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Tough year for car buyers

A slew of car launches are lined up in 2011 to charm auto lovers, but if you plan to buy one this season, consider a few facts before you take the plunge. Sandeep Singh reports. Where the wheels pinch | End of a glorious year

autos Updated: Jan 03, 2011 01:42 IST
Sandeep Singh

A slew of car launches are lined up in 2011 to charm auto lovers, but if you plan to buy one this season, consider a few facts before you take the plunge.

Interest rates have risen by up to one percentage point over the past one month, petrol prices have already been raised in December and diesel prices are likely to follow soon. To top it all, rising input costs are now forcing car manufacturers to jack up prices despite the rough state of competition in which prices matter.

While many car manufacturers have been indicating pressure from input cost, Tata Motors announced a price rise between R3,000 and R15,000 for its passenger cars on Saturday.

A Hyundai spokesperson said car makers had to consider costs.

“Rising input costs have been robbing us leaving us with minimum margins. The prices of all Hyundai models are set to rise 1.5-2% in January,” he told Hindustan Times in December.

With two significant players indicating the mood, other manufacturers are expected to do pretty much the same.

As if that was not enough, all major lenders including State bank of India announced a hike in their benchmark prime lending rate and base rate last week leading a rise in interest rates on auto loans. And this may not be the end of the interest rate hikes as there are some more hikes expected in interest rates in 2011 as the government fights double-digit inflation in food products.

So, if you are planning to fund your car purchase through a loan, be ready to shell out some extra amount towards equated monthly installments (EMIs). So what should be your approach?

“Buy a car only if necessary. If salaried prefer a car lease, and in case that is not available, take a loan for as small amount as possible. It makes business sense for self- employed individuals to take a loan. Also, go for a car that is fuel efficient,” said Surya Bhatia, a certified financial planner.

The running cost is also set to hurt you as fuel prices are on a rise. Only in December the government raised petrol prices by roughly R3 per litre.

The government is struggling with diesel prices because it has an across-the-board impact on all commodities because it is used in trucks and trains that carry cargo. However, selling diesel below market prices is bleeding state-owned petroleum product firms and the government is expected to soon raise diesel prices as well.

Over the past year, global crude prices have surged by 15 to 22% depending on the benchmark and are currently ruling at $91 a barrel. This is most likely to affect Indian prices.

(With inputs from Rachit Vats)