New breed of car buyers grow on easy finance  ( February '2,2004, ET)

The profile of the Indian car buyer has changed considerably owing to the presence of affordable finance packages and the upswing in the economy in the recent months. Car dealers say a consistent 30% volume growth, both in the new and used car segments is because of a new breed of customers.

Almost 50-60% of the demand has come from “second car in the family” buyers and lower middle-class salaried customers (average monthly salary of Rs 10,000-12,000). Dealers said finance packages are being structured in a way so that an average buyers faces an equated monthly instalment (EMI) of Rs 3,000.

“We have seen a sharp jump in first-time buyers in recent months. We are tailoring schemes with longer tenures so that their monthly budgets are not stretched too far,“ said senior officials from Kotak Mahindra Primus.

The launch of new variants and price-cuts at the entry level and the mid-sized segment has suddenly made cars a lot more affordable than ever before. Dealers say those who would have earlier opted for a second-hand car now often consider a new car. Others are opting for a second-hand car against two-wheelers. “Those who would have gone for a two-wheeler purchase are now coming into the used-car market where a 1998 Maruti 800 is available for Rs 80,000 against Rs 1 lakh two years back,” said Sanjay Khadekar of Mumbai-based Sai Service.

For many consumers, an entry level car are the likes of Santro, Alto or a Zen while the Maruti 800 has moved into the semi-urban and rural markets. These cars come in various variants and the cheapest versions contribute the most to the total sales of a company. For instance, the cheapest version of the Alto, priced at Rs 2.8 lakh, moves faster than an Alto priced at Rs 3.8 lakh.

“Both manufacturers and dealers have realised that the only way to grow, both in terms of sales and profits, is through volumes. Making a car affordable to the average middle class customer is a priority today,” said Ashwin Sanghi of Vitesse.

According to a senior official from the National Council of Applied Economic Research (NCAER), with an underlying GDP growth of 5.5-6% CAGR over 2004-2007, the population base with household income over Rs 2,15,000 per year (categorised by NCAER as climbers) will grow at a CAGR of 25.6%. “Climbers will contribute most of the volumes in the new car segment in the next few years,” he said.

“Almost 80-90% of the car value is financed by a loan. Several customers are confident of actually pre-paying the loan amount in two-three years. It is felt that salaries will move up given the upswing in the economy,” an industry official said.