Luxury comes to you at a cost! But the adage has been waning into obscurity as car companies and financing firms look to hook on a new customer with enticing deals. Luxury vehicles still cost a bomb, though much lower compared to a few years ago when all products came as imports and attracted huge taxes.
With the sharp growth in demand in the local automobiles market and increasing disposable income in the hands of the Indian consumer, many global automakers have set up shop and partly or even fully produced luxury vehicles in the country.
This has certainly brought down the cost element for a person looking to own a high-end beauty. But the bigger lolly is the easy finance for such products. Finance rates for luxury vehicles, which includes both superbikes and top-end cars tend to be much lower compared to that of an average high volume mass end car, not to mention the high volume generating motorcycles where the cost of borrowing is usurious.
The key target audience is the upper middle class that continues to grow with the burgeoning economy and has become more ambitious about moving up the status ladder with the good things in life. It is these consumers that carmakers and finance auto companies are looking to tap onto to broaden the base of market beyond the rich who anyway change their vehicles every year and want the biggest and flashiest car around in the market
So, who are the buyers of these incredible machines? How has the market moved beyond those with oodles of cash to those who need a loan to buy these vehicles? It appears that although most buyers are from the elite class with the changing market dynamics, middle class consumers are also getting lured towards these products. Sportsbike or superbike is one such niche segment that is catching the fancy of the youth.
Currently, five companies are selling sportsbikes in the country, most of them Japanese. These include Ducati, Yamaha, Honda, Suzuki and Bajaj (which has a tie up with Kawasaki). So in a country where fuel efficiency and price wars are hallmarks of a motorcycle industry with mobikes being one of the most common form of personal transport, what drives companies to invest in the nascent superbikes segment?
Suzuki Motors, that struck off its venture with TVS group a few years ago to float its own wholly owned indian two wheeler operations, launched its Hayabusa and Cruiser bikes last year. “The response has been phenomenal,” says Atul Gupta, vice-president (sales and marketing) at Suzuki Motors India. The company sold 100 units of Hayabusa and around 80 units of Cruiser since the launch last year.
Although the volumes are insignificant compared to that of the bigger motorcycles market, it showed the appetite for super bikes in the country. These bikes start from Rs 3 lakh (Kawasaki Ninja 250) and can go up to Rs 20 lakh for higher versions ,almost five to forty times a regular bike on the roads. Many people who buy them purchase on cash payment but some do take loans to take home the high-powered sleek designed vehicles. Dealers acknowledge that most customers who opt for finance do so to avoid attracting the income tax authorities.
A source from Ducati not wishing to be named, confirmed that only one out of the seven bikes that the company sold through its Gurgaon showroom in Haryana was financed. Banks, in general, offer loans with a lower rate of interest. The argument is that there is more reliability and comfort level that the consumer will not default on the loan as typically those consumers are well off themselves. In general banks and finance firms offer loans at sub 10% level for super bikes and offer over 90% of the total cost of the purchase as loan.
Honda, which currently offers two sports bikes has tiedup with HDFC Bank that is offering finance at an attractive rate of below 10%. As against this, interest rates on regular bikes hover around 18-22 %. This is largely because the ticket sizes of loans are much lower and that pushes up the cost of servicing that loan. There is also more risk involved as that segment largely involves an average consumer some of whom may not have the wherewithal to pay back instalments in time and the financing firm could be stuck with a second hand vehicle that has low resale value.
Car cos are tying up with banks to push high-end loans
Indeed a similar structure pervades the luxury car market too where car companies tie up with banks to offer cheap car loan to those looking to buy a high-end passenger car. Financing, which is a niche segment in the luxury car market is also growing steadily as a large number of consumers opt for partial financing instead of paying the complete amount at one go. While Mercedes has tied-up with HDFC Bank for providing financial assistance to consumers, BMW has started BMW Financial Services to facilitate customers with convenient financing options. Since it is a low risk category, more banks are coming forward to provide financing options at attractive rates.
But does the fluctuation in interest rate affect the sales of these high-priced vehicles? “Not really. Most people who purchase such cars would not be impacted by a per cent or two increases in the rate of interest,” said a source from a luxury car company requesting anonymity.
