Interest rates deflate bikes in India

ET reports on how the interest rates rise (RBI measures) in India have left consumers shying away from buying passenger vehicles and two wheelers.

Potential buyers appear to be holding back purchase decisions amid concerns over inflation coupled with the steep rise in interest rates. While the two-wheeler segment has witnessed a 6% slide in sales in April 2007 compared to the previous corresponding period, the passenger vehicle segment reported lower-than-expected growth. Automobile makers now expect the lacklustre spell to continue for several months.

Under normal circumstances, nearly 85% of new cars are bought using financing options. Following the rise in interest rates, this ratio has fallen to 70-75%. In case of two-wheelers, the ratio now stands at 50% compared to 60% prior to January 2007. Auto loans are now available at around 13.5% while banks charge 21-23% for two-wheeler loans. Pre-January 2007, both auto and two-wheeler loans were available at an average 300 basis points below current levels.

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