUMMARY Car finance schemes have evolved with changing needs and market solutions. Aggressive marketing, packaging, easy eligibility, fast turnaround of applications, have all contributed to making car finance a preferred option to own funds. Not too many years back, for the Indian consumer a car meant either the sturdy Ambassador or the Fiat. Same was the case with other vehicles the collaboration of the Japanese car giants with India to produce the popular Maruti Suzuki brought in a flood of models. Next, it was the turn of liberalization to affect a drastic turnaround in the market monopolized by Maruti. The auto-financing sector is sub divided into three segments i.e. Commercial vehicle financing, Two wheeler financing and Car financing. 1
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MANDOVI MOTORS PVT. LTD.
EXECUTIVE SUMMARY
Car finance schemes have evolved with changing needs and market solutions.
Aggressive marketing, packaging, easy eligibility, fast turnaround of applications,
have all contributed to making car finance a preferred option to own funds.
Not too many years back, for the Indian consumer a car meant either the
sturdy Ambassador or the Fiat. Same was the case with other vehicles the
collaboration of the Japanese car giants with India to produce the popular Maruti
Suzuki brought in a flood of models. Next, it was the turn of liberalization to affect a
drastic turnaround in the market monopolized by Maruti.
The auto-financing sector is sub divided into three segments i.e.
Commercial vehicle financing,
Two wheeler financing and
Car financing.
In India the concept of car finance was introduced in 1984- 85. At present, 75- 80 %
of the vehicles brought in the country are bought through various vehicle-financing
schemes.
Car finance is popular because the financier provides ready delivery of the vehicle to
the customer. This enables the customer to claim depreciation and cut out of the
waiting period .
Current market Scenario:
The current sluggish market conditions, coupled with the lowering of interest rates,
have made the car finance market extremely competitive. Finance companies,
dealers and manufacturers are wooing buyers with "special offers", discounts, "0%
finance", low interest rates etc.
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The major players in the car finance business are the Foreign Banks, Indian
Banks, NBFCs and FIs. The car finance is a large industry today with disbursals
of approx. Rs. 80 bn.
With increasing number of players, the car loans market is intensely
competitive on pricing. With no waiting periods and truly buyers market, the
industry today is wooing customers with transparent transactions, lower interest
rates and better service standards.
Opportunity
In India there is a large number of customer exist in mid economic group which is
growing at the rate of 40% annually as a result there luxuries needs are also growing
by Increase in their disposable incomes, wider choice in selecting car models and
lower interest rates on loans are expected to drive car sales up to 9.5 per cent at a
compounded annual rate in India by the year 2006-07, according to a report. Car
sales are expected to touch 9.09 lakh units in the next five years,
Clearly, it seems, that finance companies will not hold anything back when it
comes to value added schemes. Here the customer is the king and the race is on
to woo him/her
Prices of cars having increased in recent months (due to Euro compliance
and rise in input costs) and are expected to go up further due to a rise in sales tax
rates. This will provide further fillip to finance schemes and may be in the not so
distant future, car buying could become more exciting and affordable.
In today's competitive world, the consumer is King. Two individuals availing
a finance scheme from the same source can get different deals. So negotiations
can go a long way to get you better deals and the maximum bang for your buck.
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INTRODUCTION
Not too many years back, for the Indian consumer a car meant either the
sturdy Ambassador or the Fiat. Same was the case with other vehicles. The
collaboration of the Japanese car giants with India to produce the popular Maruti
Suzuki brought in a flood of models. Next, it was the turn of liberalization to effect a
drastic turnaround in the market monopolized by Maruti. Collaborations with
international giants began to occur, and the Indian aficionado did not have to look
beyond the shores for gratification.
The present scenario is a highly changed one. International giants are vying
with one other to launch their models.
Car market to grow at 9.5%
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INCREASE in disposable incomes, wider choice in selecting car models and
lower interest rates on loans are expected to drive car sales up to 9.5 per cent at a
compounded annual rate in India by the year 2006-07, according to a report. Car
sales are expected to touch 9.09 lakh units in the next five years.
Research company Cris Infac, in its report, also expects lowering excise
duties to be one of the reasons for the upturn. Passenger car sales growth has
already touched 9.8 per cent in the first nine months of this fiscal, thanks to the
higher discounts offered to the customers.
According to the report, highest sales - of 12 per cent - are expected in the B
segment, or the higher lifestyle cars with affordable prices, which will offer the
widest variety of models. Car makers will continue to "aggressively launch" new
models in this segment. Sales of luxury cars or the A segment is expected to grow
at a marginal rate of 2.7 per cent, with most sales expected in the smaller towns.
The C, D and E segments are expected to grow at a high pace but will
continue to form a small portion of total car sales, according to the report.
Availability of cheap finance will lead to an increase in sales of utility
vehicles which are likely to grow at 4.5 per cent, the report says. The report
predicts that competition will not only lead to several new models being introduced,
but also mean higher ad spends by carmakers. This will prevent car companies
from fully passing on increases in cost of production to the customers and will put
pressure on margins, As a result, companies will exploit new markets in the semi-
urban and rural areas by opening new dealerships.
The report believes that favorable Government regulations can encourage
demand in passenger cars and utility vehicles. Currently, duties have a cascading
effect, pushing car prices higher by 60 per cent.
The new auto policy 2004 augurs well for the automobile industry as it has
done away with export commitments and indigenization clauses as well as allowed
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approval of 100 per cent foreign equity in the Indian automobile industry, according
to the report.
Indian Automobile Sector
Did you know
India is the 2nd largest two wheeler manufacturer in the world.
2" largest tractor manufacturer in the world.
Largest commercial manufacturer in the world.
3r largest car market in Asia, surpassing China in the process.
Automobile Industry in India is still in its infancy but growing rapidly. The
opportunities in the automobile industry in India are attracting big names with big
purse and they are investing vigorously in infrastructure, design and development,
and marketing. Automobile industry in India is today poised for the big leap.
Automobile industry Contributes 17% of the total indirect taxes collected by
the exchequer & is a driver of product and process technologies, and has become
a excellent manufacturing base for global players, because of its
High machine tool capabilities
Extremely capable component industry
Most of the raw material locally produced
Low cost manufacturing base
Highly skilled manpower
So that Major players have started sourcing components from India, such as
Fiat plans to source US $200 mn. worth of components from India per annum.
Mercedes Benz (Daimler Chrysler) has set up 7 component JVs in India for
global sourcing of parts.
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Cummins, USA is already sourcing Engine parts from India for Cummins
Global Operations.
Multi National such as DELPHI and VISTEON have started exporting
components made in India to their various other plants around the world-
Investing further to make India as a manufacturing base.
Indian Automobile Industry Performance
Key Players - 402
Investment - US $ 2.3 billion
Output - US $4 billion
Exports - US $ 417 million
Employment - 2,50,000 persons
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DESIGN OF STUDY
Title of the Project
“Recent trends in Car Finance"
Statement Of The Problem
The opening of the economy has brought car buyers a plethora of models to
choose from. Having decided the car to buy, buyers also have to decide whether to
fund it from their own resources or through car finance.
Car finance schemes have evolved with changing needs and market
solutions. Aggressive marketing, packaging, easy eligibility, fast turnaround of
applications, have all contributed to making car finance a preferred option to own
funds.
However, a buyer needs to understand some ground rules to shift through all
the options and find one that suits him best. Hence, this study was carried out.
Need For The Study
Writing out a cheque for the value of the car is the easiest solution. But that
is the preserve of a select few and for most of us, availing of a finance scheme to
purchase the car is the best option. Even for those who are able to make a full
payment should check a financing option before taking the final decision.
The current sluggish market conditions, coupled with the lowering of interest
rates, have made the car finance market extremely competitive. Finance
companies, dealers and manufacturers are wooing buyers with "special offers",
discounts, "0% finance", low interest rates etc.
Once a buyer has decided to avail a finance scheme for his car, the next
step is to select the scheme that suits him the best. Our newspaper is foil of
tempting offers from a host of finance companies each luring us with a basket of
freebies. On top of that are claims and counterclaims about their interest rates and
down payments. So how does one decide which is the best finance option for him?
To select the best option one need to first familiarize himself with the mechanics of
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this market after which, he will be in a better position to make up his mind. Hence
the need for this study.
Objectives of the Study
The following objectives were set for the study:
Study of the car finance market in terms of its characteristics, factors affecting the
market and trends visible in this market.
To study some car financing companies, for their differentiating strategies,
financing schemes offered and services provided.
To study and compare the various schemes offered to the consumer for Maruti
cars by car financing companies, which have tied up with Marurti Udyog Ltd.,
To analyze the performance of these companies vis-à-vis Mandovi Motors Pvt.
Ltd. in terms of the number of Maruti cars financed by them during the months
September to December of financial year 2004-05.
Scope of the Study
The scope of the study " Recent trends in car finance" includes:
Visit to Mandovi Motors Pvt. Ltd., and survey conducted to measure the
performance of the various car-financing companies in terms of their offerings.
Information was collected with the help of a Questionnaire from the car financing
companies on different models of Maruti.
Study and compare the various schemes offered to the consumer in availing
car finance.
Period of Study
The study was carried out during January 2005- February 2005.
Data Collection
Primary data was collected from car financing companies and Mandovi
Motors through questionnaires and personal interviews. Secondary data was
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collected through various published sources like websites, magazines and
company brouchers.
Limitations of the Study
The study was conducted only in Bangalore city.
Performance of car financing companies have been compared with respect to
Maruti cars only,
Data given by the companies have been relied upon.
The study was conducted in a restricted time frame.
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INDUSTRY PROFILE
The automobile industry saw a boom in the liberalization period. The
buoyancy in the auto sector was primarily due to a change in government policies,
increase in purchasing power, increase in life style, availability of car finance etc.
Though the market has boomed, the individual players are likely to see setback in
the near future due to intense competition. Several joint ventures have been signed
and several are expected in the near future.
The automobile sales figures of December 2004 indicate continued
buoyancy in motorcycle and passenger car sales. However, Utility vehicles sales
dipped by a sharp 25% during the month. Commercial vehicles sales also
registered a decline, with the de-growth being sharper in the Medium and Heavy
vehicle segment.
Two Wheelers
Two wheelers sales grew by 27.6% in December 2004 to 3,63,206 vehicles.
This growth has solely been driven by a robust 54.4% growth in motorcycle sales,
2,65,733 motorcycles were sold during the month. Cumulative motorcycle sales in
FY02 till date has been 2.6mn units, accounting for 68% of all two wheelers sold in
the country. Scooter sales registered an 8.1% decline in December to 61444 units.
Cumulative scooter sales during April-December have been 7,89,399 vehicles,
1.2% lower than that sold during the corresponding period in FY01. The decline in
moped sales has been even sharper. Moped sales in December were down 21.3%
to 36,029 units. Cumulative moped sales in FY02 till date have been 4,28,983
units, 27.9% lower than the previous year.
Three Wheelers
Three wheelers sales also have registered a buoyant 33% growth in
December at 16,898 vehicles. Cumulative sales in the first 09 months of the year
have risen to 1, 80,875 units, a 6.7% increase over the previous year.
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Passengers Cars
Passenger’s cars sales registered at 16.5% increase to 54,229 vehicles in
December 2002
Cumulative car sales in the first 09 months of FY02 have almost reached
previous years’ level aided by the revival in sales volumes witnessed during the last
few months. April-December FY02 passenger car sales stood at 5,04,271 vehicles
Before you start shopping for a finance scheme you need to do two things:
• Check your bank balance and decide on how much down payment you can afford.
Remember that it's always better to pay a higher do\vn payment if you can afford it
since it turns out to be cheaper in the long run.
• Look at your income stream and get a fix on the installment that you will be able to
pay (monthly or quarterly) without disturbing your current lifestyle and for how long.
Armed with these figures you can start looking for a financier, either by
responding to their ads, or by signing up on some of the websites that offer match
making services between financiers and potential clients.
Have enough time on your hands while searching for your finance scheme.
Rushing into finalizing a scheme is a cardinal sin and you are likely to end up paying
more. Call from quotes for as many financiers as possible. Shortlist a set of at least
3 financiers based on the initial quote and then negotiate with them on each
component of the scheme. Armed with the rudimentary knowledge about car
financing you will be able to ask the right questions and get your self the best deal.
Remember not to fall for longer tenure lower installment schemes, because
eventually you pay a higher interest amount and more often than not, the market
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value of your car depreciates much faster, than the rate at which you have been
retiring the principal. Also, do not fall for the 0% interest schemes, since if you are
not paying the interest, then someone else is and it is usually the manufacturer in
the form of a discount to the financier. Once you are able to get a handle on the
discount amount, you can work out a scheme better suited to your requirements.
Here's a secret. In today's world, the consumer is King. Two individuals
availing a finance scheme from the same source can get different deals. So
negotiations can go a long way to get you better deals and the maximum bang for
your buck.
Car Finance: Driven by Innovation
The auto finance market was very active in 2001-02, with over 70 per cent of
cars sold being financed. In fact, industry sources attribute this success of auto
companies to the effectiveness of their alliances with financing institutions. These
institutions believe that car-makers owe much of their sales to innovative consumer
finance.
Mature Market is Good: The car finance market has reached a new level of
maturity, so much so that the car-maker, the automobile dealer and the financier
now work together to provide better features and funding options for the buyer.
Here again, the flexibility of operations among non-banking finance companies
(NBFCs) indicates they have been in the forefront of this new trend.
On the contrary, banks are hamstrung by the rigid lending regulations and inflexible
operations. Their rates are, consequently, higher. However, thanks to increased
operational efficiencies, a few private sector banks, such as HDFC Bank and ICICI
Bank, have managed to make a dent in the car finance market this year.
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Benefits From the Trio: The coordinated efforts by the manufacturer-dealer-
financier trio have also enabled them offer better rates to the car buyer. Depending
on the manufacturer, tenure of the loan and credit history of the car buyer, interest
rates, on a reducing balance basis, now hover in the 10-13.5 per cent range for new
cars compared to 13-16.5 per cent till early last year. For old cars, the interest rates
continue to be in the 16-18 per cent range.
The interest rates also differ between various car models of the same
manufacturer, depending on the model the company wants to promote.
Behind Attractive Rates: The attractive rates of interest most NBFCs are able to
offer are because they operate on a 'rack rate' system. This system is arrived at
when the financing company negotiates with different car manufacturers and local
car dealers to squeeze out the maximum discounts from them. This is why dealer-
level direct discounts to customers are almost non-existent now on most car
models.
These discounts from the manufacturer and dealer — also called the
"subvention amount' — are then absorbed by the financier helping him offer the
best interest rates. Though the official lending rates fluctuate in the 14-16 per cent
range, the trio ensures the loan to the consumers at a much lower rate. Some car
companies, such as Maruti Udyog Ltd (MUL) and Hyundai Motor India Ltd (HMIL),
have entered into preferred financing arrangements with a few banks and NBFCs.
These institutions, in turn, offer lower interest rates. Manufacturers with "preferred
financing arrangements' offer additional discounts to the financier for the sales
promotion of their products. This discount helps the financier provide consumers
with a lower rate of interest.
Faced with mounting competition from NBFCs, some MNC banks have also
started absorbing the subvention amount from the dealers who, in turn, either pass
on a manufacturer discount or a part of their margin, so that the buyer gets a more
reasonable rate of interest. However, other banks, particularly public sector banks,
are still hesitant to do this. As a result, their rates are not competitive. Again, while
most MNC and private sector banks operate through direct selling agents who
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have considerable margins to allow negotiations with customers, public sector
banks mostly operate directly with the car buyer.
A car buyer can attempt to negotiate the subvention amount as a direct
discount from the manufacturer or dealer. But the amount will always be lesser
than that paid to the financier. The discount from the manufacturer is, in most
cases, paid directly to the financiers and not to the consumers. In some cases, the
dealer offers a combination of a partial discount and/or free accessories. However,
in such a situation, the car buyer cannot expect to get a lower interest rate on the
financed amount.
Direct Discounts Unattractive: Manufacturers also discovered that direct
discounts to the car buyer did not result in increased sales. Attractive interest rates
just aided the process.
The increased preference for financing car purchases through loans,
thus, seems justified.
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Analysis of the car financing companies in terms of their offerings
Car Financing Companies
Today several financial institutions and companies are offering car finance. Some
of the leading players in the car financing market. ICICI bank, HDFC bank,
Centurion bank, Development Credit bank and Saraswat Bank are the private
sector banks offering car loans. The finance companies car loans include
Cholamandalam Finance, Kotak Mahindra, Sundaram Finance and Tata finance.
Multinational banks hike ABN Amro, ANZ Grindlays, American Express Bank, Citi
bank, HSBC, Standard Chartered Bank have also considerable car finance
business. Countrywide, Associate Orix are some of the corporates having
considerable market share in the sector.
The following tables compare some of the banks providing car loans, their
features, schemes offered by them and their operational style, documents required
eligibility criteria etc.]
The following tables compare some of the banks providing car loans, their
features, schemes offered by them and their operational style, documents required
eligibility criteria etc.
ICICI Bank Standard Chartered Scheme Name Car loans Car loans Locations Delhi, Bangalore,
Chennai, Hyderabad,
Delhi, Bangalore, Chennai, Kolkata, Mumbai
Joint Application Applicable Not Applicable Eligibility For salaried minimum
salary should be Rs 100000 per annum and for self employed income tax return should be more than Rs 60000.
Age should be within 21 to 65 years including the loan period.
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Minimum & Maximum Loan Amount
Minimum of Rs 75000 to a Maximum of 90% of the car value.
Minimum of 50% of the car value to a Maximum of 90%of the car value.
Tenures Minimum of 6 months to a Maximum of 5 years.
Minimum of 1 year to Maximum of 5 years.
Interest Calculation periodicity
Monthly Reducing Balance.
Monthly Reducing Balance.
Prepayment Yes, at 2% extra. 2% on the Extra principal amount.
Loan Type Margin Margin Deposit Amount NA NA Margin Money 10% of the car amount. 10% to 15% depending on model to
model. Processing Fees NA NA Documentation charges NA NA Documents to submit For Salaried: Salary
slip, from 16, identity proof, residence proof, photographs, age proof. For Self-Employed: Form 16 A, identity proof, residence proof, photographs, age proof, Income Tax Return.
For salaried: Salary proof, ITR, 2-signed photograph, residence proof (license, passport, ration card, ID card), loan application form. For Self-Employed: ITR, 2-signed photograph, income proof, address proof, loan application form and financial statements.
Interest 12% to 17% depending on car models.
Economic car 15%, Mid size car 14%, Luxury car 14.5%
CITIBANK ABN AMRO
Scheme Name Car loans Car loans Locations Delhi, Bangalore,
Eligibility Maximum age should be less than 65 years, should be an income tax payee and have bank account more than 1 year old.
For cars like M800, Zen, Omni, Wagon R the annual income should be more than Rs. 60,000 and for cars like Esteem, Baleno it should be more thanRs. 1,00,000
Minimum & Maximum Loan Amount
Minimum of Rs 75000 to a Maximum of 85% for new car and 80% for oldcar .
Minimum of Rs.50000 and Maximum of 90% of the value of standard Cars.
Tenures Minimum of 1 year to a Maximum of 5 years.
Minimum of 1 year to a Maximum of 5 years.
[merest Calculationperiodicity
Monthly Reducing Balance.
Monthly Reducing Balance.
Prepayment 3% 3% on the outstanding principal amount.
Loan Type Margin Margin Deposit Amount NA NA Margin Money 10% of the car amount. 10% to 15% depending on
model to model. Processing Fees NA NA Documentation charges NA NA Documents to submit For Salaried: Salary slip,
from -16, residence proof, 3 years income tax return photographs. For Self-Employed: Form -16, residence proof, photographs, 3 year Income Tax Return, balance sheet and profit and loss statement.
For salaried: Salary slip, ITR, photograph, ID proof (license, passport, ration card, PAN card). For Self-Employed: ITR, photograph, ID proof (license, passport, PAN card) and financial statements.
Interest 2% to 3 % per month. 14.5% to 15% pa depending on car models.