Today in New Delhi, India
Oct 15, 2018-Monday
-°C
New Delhi
  • Humidity
    -
  • Wind
    -

Finance to boost car sales: S&P

The growing availability of auto loans will fuel car sales in emerging markets such as China, India and Russia.

india Updated: Mar 14, 2006 14:40 IST
Reuters
Reuters
None

The growing availability of auto loans will fuel car sales in emerging markets such as China, India and Russia, credit rating agency Standard & Poor's said on Tuesday, giving hope for carmakers facing slack western markets.

Rising incomes, faster economic growth and relatively low levels of car ownership will also fuel the trend, S&P analysts wrote in a research note.

"One factor that is supporting higher car sales in emerging markets is customer financing. This development is most advanced in India, where 85 per cent of cars are financed, as opposed to just 15-20 per cent in China and Russia", and a global average of 70 per cent, it said.

While banks and other financial institutions dominate India's car loan market, domestic automakers such as Tata Motors Ltd also aim to expand their finance companies.

Tata, for example, plans to finance 40 per cent of the Tata-brand vehicles it sells, up from 23 per cent now, while also getting into refinance, insurance and fleet management.

"The increased focus on second-hand vehicle financing in India may also have a positive bearing on demand," S&P said.

In China, where the government authorised car loans only in 2003, most foreign automakers have started to lend or have applied for permission to do so. Commercial banks and captive finance companies are also moving into the business.

"Standard & Poor's Ratings Services believes that the growth potential for auto lending is significant, in line with the overall development of mainland China's financial markets," it said.

"However, as in other developing markets, the lack of available credit-scoring data is an impediment for making auto loans and adds risk to consumer-finance activities."

As in China, consumers in Russia buy most cars for cash.

"However, we expect auto lending to expand in the medium term, in line with the development of banks operating in Russia's car market. Furthermore, the interest rates payable on car loans have declined in recent years," it said.

S&P forecast annual car sales growth in China to average 15-20 per cent over the medium term and cited forecasts for Indian car sales growth of 10-12 per cent this year.

Russian car sales have grown by 7-8 per cent per year since 2000, but customers are opting for more expensive cars, so the average selling price has increased by around $1,000 a year for the past three years, it said.

"Market revenue has doubled over the past three years to $22 billion in 2005, and it could grow further if conditions, such as high oil prices, remain in place," S&P noted.

"Unlike in many other countries, Russia's population benefits when oil prices are high, stimulating car sales, and this positive effect is far from offset by increasing domestic gasoline prices, which the government keeps at a low level."

First Published: Mar 14, 2006 14:40 IST