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Up next: consumer durables crunch

With an industrial slowdown worsening and interest rates having been steadily raised for 20 months, consumer durable makers have started reeling under shrinking profit margins on the back of high input costs and sweetened “zero interest” financing offers that have stretched their limits to woo buyers.

business Updated: Dec 13, 2011 21:15 IST
Himani Chandna Gurtoo

With an industrial slowdown worsening and interest rates having been steadily raised for 20 months, consumer durable makers have started reeling under shrinking profit margins on the back of high input costs and sweetened “zero interest” financing offers that have stretched their limits to woo buyers.

The rupee, which hit an all-time low of Rs 53.4 to the US dollar on Tuesday will add to import costs.

Retail consulting firm Technopak Advisors expects the slowdown to tell on the consumer durables sector in about six to eight months in a visible way.

“After the slowdown in the auto segment, consumer durables will be the next to be badly effected. Marketers are already sensing the ripples,” said Saloni Nangia, senior vice-president at Technopak.

Manufacturers say they now have no other option but to backpedal “zero interest” schemes.

“There has been a drastic drop in the promotion of sales through financing by consumer durable companies,” said Y.V.Verma, chief operating officer, LG India.

Besides a rise in interest rates, the exit of large players such as ICICI Bank, Citi finance, GE Money from consumer durable financing have also resulted in a sharp drop in consumer loans.

“Companies are now left with only two private financiers—Bajaj Auto Finance and Shriram Finance,” Verma said.

“Thankfully, we are not much dependent on sales through financing. With zero-interest finance options, industry is bearing the load of shooting subvention charges (charges that companies pay to financers) and will have to continue with this as consumer spending is low in these inflationary times,” said Shantanu Das Gupta, vice-president, corporate affairs and strategy, at Whirlpool India.

“Rising costs of forex are hitting hard as most of the components for refrigerators, air conditioners and LCDs are imported,” said Nipun Singhal, president, Lloyd Electronics.