RBI increases repo rate: FADA says high loan rate to effect auto sales

High-interest rates for vehicle loans due to RBI`s move will be an additional blow for the automobile segment along with the increased repo rate, as reported by IANS.

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The automobile sector is still not out of the woods, and the Reserve Bank of India's (RBI) decision to raise the repo rate by 45 basis points will make vehicle loans more expensive, according to a top official of the Federation of Automobile Dealers Association (FADA). When comparing April 2022 vehicle sales to April 2019, FADA President Vinkesh Gulati noted the industry is still not out of the woods, as overall retail sales were down 6 per cent. 

Apart from PV (passenger vehicle) and tractors which grew handsomely by 12 per cent and 30 per cent, two/three-wheelers, commercial vehicles are yet to turn green as these categories were down by minus-11 per cent, 13 per cent and 0.5 per cent, respectively, Gulati said.

"The month of April (2022) saw similar Auto Retail figures as of March`22. While YoY comparison with April`21 shows all categories in green with a high growth rate, it is important to note that both April`21 and April`20 were affected by nationwide lockdown due to phases 1 and 2 of the Covid wave, which witnessed no to negligible business. Hence a better comparison will be with April 19, which was a normal pre-covid month," Gulati said.

He said the RBI`s out of turn announcement of increasing repo-rate by 45 bps has taken everyone off-guard. "The move will curb excess liquidity in the system and will make auto loans expensive," he added.

While the passenger vehicle segment may be able to absorb this shock due to long waiting periods, the two-wheeler segment is already reeling due to an underperforming rural market, vehicle price hikes and high fuel costs.

High-interest rates for vehicle loans due to RBI`s move will be an additional blow for this segment. Certainly, this move will slow the speed of auto retail and dampen the sentiments further, Gulati said.

On the other hand, Private consumption is regaining traction backed by a recuperating contact-intensive service and rising discretionary spending.

"With the Russia-Ukraine war continuing and China under lockdown, the global auto industry continues to witness supply crunch as semi-conductor shortage along with high metal prices and container shortage prevails. Hence, customers of the PV segment continue to witness long waiting period," Gulati said.

Referring to Skymet`s average monsoon forecast and if the monsoon is evenly distributed, there will have a positive rub-off on rural sentiment as farmers will be able to get better crop realisation, thus increasing their disposable income.

It will thus benefit tractor and two-wheeler sales. This, along with the marriage season in the coming days, will also see traction in auto retail.

Overall, FADA has changed its stance from extremely cautious to cautious in terms of a slight recovery in the near term.

With inputs from IANS