Auto finance: The tug of war

Finding the ideal balance between car stock penetration and inventory levels at dealerships is what is making the finance community wary,

- Radhika Dave and Ketan Thakkar

Product planners at automotive OEMs are responsible for models that are to be produced and sold, but many may not know that dealers also have a big advisory role, as they are the ones who are in direct contact with the market and have a greater understanding of what sells and what doesn’t.

In a situation where improved semiconductor supplies and weak demand in the non-SUV segment is pushing vehicle inventory to a near alarming level of 45-50 days, leading financiers like HDFC Bank, Mahindra Finance and Yes Bank in the country are becoming a worried lot.

Adding to their woes is a slowing GDP growth, high interest rates and rising vehicle prices that has meant the most affordable end of the market — i.e. sub Rs 10 lakh has been under prolonged stress, leading to rise in inventory even as the demand for higher priced SUVs continues to sustain.

Financers who disburse about US$ 10 billion worth of loans in a month have raised an orange flag as stocks move beyond the comfort levels. About 60 percent of these disbursals go into inventory funding.

Speaking at the second edition of the Federation of Automotive Dealers Association's Finance and Insurance Summit in Mumbai last month, Vikas Pandey, Senior Executive VP at the largest private bank HDFC Bank said from a financer’s point of view, inventories are moving up and thresholds are reaching the orange zone at the moment.

“We start talking to dealers very actively and understanding how they need to manage and a continuous three-way dialogue has to happen between the OEM, financier and dealers — all saying that currently we are managing well,” he said.