Automakers have requested financiers to extend the loan cycle for dealers to 90 days from 60 at present, due to slowing sales causing stock to pile up at car dealers, the Economic Times reported.
This trend was last seen in the financial year 2018-19, multiple auto financiers and dealers told the Economic Times on the sidelines of the third Annual Finance & Insurance Summit of Federation of Automobile Dealers Associations (FADA).
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“We are getting requests especially from large carmakers like Maruti Suzuki and Hyundai Motor India to extend the credit cycle from the current 60 days to 90 days,” Akhilesh Roy, business head-auto loan and inventory funding at HDFC Bank told the Economic Times.
However, dealers said this will not help, but would increase the financial burden due to higher interests, according to the article.
“We don’t mind carrying the stock if the interest cost for the extended days is paid by the manufacturers,” FADA president Manish Raj Singhania told the Economic Times. “To keep their dealer-partners healthy, the manufacturers should either buy out the interest cost or not saddle them with excess stock. You can’t stretch beyond a point.”
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Singhania doesn’t see the sales improving any time soon and fears that a better-than-normal monsoon forecast means high possibility of floods, which can again hamper sales, according to the report.
Automakers in India follow the ‘cash and carry’ model where dealers seek loans from commercial banks and non-banking financial companies (NBFCs) to purchase stock from the manufacturers for a period of 45-60 days at an interest rate of 7.5% to 9.25%.
On average, stock levels went up to 55-60 days against the norm of 30 days for this time of the year.
While it’s not very comfortable for the banks to increase the loan period, they are considering it depending on the dealer’s vintage, balance sheet size and visibility on the stock a particular dealer is carrying, said Roy.
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