Project Report on Maruti Showroom Management

MANDOVI MOTORS PVT. LTD.

EXECUTIVE SUMMARY

Car finance schemes have evolved with changing needs and market solutions.

Aggressive marketing, packaging, easy eligibility, fast turnaround of applications,

have all contributed to making car finance a preferred option to own funds.

Not too many years back, for the Indian consumer a car meant either the

sturdy Ambassador or the Fiat. Same was the case with other vehicles the

collaboration of the Japanese car giants with India to produce the popular Maruti

Suzuki brought in a flood of models. Next, it was the turn of liberalization to affect a

drastic turnaround in the market monopolized by Maruti.

The auto-financing sector is sub divided into three segments i.e.

Commercial vehicle financing,

Two wheeler financing and

Car financing.

In India the concept of car finance was introduced in 1984- 85. At present, 75- 80 %

of the vehicles brought in the country are bought through various vehicle-financing

schemes.

Car finance is popular because the financier provides ready delivery of the vehicle to

the customer. This enables the customer to claim depreciation and cut out of the

waiting period .

Current market Scenario:

The current sluggish market conditions, coupled with the lowering of interest rates,

have made the car finance market extremely competitive. Finance companies,

dealers and manufacturers are wooing buyers with "special offers", discounts, "0%

finance", low interest rates etc.

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The major players in the car finance business are the Foreign Banks, Indian

Banks, NBFCs and FIs. The car finance is a large industry today with disbursals

of approx. Rs. 80 bn.

With increasing number of players, the car loans market is intensely

competitive on pricing. With no waiting periods and truly buyers market, the

industry today is wooing customers with transparent transactions, lower interest

rates and better service standards.

Opportunity

In India there is a large number of customer exist in mid economic group which is

growing at the rate of 40% annually as a result there luxuries needs are also growing

by Increase in their disposable incomes, wider choice in selecting car models and

lower interest rates on loans are expected to drive car sales up to 9.5 per cent at a

compounded annual rate in India by the year 2006-07, according to a report. Car

sales are expected to touch 9.09 lakh units in the next five years,

Clearly, it seems, that finance companies will not hold anything back when it

comes to value added schemes. Here the customer is the king and the race is on

to woo him/her

Prices of cars having increased in recent months (due to Euro compliance

and rise in input costs) and are expected to go up further due to a rise in sales tax

rates. This will provide further fillip to finance schemes and may be in the not so

distant future, car buying could become more exciting and affordable.

In today's competitive world, the consumer is King. Two individuals availing

a finance scheme from the same source can get different deals. So negotiations

can go a long way to get you better deals and the maximum bang for your buck.

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INTRODUCTION

Not too many years back, for the Indian consumer a car meant either the

sturdy Ambassador or the Fiat. Same was the case with other vehicles. The

collaboration of the Japanese car giants with India to produce the popular Maruti

Suzuki brought in a flood of models. Next, it was the turn of liberalization to effect a

drastic turnaround in the market monopolized by Maruti. Collaborations with

international giants began to occur, and the Indian aficionado did not have to look

beyond the shores for gratification.

The present scenario is a highly changed one. International giants are vying

with one other to launch their models.

Car market to grow at 9.5%

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INCREASE in disposable incomes, wider choice in selecting car models and

lower interest rates on loans are expected to drive car sales up to 9.5 per cent at a

compounded annual rate in India by the year 2006-07, according to a report. Car

sales are expected to touch 9.09 lakh units in the next five years.

Research company Cris Infac, in its report, also expects lowering excise

duties to be one of the reasons for the upturn. Passenger car sales growth has

already touched 9.8 per cent in the first nine months of this fiscal, thanks to the

higher discounts offered to the customers.

According to the report, highest sales - of 12 per cent - are expected in the B

segment, or the higher lifestyle cars with affordable prices, which will offer the

widest variety of models. Car makers will continue to "aggressively launch" new

models in this segment. Sales of luxury cars or the A segment is expected to grow

at a marginal rate of 2.7 per cent, with most sales expected in the smaller towns.

The C, D and E segments are expected to grow at a high pace but will

continue to form a small portion of total car sales, according to the report.

Availability of cheap finance will lead to an increase in sales of utility

vehicles which are likely to grow at 4.5 per cent, the report says. The report

predicts that competition will not only lead to several new models being introduced,

but also mean higher ad spends by carmakers. This will prevent car companies

from fully passing on increases in cost of production to the customers and will put

pressure on margins, As a result, companies will exploit new markets in the semi-

urban and rural areas by opening new dealerships.

The report believes that favorable Government regulations can encourage

demand in passenger cars and utility vehicles. Currently, duties have a cascading

effect, pushing car prices higher by 60 per cent.

The new auto policy 2004 augurs well for the automobile industry as it has

done away with export commitments and indigenization clauses as well as allowed

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approval of 100 per cent foreign equity in the Indian automobile industry, according

to the report.

Indian Automobile Sector

Did you know

India is the 2nd largest two wheeler manufacturer in the world.

2" largest tractor manufacturer in the world.

Largest commercial manufacturer in the world.

3r largest car market in Asia, surpassing China in the process.

Automobile Industry in India is still in its infancy but growing rapidly. The

opportunities in the automobile industry in India are attracting big names with big

purse and they are investing vigorously in infrastructure, design and development,

and marketing. Automobile industry in India is today poised for the big leap.

Automobile industry Contributes 17% of the total indirect taxes collected by

the exchequer & is a driver of product and process technologies, and has become

a excellent manufacturing base for global players, because of its

High machine tool capabilities

Extremely capable component industry

Most of the raw material locally produced

Low cost manufacturing base

Highly skilled manpower

So that Major players have started sourcing components from India, such as

Fiat plans to source US $200 mn. worth of components from India per annum.

Mercedes Benz (Daimler Chrysler) has set up 7 component JVs in India for

global sourcing of parts.

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Cummins, USA is already sourcing Engine parts from India for Cummins

Global Operations.

Multi National such as DELPHI and VISTEON have started exporting

components made in India to their various other plants around the world-

Investing further to make India as a manufacturing base.

Indian Automobile Industry Performance

Key Players - 402

Investment - US $ 2.3 billion

Output - US $4 billion

Exports - US $ 417 million

Employment - 2,50,000 persons

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DESIGN OF STUDY

Title of the Project

“Recent trends in Car Finance"

Statement Of The Problem

The opening of the economy has brought car buyers a plethora of models to

choose from. Having decided the car to buy, buyers also have to decide whether to

fund it from their own resources or through car finance.

Car finance schemes have evolved with changing needs and market

solutions. Aggressive marketing, packaging, easy eligibility, fast turnaround of

applications, have all contributed to making car finance a preferred option to own

funds.

However, a buyer needs to understand some ground rules to shift through all

the options and find one that suits him best. Hence, this study was carried out.

Need For The Study

Writing out a cheque for the value of the car is the easiest solution. But that

is the preserve of a select few and for most of us, availing of a finance scheme to

purchase the car is the best option. Even for those who are able to make a full

payment should check a financing option before taking the final decision.

The current sluggish market conditions, coupled with the lowering of interest

rates, have made the car finance market extremely competitive. Finance

companies, dealers and manufacturers are wooing buyers with "special offers",

discounts, "0% finance", low interest rates etc.

Once a buyer has decided to avail a finance scheme for his car, the next

step is to select the scheme that suits him the best. Our newspaper is foil of

tempting offers from a host of finance companies each luring us with a basket of

freebies. On top of that are claims and counterclaims about their interest rates and

down payments. So how does one decide which is the best finance option for him?

To select the best option one need to first familiarize himself with the mechanics of

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this market after which, he will be in a better position to make up his mind. Hence

the need for this study.

Objectives of the Study

The following objectives were set for the study:

Study of the car finance market in terms of its characteristics, factors affecting the

market and trends visible in this market.

To study some car financing companies, for their differentiating strategies,

financing schemes offered and services provided.

To study and compare the various schemes offered to the consumer for Maruti

cars by car financing companies, which have tied up with Marurti Udyog Ltd.,

To analyze the performance of these companies vis-à-vis Mandovi Motors Pvt.

Ltd. in terms of the number of Maruti cars financed by them during the months

September to December of financial year 2004-05.

Scope of the Study

The scope of the study " Recent trends in car finance" includes:

Visit to Mandovi Motors Pvt. Ltd., and survey conducted to measure the

performance of the various car-financing companies in terms of their offerings.

Information was collected with the help of a Questionnaire from the car financing

companies on different models of Maruti.

Study and compare the various schemes offered to the consumer in availing

car finance.

Period of Study

The study was carried out during January 2005- February 2005.

Data Collection

Primary data was collected from car financing companies and Mandovi

Motors through questionnaires and personal interviews. Secondary data was

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collected through various published sources like websites, magazines and

company brouchers.

Limitations of the Study

The study was conducted only in Bangalore city.

Performance of car financing companies have been compared with respect to

Maruti cars only,

Data given by the companies have been relied upon.

The study was conducted in a restricted time frame.

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INDUSTRY PROFILE

The automobile industry saw a boom in the liberalization period. The

buoyancy in the auto sector was primarily due to a change in government policies,

increase in purchasing power, increase in life style, availability of car finance etc.

Though the market has boomed, the individual players are likely to see setback in

the near future due to intense competition. Several joint ventures have been signed

and several are expected in the near future.

The automobile sales figures of December 2004 indicate continued

buoyancy in motorcycle and passenger car sales. However, Utility vehicles sales

dipped by a sharp 25% during the month. Commercial vehicles sales also

registered a decline, with the de-growth being sharper in the Medium and Heavy

vehicle segment.

Two Wheelers

Two wheelers sales grew by 27.6% in December 2004 to 3,63,206 vehicles.

This growth has solely been driven by a robust 54.4% growth in motorcycle sales,

2,65,733 motorcycles were sold during the month. Cumulative motorcycle sales in

FY02 till date has been 2.6mn units, accounting for 68% of all two wheelers sold in

the country. Scooter sales registered an 8.1% decline in December to 61444 units.

Cumulative scooter sales during April-December have been 7,89,399 vehicles,

1.2% lower than that sold during the corresponding period in FY01. The decline in

moped sales has been even sharper. Moped sales in December were down 21.3%

to 36,029 units. Cumulative moped sales in FY02 till date have been 4,28,983

units, 27.9% lower than the previous year.

Three Wheelers

Three wheelers sales also have registered a buoyant 33% growth in

December at 16,898 vehicles. Cumulative sales in the first 09 months of the year

have risen to 1, 80,875 units, a 6.7% increase over the previous year.

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Passengers Cars

Passenger’s cars sales registered at 16.5% increase to 54,229 vehicles in

December 2002

Cumulative car sales in the first 09 months of FY02 have almost reached

previous years’ level aided by the revival in sales volumes witnessed during the last

few months. April-December FY02 passenger car sales stood at 5,04,271 vehicles

(504841 vehicles in FY02)

Vehicles Sales (nos.)

2004-2005 2003-2004 2002-2003 2001-2002Cars 5,90,673 6,38,632 4,09,624 4,17,736MUV 1,26,943 1,23,472 1,11,703 1,33,629LCV 62,916 60,239 56,344 62,925

M$HCV 87,497 1,11,326 83,645 93,628Scooters 9,01,886 12,53,880 13,25,860 12,62,293

Motor Cycles 21,56,014 17,96,783 13,95,650 11,32,533Mopeds 6,87,635 7,24,395 6,79,526 6,48,843

3-Wheelers 1,98,163 2,05,265 2,10,220 2,33,733Tractors 2,35,713 2,51,601 2,53,188 2,49,794

Total 50,47,440 51,65,593 45,25,760 42,35,114

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Vehicles Sales (in '00000)

50.47 51.6545.25 42.35

0102030405060

2004-03 2003-02 2002-01 2001-00

Vehicle Sales

Passenger Car Sales

CARS SALES DEC-04 DEC-05 %

Maruti 30,905 29,562 4.5

Hyundai 8,652 6,090 42.1

Telco 6,524 3,666 78.0

Fiat India 3,060 601 409.2

Hindustan motors 1,756 2,099 -16.3

Ford India 1,564 1,005 55.6

Honda siel 906 653 38.7

General motors 798 693 15.2

Daimler chrysler 64 41 56.1

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All the big players - Maruti, Hyundai and Telco - who together account for

85% of the market have recorded good volume growth in February. Maruti Udyog

posted a 4.5 % rise in its sales at 30,905 units; Hyundai Motor Indian sold 8,652

units registering an increase of 42% and sales of Telco increased by 78% to 6,524

units. Hindustan Motors was the only company to have registered a decline in

sales. Its sales declined by 16.3% to 1,756 cars during the month. Fiat India

recovered a five-fold increase in volumes aided by its fast moving Palio. Ford India,

Honda Siel and Daimler Chrysler all recorded strong double-digit volume growth.

Multi-Utility-Vehicles

Multi-utility-vehicles (MUV) sales fell by 25.3 % at 9,518 units against 12,750

units in December 2004. Cumulative MUV sales in the first 09 months of FY02 has

registered a 0.5% decline at 1,07,199 vehicles.

Commercial Vehicles

Commercial vehicle sales in December dipped by 7.9% at 12,372 units as

compared to 13,674 units in the corresponding period last year. The fall has been

much sharper in the Medium & Heavy Commercial vehicle segment, which

registered a 12.9% fall from 8,660 vehicles. LCV sales declined by 3.5% from

5,004 vehicles to 4,829 vehicles. Cumulative commercial vehicle sales during April-

December 2004 has been 1,13,609 vehicles a decline of 3.3% over the

corresponding previous period.

All the big players - Maruti, Hyundai and Telco - who together account for 85% of the

market have recorded good volume growth in February. Maruti Udyog posted a 4.5

% rise in its sales at 30,905 units; Hyundai Motor Indian sold 8,652 units registering

an increase of 42% and sales of Telco increased by 78% to 6,524 units. Hindustan

Motors was the only company to have registered a decline in sales. Its sales declined

by 16.3% to 1,756 cars during the month. Fiat India recovered a five-fold increase in

volumes aided by its fast moving Palio. Ford India, Honda Siel and Daimler

Chrysler all recorded strong double-digit volume growth

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The Passenger Car Market

HistoryThe car manufacturing industry in India started as a much regulated industry

with Government of India (GOI) shutting down all foreign assembly plants in the

country in 1954 with the objective of developing the indigenous automobile

industry. This resulted in limited choice to the consumer via Ambassador (from

Hindustan Motors) and Fiat (from Premier Automobiles Limited) for over three

decades. It was only in 1985 that Maruti Udyog Limited (a joint venture between

GOI and Suzuki Motors Limited of Japan) introduced Maruti 800 that changed the

face of the car industry in India. The car was launched as a people's car with a

price tag of INR 40,000 in 1985. The sales of the model increased form 1200 units

at launch to over 189,000 units in FY 2001. The deli censing of the auto industry in

1993 opened the gates to a virtual flood of international automakers into the

country. Daewoo Motors was the first to enter followed by others like GM, Ford,

Honda, Mercedes, Fiat, Hyundai, Mitsubishi and Toyota. One of the large industrial

houses of India (TATA) also aggressively entered the domestic car market with the

small car Indica. The car sales stood at 6, 00,000 cars for the FY 2001. Maruti

continues to dominate the car sales market with 55% market share though it is

steadily losing the market share to new entrants like Hyundai and Daewoo. The

industry has witnessed a CAGR of about 17% from FY93 to FY 01. The flood of

new entrants into the car industry as a result of liberalization has led to a complete

transformation of the sector.

The car segment is flooded with new models from new and existing players,

a visible shift from a constrained supply position to a surplus. The world automobile

leaders have evinced keen interest in India and are making an entry through joint

ventures and technology cooperation agreements. The setting up of joint ventures

has led to enhance capacity creation, particularly in the passenger car segment.

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Evolution

Initial years

• Cars regarded as luxuries.

• Manufacturing was licensed, capacity expansion restricted.

• Import of cars was restricted to State Trading Corporation and

foreign diplomats.

• High customs duty.

• Steep excise duties and sales taxes.

• Market dominated by just two players-Premier Automobile

Limited and Hindustan Motors Limited

1980's

• Entry of Maruti Udyog Limited- better product at lower price;

enjoyed government support.

• Sellers market.

• Long waiting periods.

• Limited choice.

Restriction on capacities.

License requirements.

High import duties.

Auto finance became available but was limited to a few players.

MUL captured a market share; PAL and HM were able to maintain volumes

but their market share fell drastically.

1990's

Cars perceived as necessities.

Still a sellers market.

Long waiting periods continue.

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Development of the mid price and luxury segments.

Increase in competition with the entry of foreign manufactures especially after

the mid 90's.

Superior models and more choice.

Auto finance booms- more players (Foreign banks and NBFC's);

better schemes.

Deli censing in 1993.

Removal of capacity restrictions.

Decrease in the customs and excise duties.

2000's

Buyer's market.

Drop in waiting periods.

Market segmentation to change from being price based to being size based.

Auto Financing Sector

The auto-financing sector is sub divided into three segments i.e. commercial

vehicle financing, two wheeler financing and car financing.

In India the concept of car finance was introduced in 1984- 85. At present,

75- 80 % of the vehicles brought in the country are bought through various vehicle-

financing schemes.

In the 1990's especially more finance companies entered the business

mainly due to the risk return imbalance. The interest rates charged are high.

However, as the loans are disbursed over a large number of individuals the overall

risk decreases. There was a spurt in finance because of the stable returns and the

protection that the car finance enjoyed. On one hand, the registration makes clear

the identity of the financier; on the other hand, there is a thriving second hand

market for cars.

Car finance is popular because the financier provides ready delivery of the

vehicle to the customer. This enables the customer to claim depreciation and cut

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out of the waiting period. The holding cost paid to the financier for ready delivery is

normally lower than the premium prevalent in the market for such models. Simple

documentation and easy procedures like mere checking of proof of the residence

and income tax returns before the sanctioning of the loan has attracted many to

auto financing.

Many of the banks including the private sector and the foreign banks do the

financing through the dealer's DSA's or DSA's or through sales person. Direct sales

associates, DSA's as they are Popularly known as a key resource for any

organization that want to expand it's selling and marketing function indirectly.

They are classically defined as an extension of the bank sales and marketing

department.

The ideology behind hiring a DSA is three fold:

Marketing a bank product through only the bank department directly severely

limits the reach of the bank.

It allows the bank to avoid the cost ineffective option of a large sales staff on it's

sales.

DSA's operate on an incentive structure that revolves on the 'Get more Make

more' principle which to say the least is a more effective drives for business

generation than a permanent employee on the roles of the bank.

This is especially true in the case of a country like India given, it's large

distance and dispersed prosperity pattern. They fill this need gap. They are small

business run by professionals in finance and / or direct selling which comes with

their own office and infrastructure. They employ graduates/undergraduates on a

fixed salary plus incentive structure line with the principle of 'get more make more'.

They are normally independent company's having a network of sales personnel

who go out on the field and source application for the various loans of the bank.

The objective of appointing DSA's is to bring in large volume of new sales.

They also provide wider coverage' flexibility to increase or decrease sales

and efforts to suit demands. They can be adapted for specific campaign

requirements.

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Automobile Finance in India

The availability of finance at lower interest rates, have made car purchase an

affordable option for even young executives. Financing schemes varies from Margin

Money Scheme , Installment in advance scheme, stepped schemes and as varying

as balloon schemes, No income schemes etc. The new schemes available in the

market has made it possible for salaried individual to realize their aspirations to own

a Car in India, early in Life. Businessmen and professionals can treat the interest

amount as a business expense and avail tax deductions against the depreciation of

the Car. Companies can also acquire cars for eligible employees without affecting

cash flows. The interest amount can be claimed as business expense.

INDIAN CAR LOANS MARKETS

The major players in the car finance business are the Foreign Banks, Indian

Banks, NBFCs and FIs. The car finance is a large industry today with disbursals

of approx. Rs. 80 bn.

Citibank was the first organized player to enter the Indian Car finance

market in Aug 86 and since then has been among the top 3 financiers in the

business.

Car loan is one of the most widely distributed retail product in India today.

Increasingly, the financiers are accessing the smaller cities to offer this product. GE

today operates in India out of 88 locations. ICICI, which launched the car loan

product in April 99, currently operates out of 26 locations in North India alone. The

product is distributed primarily through Direct Sales Associates (DSA) and

Dealerships. A DSA is an external agency empanelled by the financier who sells

this product through the network of Sales executives or agents. Car dealerships

are increasingly getting into the financing business and are referred to as

manufacturer dealers. A non-manufacturer dealer, however, is only a intermediary

for financing the car. The delivery is still done through a car dealership.

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With the changing face of the car market, the loan market has also

witnessed significant changes. Increased competition has resulted in decreasing

interest rates and charges, much to the benefit of the consumer. Processing fee,

which used to be a norm three years back, no longer exists.. In the past, products

for financing booking amount was popular. Also, there were large premiums on

select cars. With increased production capacities, the new car models getting

launched have been 'off the shelf models i.e. with no waiting period, thereby

reducing the popularity of such a product.

Loan is increasingly becoming acceptable as an option for purchase of car

in India. With the increased purchasing power and more models to choose from,

car is no longer viewed as a luxury. With increasing number of players, the car

loans market is intensely competitive on pricing. With no waiting periods and truly

buyers market, the industry today is wooing customers with transparent

transactions, lower interest rates and better service standards.

Since the car loan has been in existence for almost 15 years in India, the

financiers have built up a significant database of customers. This has led to a

better understanding of the customer profile and hence the delinquencies.

Consequently, the risk appetite of the financiers has increased and the credit criteria

adopted have become softer. Another significant development is the increased focus

of the financiers on customer service, which till a year back was almost non existent

in this kind of business. Almost all financiers have made significant investments in

technology to service the customer better since this is going to be a key differentiator

in future for survival in assets business, particularly car loans.

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Equated Monthly Installments (EMI)

Cost of borrowing is the amount, which a borrower has to repay in excess of

the amount he receives, is a major determining factor in any borrowing decision.

This cost of borrowing is generally expressed in terms of rate of interest and other

changes.

However, the real interest cost to the borrower depends upon not only the

rate of interest but also the method of calculation of interest - whether simple

interest or compound interest, if interest is compounded, periodicity of

compounding (monthly, quarterly, half yearly or yearly). Even when the rate of

interest is compounded, the real borrowing cost depends upon the method or

manner in which the interest is calculated.

EMI is the amount consisting of the principal and the interest payable on a

monthly basis where by the sum of all the EMIs would be equal to the entire

repayment of the borrowing and the interest due on the borrowings. The interest is

calculated in advance presuming that the installments are paid as per the

prescribed repayment schedule. The interest is added to the principal and the

repayment schedule is also fixed so as to ensure that the amount repaid on

specified installments is kept uniform. It is used by most of the financing finance

companies. Basic factors considered in determining EMI:

* Principal Amount * Repayment Schedule

* Rate of Interest

Advantages of Equated Monthly Installments

1. Interest is distributed over loan period

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In the initial period of a loan, where principles of EMI are not applied,

interest burden will be heavy and keeps on reducing subsequently as and when

repayments are received.

In EMI, the interest burden is distributed over a period of time. Because

of this, the demand during the initial period of the loan will be less. Normally, over

dues occur during the early part of the loan on account of higher interest burden,

the quantum of the over use may be reduced considerably by fixing equated

monthly installments.

2. Elimination of interest arrears

It may so happen that the borrower pays the installments toward principal

promptly but the interest is kept in arrears. The reason probably, is that the borrower

is made known only the quantum of principal and not the quantum of interest.

Hence, the interest portion may remain unpaid. By fixing equated installments the

borrower is made aware of the exact amount of repayment. It is therefore easy to

advise the borrowers, which takes care both the installment and interest.

3. Calculation of Demand, Collection and Balance

Arriving at the Demand, Collection and Balance position of an account is simpler in

case of Equated Monthly Installment method as compared to the normal method.

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INTEREST RATE CHART

MARGIN MONEY SCHEME – EMI in Arrears - (per lakh basis)

InterestRate%

Tenure

12 Mths 24Mths 36Mths 48Mths 60Mths 72Mths 84Mths11.00% 8838 4661 3274 2585 2174 1903 1712

11.25% 8849 4672 3286 2597 2187 1916 1725

11.50% 8862 4684 3298 2609 2199 1929 1739

11.75% 8873 4696 3310 2621 2212 1942 1752

12.00% 8885 4707 3321 2633 2224 1955 1765

12.25% 8897 4719 3333 2646 2237 1968 1779

12.50% 8908 4731 3345 2658 2250 1981 1792

12.75% 8920 4742 3358 2670 2263 1994 1806

13.00% 8932 4754 3369 2683 2275 2007 1819

13.25% 8943 4766 3381 2695 2288 2021 1833

13.50% 8955 4778 3394 2708 2301 2034 1846

13.75% 8967 4789 3406 2720 2134 2047 1860

14.00% 8979 4801 3418 2733 2327 2061 1874

14.25% 8990 4813 3430 2745 2340 2074 1888

14.50% 9002 4825 3442 2758 2353 2087 1902

14.75% 9014 4837 3454 2770 2366 2101 1916

15.00% 9026 4849 3467 2783 2379 2114 1930

Example: At an interest rate of 12% and for a tenure of 36 months, the EMI works

our to Rs. 3,321 for a loan of Rs. 1,00,000

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Key Players In Car Finance Market

Maruti Country Wide

Citicorp Maruti

HDFC BANK

ICICI Bank

ABN Amro

Kotak Mahindra

Standard Chartered Bank

Tata Finance Ltd.

Sundaram Finance

Citibank

Hong Kong Bank

Cholamandlam finance

Associates Finance

Nationalized Banks

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COMPANY PROFILE

Maruti Udyog Limited

The Dawn

Maruti Udyog Limited (MUL) was established in Feb 1981 through an Act of

Parliament, to meet the growing demand of a personal mode of transport caused by

the lack of an efficient public transport system.

Suzuki Motor Company was chosen from seven prospective partners

worldwide. This was due not only to their undisputed leadership in small cars but

also to their commitment to actively bring to MUL contemporary technology and

Japanese management practices (which had catapulted Japan over USA to the

status of the top auto manufacturing country in the world).

A license and a Joint Venture agreement was signed between Govt. of India

and Suzuki Motor Company (now Suzuki Motor Corporation of Japan) in Oct 1982.

The objectives of MUL then were:

Modernization of the Indian Automobile Industry.

Production of fuel-efficient vehicles to conserve scarce resources.

Production of large number of motor vehicles which was necessary for

economic growth.

The Revolution

Maruti created history by going into production in a record of 13 months.

On 14 December 1983, the then Prime Minister of India, Mrs. Indira Gandhi,

handed over the keys of the first car to Mr. Harpal Singh of Delhi.

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Volume targets were routinely exceeded, and in March 1994, it became the

first Indian company to produce over one million vehicles, a landmark yet to

be achieved by any other car company in India. Maruti is the highest volume

car manufacturer in Asia, outside Japan and Korea, having produced

over 3.5 million vehicles by December 2002.

Maruti is one of the most successful automobile joint ventures, and has made

profits every year since inception till 2000-01. In 2000- 01, although it

generated operating profits on an income of Rs 92.5 billion, high depreciation

on new model launches resulted in a book loss. They are on track for profits

in 2002-03, with a profit of Rs300 million in the first half. In this period, sales

have increased by 5.3%.

It revolutionized the way Indians looked at cars. "No other car company so

completely dominates its home market" - (The Economist). Despite

there being 11 companies now in the passenger car market, Maruti

holds about 60% of the total market share.

MUL is also the first and only car company in the world to lead its home market in

terms of both market share and in the ID Power Customer Satisfaction study (JD

Power Asia Pacific 2001 India Customer Satisfaction studies).

Our Ethos

Our employees are our greatest strength and asset. It is this underlying philosophy

that has moulded our workforce into a team with common goals and objectives.

Our Employee-Management relationship is therefore characterized by:

Participative Management.

Teamwork & Kaizen.

Communication and information sharing.

Open office culture for easy accessibility

25


To implement this philosophy, we have taken several measures like a flat

organizational structure. There are only three levels of responsibilities ranging from

the Board Of Directors, Division Heads to Department Heads. Other visible

features of this philosophy are an open office, common uniforms (at all levels), and

a common canteen for all.

This structure ensures better communication and speedy decision-making

processes. It also creates an environment that builds trust, transparency and a

sense of belonging amongst employees

Shareholding and Directors

An Act of Parliament set up Maruti Udyog Limited as a deemed public limited

company in 1981. MUL was classified in the Public Sector as long as the equity of

Government of India remained over 51%. A License and Joint Venture Agreement

was signed in 1982, with Suzuki Motor Corporation (SMC) acquiring 26% of the

equity. SMC increased its equity to 40% in 1989. In 1992, Maruti ceased to be a

government company, as SMC's equity holding went up to 50%.

In 2002, SMC's share went up to 54.2%, making MUL a subsidiary of SMC. The

Govt. of India holds 46.6%, and an employees' trust holds the balance 0.2%.

MUL is a Board-managed company. The directors on the Board are:

Mr. Shinzo Nakanishi, Chairman

Mr. Jagdish Khattar, Managing Director

Mr Yuichi Nakamura, Joint Managing Director

Mr Shinichi Takeuchi, Director (Production)

Mr Kinji Saito, Director (Marketing and Sales)

Mr Motohiro Atsumi, Director (Finance)

Mr Hirofumi Nagao

Mr Osamu Suzuki

26


MrVKMalhotra

MARUTIMANDOVI MOTORS PRIVATE LIMITED

Maruti Motors Pvt. ltd. was awarded the Maruti Dealership in 1983 and

commenced operations at Bangalore on June 14th 1984.They were subsequently

awarded dealership points at Mysore in 1986 and based on their performance at

these two cities the Mangalore dealership was awarded to them in 1989.They were

awarded ISO 9002 certification for Bangalore in 1997.

Origin of Organization

Mandovi Motors is one of the Aroor group of companies, which deals with

passenger car manufactured by Maruti Udyog Limited.

Mandovi Motors is one of the pioneers amongst Maruti dealers who started

its operations during 1084 with one showroom at St. Mark’s road and one

workshop at Wilson garden.

During June 1986 one more workshop and showroom at Mysore and 1990 at

Mangalore was started.

Mandovi Motors is the first dealer in India to have introduced the concept of

having exclusive showroom for luxury models such as Esteem and Zen in order to

achieve greater customer satisfaction.

Present Status of the Organisation

Today Mandovi Motors has 5 workshops and 1 body shop at Bangalore.

Mandovi also has showrooms and workshops at Mangalore and Mysore.

This makes Mandovi Motors the Maruti Udyog Ltd. dealer with the largest

infrastructure in Karnataka. Mandovi Motors has also the distinction of having

introduced the Maruti genuine part showroom in Bangalore.

27


Amongst the Maruti dealers Mandovi Motors is the leading dealer in south

India. Mandovi holds 45% of the market share in Karnataka. Mandovi also has

expanded by opening a separate warehouse for spare parts and car accessories.

In their quest for excellence, Mandovi Motors implemented ISO 9002 quality

management system standards and got its ISO 9002 certification during April 1997

from M/s. Vincotte International, Belgium and it was started as the best documental

procedures in the country.

For the year 1997 Mandovi was adjudged the best Maruti dealer in the

country and was awarded Maruti's top and highly coveted All-India platinum award

for all round performance in sales, service and spares.

Mandovi's Quality Policy

"We at Mandovi pledge to make quality a way of life through continuous

improvement in customer satisfaction."

Mandovi's Quality Objectives

M: - Maintaining operational and financial health of the company.

A: - Adhering to quality standards

N: - Nurturing and caring for the environment and society.

D: - Delighting customers.

0: - Offering personalized services.

V: - Visualizing customer expectations.

I :-Improving.

Fact Sheet

Among the many notable achievements of the dealership the most prestigious

have been:

28


1. The platinum award for overall performance (sales, service and

spares) for the year 1997 from Maruti Udyog Limited, and the Hall

of Fame Gold award for the years 1998 and 1999.

2. India's largest selling dealer for the Maruti Omni from the years

1991-1996- 5 years in a row.

3. South India's largest selling dealer consistently from the last 15

years. As on date 6 out of every 10 Maruti vehicles playing on the

roads of Karnataka are sold by Mandovi Motors. Mandovi's market

share of Maruti sales in Karnataka is around 45%.

4 Over 1,75,000 sq. Ft. of the land strategically spread over

Bangalore is dedicated to the Maruti operations.

8. India's second largest dealer for Maruti genuine parts for 4 years

in a row and with a sale to inventory ratio of 1:2:5.In Bangalore there

is an exclusive MGP shop and one of its kind centralized warehouse

of 10,000 sq. ft. with a fully computerized network system liking all

5 Dedicated and motivated team of professional branches.

6 Highest sale of car accessories in the country.

7. New centrally located state-of-the art showroom at Bangalore.

8.All India marketing and sales promotion awards have been

consistently awarded from Maruti for the last four years.

29


9. Managers with necessary empowerment at all branches to effectively monitor the

operations. Periodic management review meetings organized for reviewing of

performance.

10. Karnataka's largest network for service with a total of 8

workshops (5 in Bangalore alone). Number of vehicles serviced per

month over 5000 vehicles. All the workshops are fully equipped with

latest and state of the art equipment, special tools, etc. employing

over 500 people.

11. For the calendar year 2000 Mandovi recently received two p restigious all India

awards from Maruti:-

a) The All India Best Service workshops award (Non-Metro)

was warded to Mandovi Motors, Mangalore.

b) Overall Best Performance in spare parts All India, year 2000.

Mandovi motors steers ahead with grit and determination to add many more

feathers to their already multifarious cap. They shall always strive for continuous

empavement in the quality of their services to the customers and keep the position

as the leading in South India.

Dealer-Customer Relationship

"A customer is the most is the most important person ever in this office...in person or

by mail."

"A customer is not dependent on us... we are dependent on him."

"A customer is not someone to argue or match wits with. Nobody ever won an

argument with a customer. Customer is the Boss."

30


"A customer is a person who brings us his wants. It is our job to handle them

profitably to him and to ourselves."

Customer relationship is the key driver to the long term success of any business. A

satisfied customer not only comes back to an organisation as a repeat customer, but

also acts as a catalyst to source new customers through his positive reference.

31


PRODUCTS

Maruti Suzuki Omni

Maruti Suzuki Zen

Maruti Esteem

Maruti Baleno

Maruti Suzuki Wagon

Maruti Alto

Maruti Suzuki Versa

32


DATA ANAYLSIS

Concepts In Car Finance

You have finally decided on which car to buy. Congratulations, but you have

covered only half the distance you need to travel to own your dream car. The

second half, which is probably the more difficult patch, is about to begin with the

question "How are you going to pay for it?"

Well, writing out a cheque for the value of the car is the easiest solution. But

that is the preserve of a select few and for most of us, availing of a finance scheme

to purchase the car is the best option. Even for those who are able to make a full

payment should check a financing option before taking the final decision.

The current sluggish market conditions, coupled with the lowering of interest

rates, have made the car finance market extremely competitive. Finance

companies, dealers and manufacturers are wooing buyers with "special offers",

discounts, "0% finance", low interest rates. If you are looking for a great deal, the

time is now!

Now that you have decided to avail a finance scheme for your car, the next

step is to select the scheme that suits you the best. Your newspaper is full of

tempting offers from a host of finance companies each luring you with a basket of

freebies. On top of that are claims and counterclaims about their interest rates and

down payments. So how do you decide which is the best finance option for you?

To select the best option you need to first familiarize yourself with the

mechanics of this market after which, you will be in a better position to make up

your mind. In the sections that follow, I have tried to acquaint you with the basics of

car finance, the various terms and some insights into how the schemes work.

33


Financing Options

There are essentially three basic financing options available to you; Loan, Hire

purchase and Lease. Each of these options has individual merits to suit a particular

kind of borrower.

Loan

When you take a loan to buy a car, you are the registered Dwner of the car

and the financier creates a lien on the same as a security. You repay the loan

(principal) along with interest over a pre-agreed period (tenure) in the form of

periodic installments. In ase of a default in payments the financier has the option

of invoking the lien clause. Businessmen/self-employed persons and companies

that use such a car for business purposes can treat the interest paid on the loan

as a business expense and also avail of tax deductions against depreciation, in

any accounting year. Loan agreements attract stamp duty depending on the state

in which they are executed.

Hire Purchase

In this method of financing, the financier purchases the vehicle on your

behalf. You hire it out from the financier with the intention of buying it from him at

the end of a pre-determined period. In hire purchase, although you are the

registered owner, the car is hypothecated to the financier (an endorsement is made

in the R/C Book) thereby giving the financier the legal ownership of the car. The

hypothecation is removed by a special procedure (mentioned under documentation

later in this article) after the installments are fully paid off.

For businesses/self-employed persons/companies, a car taken on hire

purchase appears on their Balance Sheet as an asset and they can get tax

34


deductions against the interest paid, along with the depreciation, in any accounting

year. Please be aware that a hire purchase transaction attracts additional sales tax,

turnover tax, value-added tax, stamp duty, etc. depending on the state in which the

agreement is being signed.

LEASE:

In a lease, the financier leases out a car to you for a certain time-period,

after which the financier can either take back the car or sell the car to a third party.

In effect, you will not be the owner of the car either during the tenure of the lease or

even after the lease has been terminated. This is the technical definition of a lease

and you may come across several variants depending on the financier you are

dealing with.

Lease is an attractive option for companies who are acquiring cars in the

name of the company to be given out to their employees, with the employees

having an option of buying the car on a later date at a nominal value. This helps

the company is two ways. One the cars do not appear as assets on the Balance

Sheet of the company (cars are usually treated as unproductive assets and best

kept off the Balance Sheet), and two, the company can treat the entire lease

rentals paid (principal + interest) as a business expense and avail of substantial

tax deductions. However, under a lease, the financier, not you, claims the

depreciation on the car.

Like hire purchase, a lease transaction attracts additional sales tax,

turnover tax, value-added tax, stamp duty, etc. depending on the state in which

the agreement is being signed.

35


A comparison between Loan, Hire Purchase and Lease

Loan Hire Purchase

Lease

Registered Owner You You Financier

Legal Owner You Financier Financier

Depreciation claimed by You You Financier

Tax deduction claimed by you on

Interest paid Interest paid Rentals

paid

Anatomy of a finance scheme

When you ask a financier to give you a scheme, you will get a quote that looks like

this:

Type of Finance Option - Hire Purchase

Finance Amount - 85%

Margin Money -15%

Rate of Interest (IRR) -14.5%

Tenure - 36 months

Payments - Monthly in arrears

EMI per lakh of finance amt. - Rs.3, 442

Is this a good deal? Are all the figures consistent i.e. does the EMI as per

the rate quoted? Well, to answer these questions you need to know what the

various components of a finance scheme are and in all likelihood you will have to

decide on all or some of them before you finalize your deal. So in this section we

will delve in detail into the components of a finance scheme.

36


Finance Amount - This is the principal amount that the financier is ready to fund

you for. The financier arrives at this figure depending on your profile (income,

repayment track record etc) and also the car that you intend to acquire (resale

value of the car). For a lease transaction, the finance amount cannot be less than

100% of the value of the car.

Down Payment - This is the difference between the value of the car and the finance

amount. The down payment has to be paid by you to the financier at the initiation of

the scheme. This is also called Margin Money by some financiers.

LTV - The Loan To Value is the ratio between the Finance Amount and the value of

the car, represented as a percentage. The LTV usually varies from 60% to 90%.

Flat Rate of interest - This the simple interest rate (annualized) on the principal.

This can be calculated using basic school level mathematics. In the case of the

above scheme the flat rate is 8%.

Internal Rate of Return - The rate of interest charged on the principal, when

calculated on a reducing balance basis is known as the IRR. Although IRR is a

more accurate measure of what is being charged to you, it is somewhat difficult to

calculate on the fly. You will require tools like a financial calculator or Excel

worksheets to determine the IRR of a particular scheme. However one rule of

thumb is that for any finance scheme the IRR is approximately 1.8 times the Flat

Rate.

Tenure - This represents the length of the financing arrangement usually

expressed in months. The financier arrives at the tenure based on your profile

(stability of source of your income and your ability to pay) and the type of car you

have chosen (based on the obsolescence and resale values).

37


Periodicity of Payments - Represents at what frequency you make payments to

the financier to repay the principal and the interest amount over the tenure of the

financing arrangement. The options are Monthly, Quarterly, or as customized by

the financier to your requirements.

Payment in Arrears or Advance - Once the periodicity of payments if fixed, you

should know whether the payment is due at the beginning or at the end of the

agreed period, i.e. at the beginning of the month or end of the month in case you

have agreed on a monthly repayment scheme.

Terminal Value - This is relevant only in case of a lease transaction, and is

essentially the value at which the financier agrees to take back the car or sell it to a

third party at the end of the lease tenure.

Security Deposit - Sometimes financiers take a deposit from clients as security.

This is done when the transaction is perceived to be risky. But more often than not,

financiers reduce interest rates in case you give them a security deposit. The

security deposit could be interest bearing or non-interest bearing depending on the

scheme offered by the financier.

Installments - Based on all the above, the financier arrives at what you need to

pay them at the periodicity decided over the tenure of the scheme towards clearing

the finance amount and the interest charge. In case all the installments are equal

and paid monthly, they are called Equated Monthly Installments (EMI).

Other Charges - Depending on the nature of financing, the scheme will attract

additional sales tax, turnover tax, value-added tax, stamp duty, etc. depending on

the state in which the agreement is being executed. This amount is borne directly

by you and often clubbed with the Down Payment.

38


Pre-closure Charge - Some financier's levy a penalty called pre-closure charges,

in case you repay the amount due before the agreed tenure. It would do good to

clarify this point with the financier, in case you intend to clear the outstanding well

before the final due date.

These are quite a few parameters to decide on. But spending time to decide

on each of them and negotiating with your financier on the same right at the onset

will ensure that you get the best deal and also peace of mind throughout the tenure

of the scheme.

The finance scheme product range

If you have been shopping around for car finance schemes for sometime, I

am sure you must by now be submerged under a plethora of schemes that

financiers have offered you. Financiers consider it fashionable to brand their

schemes but at the end of the day they are all concocted by cleverly mixing the

various scheme parameters and documentation requirements that I have

mentioned in the earlier sections. Some of the popular packaged schemes are:

Margin Money Scheme

This is a basic car finance scheme where the finance amount/principal

amount is less than 100% of the value of the car (typically 85%).

Installment in Advance Scheme

Instead of collecting high margin money / down payment financiers often

collect a certain number of installments in advance so as to preserve the LTV.

100% value of the car is taken, interest charged on it and installments worked out

on the same. Usually 2 to 5 installments are collected in advance. This would be

adjusted against the last few installments. In a three-year loan, if four installments

are collected in advance, then you repay only 32 installments.

Stepped Scheme

In a stepped scheme the installments progressively increase or reduce from

year to year. There could also be a combination of step-up and step-down

39


installments. This type of scheme works best for salaried employees where there are

predictable movements in disposable income.

Balloon Scheme

This is a scheme where you take finance only for a certain value of the car,

say 85% and the balance 15% is paid at the end of the contract as a bullet payment.

Such schemes result in lower installments and are usually offered by financiers who

have direct tie-ups with manufacturers or dealers.

Security Deposit Scheme

A certain percentage of the value of the car is taken by the as a security

deposit. The financier funds 100 % of the value of the car and the interest and

installments are calculated accordingly. But although the financier is funding 100%

of the value of the car, his exposure is lowered by the amount collected as security

deposit. The security deposit could be interest bearing or non-interest bearing and

is refunded to you at the end of the contract.

No Income Scheme

Such schemes are sanctioned without you requiring to give your income proof

as listed above. Although this may sound great, the flip side is that the amount

financed is much lower (around 50%) than what you would have got funded had you

submitted the income proof. The other documentation is nonetheless mandatory.

Relationship Offers

These are special schemes offered by financiers, especially based on the

relationships that you have with them, by virtue of being an existing customer or a

customer of any of their other products. This usually entails a reduction in the

interest rate, or an extended tenure.

The Financiers

The various players offering car finance schemes can be categorized

under two broad heads namely,

Bank

Non Banking Finance Companies (NBFC)

40


Usually Banks have an advantage in sourcing cheaper funds and are hence

able to offer better rates of interest than NBFCs.

Several of the financiers have tied up with manufacturers to offer competitive

finance scheme on the respective manufacturers' products. It is through tie-ups like

these that manufacturers pass discounts to the end customer that finally translate

into a lower installment payments.

Almost all financiers have tie-ups with Dealers because the dealership is the

place where 90% of the finance enquiries originate. To promote sale or to liquidate

stocks, dealers offer discounts to financiers with whom they have tied up who in turn

pass it to the customers in the form of reduced interest rates.

It would be a good idea to avail of schemes either from a financier who has a

preferred financier tie-up with the manufacturer whose car you have chosen to buy

or a financier who has a tie-up with the dealership from which you are purchasing

the car. Making it even easier for potential car buyers some manufacturers have

floated car financing arms. A manufacturer by virtue of his size can mobilize cheap

funds and hence give you a good deal provided you are buying one of their models.

Most retail banks and leading financial institutions offer car finance schemes.

Interest rates vary from 12% to 16%. But remember - these rates are only indicative

to give you a flavor of the market. A bit of negotiation can help you reduce interest

rates by as much as 2%! Some hard bargaining.

How does it all work?

Once you have announced your intention to buy a car on finance, and enquired with

a financier for a quote, be ready to go through the following steps:

A sales person from the financier or one of their DSA's person will

contact you to understand your requirement. A DSA (Direct Selling

Associate) is an agency to whom the financier has given the

responsibility of acquiring customers. The sales / DSA person will

give you a quote either across the table or maybe with a lag in case

41


he needs prior approvals before quoting. Also the documentation

requirements will be made known to you.

Based on the initial quotes from a number of financiers you need to

shortlist a set you think that suit your requirement the best.

Thereafter you should bargain with the selected set for the best deal.

Once you have finalized your financier and the scheme details, the

sales person from the selected financier will give you the final quote

and request for the documents that he has already appraised you of.

On collecting the necessary documents, the sales person initiates the

approval process. Based on your documents, your eligibility is

determined (mainly the principal amount, tenure and IRR). On being

found eligible, the financier conducts a Field Investigation to verify

your address and a few other basic details. Sometimes, if applicable,

your credit history is also crosschecked with other financiers. king

Proofs, Proofs & More Proofs

- Documentation Requirements

The financier, before approving your scheme will seek documents towards

- Proof of Identity & Signature

- Proof of Residence

- Income Proof

- Proof of Office and Years in Business / Service

Documents accepted as proof of identity & signature for individuals

- Passport

- Driving License

- Voter's Identity Card

- PAN Card

42


For firms and companies

Partnership firms - The Partnership Deed is required along with a photograph of

the partner who is executing the document.

Private Limited and Public Limited companies - A copy of the Memorandum of

Association, the Articles of Association, and Form 32 duly completed.

For proof of signature your banker will issue a letter verifying your signature. For

most financiers, this is mandatory. Proof of identity such as your passport or voter's

identity card, which carries your signature, may also be accepted.

Documents accepted as proof of residence

For individuals, one or more of the following are required:

- Telephone Bill

- Electricity Bill

- Ration Card

In case of Partnership Firms and Private Limited companies, the residence proof of

a partner or a director is required.

Documents accepted as income proof For Salaried

Individuals

Previous year's Income Tax Returns and / or Form 16, along with the salary slip.

For self employed and partnership firms and private limited companies

Last two years' Income Tax Returns and / or Audited Accounts

For Public Limited Companies

Last two years' Audited Accounts.

43


Proof of office and years in business/service

If you are a salaried individual, a letter from the employer confirming that you

have been in employment for the given number of years may be required. Your

salary slip / a salary certificate may suffice for most financiers as proof of service.

If you are other than a salaried individual, you may furnish one or more of the

following documents: Registration papers of the office, if owned; Lease deed /

Rental agreement, if leased / rented; Telephone Bill / Electricity Bill / Shops and

Establishments Certificate / Sales Tax Certificate.

The final word

To summaries,

Before you start shopping for a finance scheme you need to do two things:

• Check your bank balance and decide on how much down payment you can afford.

Remember that it's always better to pay a higher do\vn payment if you can afford it

since it turns out to be cheaper in the long run.

• Look at your income stream and get a fix on the installment that you will be able to

pay (monthly or quarterly) without disturbing your current lifestyle and for how long.

Armed with these figures you can start looking for a financier, either by

responding to their ads, or by signing up on some of the websites that offer match

making services between financiers and potential clients.

Have enough time on your hands while searching for your finance scheme.

Rushing into finalizing a scheme is a cardinal sin and you are likely to end up paying

more. Call from quotes for as many financiers as possible. Shortlist a set of at least

3 financiers based on the initial quote and then negotiate with them on each

component of the scheme. Armed with the rudimentary knowledge about car

financing you will be able to ask the right questions and get your self the best deal.

Remember not to fall for longer tenure lower installment schemes, because

eventually you pay a higher interest amount and more often than not, the market

44


value of your car depreciates much faster, than the rate at which you have been

retiring the principal. Also, do not fall for the 0% interest schemes, since if you are

not paying the interest, then someone else is and it is usually the manufacturer in

the form of a discount to the financier. Once you are able to get a handle on the

discount amount, you can work out a scheme better suited to your requirements.

Here's a secret. In today's world, the consumer is King. Two individuals

availing a finance scheme from the same source can get different deals. So

negotiations can go a long way to get you better deals and the maximum bang for

your buck.

Car Finance: Driven by Innovation

The auto finance market was very active in 2001-02, with over 70 per cent of

cars sold being financed. In fact, industry sources attribute this success of auto

companies to the effectiveness of their alliances with financing institutions. These

institutions believe that car-makers owe much of their sales to innovative consumer

finance.

Mature Market is Good: The car finance market has reached a new level of

maturity, so much so that the car-maker, the automobile dealer and the financier

now work together to provide better features and funding options for the buyer.

Here again, the flexibility of operations among non-banking finance companies

(NBFCs) indicates they have been in the forefront of this new trend.

On the contrary, banks are hamstrung by the rigid lending regulations and inflexible

operations. Their rates are, consequently, higher. However, thanks to increased

operational efficiencies, a few private sector banks, such as HDFC Bank and ICICI

Bank, have managed to make a dent in the car finance market this year.

45


Benefits From the Trio: The coordinated efforts by the manufacturer-dealer-

financier trio have also enabled them offer better rates to the car buyer. Depending

on the manufacturer, tenure of the loan and credit history of the car buyer, interest

rates, on a reducing balance basis, now hover in the 10-13.5 per cent range for new

cars compared to 13-16.5 per cent till early last year. For old cars, the interest rates

continue to be in the 16-18 per cent range.

The interest rates also differ between various car models of the same

manufacturer, depending on the model the company wants to promote.

Behind Attractive Rates: The attractive rates of interest most NBFCs are able to

offer are because they operate on a 'rack rate' system. This system is arrived at

when the financing company negotiates with different car manufacturers and local

car dealers to squeeze out the maximum discounts from them. This is why dealer-

level direct discounts to customers are almost non-existent now on most car

models.

These discounts from the manufacturer and dealer — also called the

"subvention amount' — are then absorbed by the financier helping him offer the

best interest rates. Though the official lending rates fluctuate in the 14-16 per cent

range, the trio ensures the loan to the consumers at a much lower rate. Some car

companies, such as Maruti Udyog Ltd (MUL) and Hyundai Motor India Ltd (HMIL),

have entered into preferred financing arrangements with a few banks and NBFCs.

These institutions, in turn, offer lower interest rates. Manufacturers with "preferred

financing arrangements' offer additional discounts to the financier for the sales

promotion of their products. This discount helps the financier provide consumers

with a lower rate of interest.

Faced with mounting competition from NBFCs, some MNC banks have also

started absorbing the subvention amount from the dealers who, in turn, either pass

on a manufacturer discount or a part of their margin, so that the buyer gets a more

reasonable rate of interest. However, other banks, particularly public sector banks,

are still hesitant to do this. As a result, their rates are not competitive. Again, while

most MNC and private sector banks operate through direct selling agents who

46


have considerable margins to allow negotiations with customers, public sector

banks mostly operate directly with the car buyer.

A car buyer can attempt to negotiate the subvention amount as a direct

discount from the manufacturer or dealer. But the amount will always be lesser

than that paid to the financier. The discount from the manufacturer is, in most

cases, paid directly to the financiers and not to the consumers. In some cases, the

dealer offers a combination of a partial discount and/or free accessories. However,

in such a situation, the car buyer cannot expect to get a lower interest rate on the

financed amount.

Direct Discounts Unattractive: Manufacturers also discovered that direct

discounts to the car buyer did not result in increased sales. Attractive interest rates

just aided the process.

The increased preference for financing car purchases through loans,

thus, seems justified.

47


Analysis of the car financing companies in terms of their offerings

Car Financing Companies

Today several financial institutions and companies are offering car finance. Some

of the leading players in the car financing market. ICICI bank, HDFC bank,

Centurion bank, Development Credit bank and Saraswat Bank are the private

sector banks offering car loans. The finance companies car loans include

Cholamandalam Finance, Kotak Mahindra, Sundaram Finance and Tata finance.

Multinational banks hike ABN Amro, ANZ Grindlays, American Express Bank, Citi

bank, HSBC, Standard Chartered Bank have also considerable car finance

business. Countrywide, Associate Orix are some of the corporates having

considerable market share in the sector.

The following tables compare some of the banks providing car loans, their

features, schemes offered by them and their operational style, documents required

eligibility criteria etc.]

The following tables compare some of the banks providing car loans, their

features, schemes offered by them and their operational style, documents required

eligibility criteria etc.

ICICI Bank Standard Chartered Scheme Name Car loans Car loans Locations Delhi, Bangalore,

Chennai, Hyderabad,

Delhi, Bangalore, Chennai, Kolkata, Mumbai

Joint Application Applicable Not Applicable Eligibility For salaried minimum

salary should be Rs 100000 per annum and for self employed income tax return should be more than Rs 60000.

Age should be within 21 to 65 years including the loan period.

48


Minimum & Maximum Loan Amount

Minimum of Rs 75000 to a Maximum of 90% of the car value.

Minimum of 50% of the car value to a Maximum of 90%of the car value.

Tenures Minimum of 6 months to a Maximum of 5 years.

Minimum of 1 year to Maximum of 5 years.

Interest Calculation periodicity

Monthly Reducing Balance.


Prepayment Yes, at 2% extra. 2% on the Extra principal amount.

Loan Type Margin Margin Deposit Amount NA NA Margin Money 10% of the car amount. 10% to 15% depending on model to

model. Processing Fees NA NA Documentation charges NA NA Documents to submit For Salaried: Salary

slip, from 16, identity proof, residence proof, photographs, age proof. For Self-Employed: Form 16 A, identity proof, residence proof, photographs, age proof, Income Tax Return.

For salaried: Salary proof, ITR, 2-signed photograph, residence proof (license, passport, ration card, ID card), loan application form. For Self-Employed: ITR, 2-signed photograph, income proof, address proof, loan application form and financial statements.

Interest 12% to 17% depending on car models.

Economic car 15%, Mid size car 14%, Luxury car 14.5%

CITIBANK ABN AMRO

Scheme Name Car loans Car loans Locations Delhi, Bangalore,

Chennai, Hyderabad, Kolkata, Mumbai.

Delhi, Bangalore, Chennai, Kolkata, Mumbai, Hyderabad

Joint Application Applicable Applicable

49


Eligibility Maximum age should be less than 65 years, should be an income tax payee and have bank account more than 1 year old.

For cars like M800, Zen, Omni, Wagon R the annual income should be more than Rs. 60,000 and for cars like Esteem, Baleno it should be more thanRs. 1,00,000

Minimum & Maximum Loan Amount

Minimum of Rs 75000 to a Maximum of 85% for new car and 80% for oldcar .

Minimum of Rs.50000 and Maximum of 90% of the value of standard Cars.

Tenures Minimum of 1 year to a Maximum of 5 years.

Minimum of 1 year to a Maximum of 5 years.

[merest Calculationperiodicity



Prepayment 3% 3% on the outstanding principal amount.

Loan Type Margin Margin Deposit Amount NA NA Margin Money 10% of the car amount. 10% to 15% depending on

model to model. Processing Fees NA NA Documentation charges NA NA Documents to submit For Salaried: Salary slip,

from -16, residence proof, 3 years income tax return photographs. For Self-Employed: Form -16, residence proof, photographs, 3 year Income Tax Return, balance sheet and profit and loss statement.

For salaried: Salary slip, ITR, photograph, ID proof (license, passport, ration card, PAN card). For Self-Employed: ITR, photograph, ID proof (license, passport, PAN card) and financial statements.

Interest 2% to 3 % per month. 14.5% to 15% pa depending on car models.

MONTH/

MODEL

SEPTEMBER OCTOBER NOVEMBER DECEMBER

CS CF CS CF CS CF CS CFM 800 97 73 92 64 78 58 78 48Omni 47 34 46 37 51 42 56 43

50


Zen 44 33 31 24 26 21 42 29Esteem 12 8 10 6 0 0 6 2Baleno 0 0 0 0 2 1 1 0Wagon R

35 24 26 18 25 17 42 27

Alto 32 23 29 23 23 15 33 24Versa 2 1 1 0 2 1 0 0TOTAL 269 196 235 172 207 155 258 173

DATA ANALYSIS

Comparison of Cars Sold With Cars Financed- Model Wise

TABLE-1

Graph- 1a

Comparison of Cars Sold With Cars Fiananced- M 800

97 92 78 7873 64 58 48

050

100150

Sept. Oct. Nov. Dec.

Month

No

. of

Ca

rs

Cars Sold Cars Financed

51


Graph- 1b,1c and 1d

Comparison of Cars Sold With Cars Fiananced- Omni

47 46 51 5634 37 42 43

0

50

100


Months

No

. o

f C

ars


Comparison of Cars Sold With Cars Fiananced- Zen

4431 26

4233

24 2129

0

2040

60


Months

No

. o

f C

ars


Comparison of Cars Sold With Cars Fiananced- Esteem

12 10

068 6

0 20

10

20


Months

No

. o

f C

ars


52


Graph- 1e, 1f and 1g 1d

Comparison of Cars Sold With Cars Fiananced- Baleno

0 0

21

0 01

00123


Months

No

. o

f C

ars


Comparison of Cars Sold With Cars Fiananced- Alto

32 2923

3323 23

1524

010203040


Months

No

. o

f C

ars


Comparison of Cars Sold With Cars Fiananced- Versa

21

2

01

01

00

2

4


Months

No

. o

f C

ars


53


Graph- 1h and 1i

Comparison of Cars Sold With Cars Fiananced- Wagon R

35 26 2542

24 18 1727

0

50


Months

No

. of

Car

s


Comparison of Total Cars Sold With Total Cars Financed

269 235 207258

196 172 155 173

0100200300


Months

No

. of

Car

s


54


Comparison of cars sold with cars financed- Model wise

Inference:

Table 1 gives us the comparison between the number of cars sold and the

number of cars financed between September and December 2004. The sale of cars

is highest in the month of September due to the half-year ending period.

In these four months under observation, on an average 72% of the cars sold

have been financed. This highlights the importance of car financing in today's era.

As observed in Table 1, Maruti 800 is still the most preferred car followed by

Omni and Zen among other models. 35% of the total cars sold is that of M 800.

Graphs la to Ih show us the comparison between the number of cars sold and

cars financed in respect of all cars between September and December 2004. Graph

li gives us the comparison between the total cars sold and financed.

55


Comparison of cars financed with cars not financed- Model Wise

Table – 2MONTH/

MODEL

SEPTEMBER OCTOBER NOVEMBER DECEMBERCF CNF CF CNF CF CNF CF CNF

M 800 73 24 64 28 58 20 48 30Omni 34 13 37 09 42 09 43 13Zen 33 11 24 07 21 05 29 13Esteem 08 04 06 04 00 00 02 04Baleno 00 00 00 00 10 01 00 01Wagon R 24 11 18 08 17 08 27 15Alto 23 09 23 06 15 08 24 09Versa 01 01 00 01 01 01 00 00TOTAL 196 73 172 63 155 52 173 85CS- Cars Financed CNF- Cars Nots Financed

Graph – 2a

Comparison of Cars Financed With Cars Not Financed- M 800

73 64 58 4824 28 20 30

050

100


Months

No

. o

f C

ars

Cars Financed Cars Not Financed

56


Graph- 2b,2c and 2d

Comparison of Cars Financed With Cars Not Financed- Onmi

34 37 42 43

13 9 9 13

0

50


Months

No

. o

f C

ars


Comparison of Cars Financed With Cars Not Financed- Zen

33 24 21 2911 7 5 13

02040


Months

No

. o

f C

ars


Comparison of Cars Financed With Cars Not Financed- Baleno

0 01

00 01 1

012


Months

No

. o

f C

ars


57


Graph- 2e, 2f and 2g

Comparison of Cars Financed With Cars Not Financed- Wagon R

24 18 1727

11 8 8 15

02040


Months

No

. o

f C

ars


Comparison of Cars Financed With Cars Not Financed- Alto

23 23 1524

9 6 8 9

02040


Months

No

. o

f C

ars


Comparison of Cars Financed With Cars Not Financed- Versa

10

1 11 1 10

012


Months

No

. o

f C

ars


58


Graph- 2h

Comparison of Total Cars Financed With Total Cars Not Financed

196172

155173

73 63 5285

0

50

100

150

200

250


Months

No

. of

Ca

rs


Comparison of cars financed with cars not financed Model Wise

Inference:

Table 2 gives us the comparison between the number of cars financed and

the number of cars not financed between September and December 2004.

In there four months under observations, on an average only 28% of the cars

sold have not been financed.

It is worth noting here that in all the four months under observation, the

number of cars financed is more than the number of cars not financed in respect of

all the models.

59


Comparison of % of cars sold – Month Wise

Table- 3MONTH/

MODEL

SEPTEMBER OCTOBER NOVEMBER DECEMBER

CS % CS % CS % CS %M 800 97 36 92 39 78 38 78 30Omni 47 18 46 20 51 25 56 22Zen 44 16 31 13 26 13 42 16Esteem 12 05 10 05 00 00 06 03Baleno 00 00 00 00 02 00 01 00Wagon R 35 13 26 11 25 12 42 16Alto 32 12 29 12 23 12 33 13Versa 00 00 00 0 02 00 00 00TOTAL 269 100 235 100 207 100 258 100

Graph – 3a

Comparison of Cars Sold in the Month of September 2004

37%

18%

16%

4%

0%

13%12% 0%

M 800

Omni

M Zen

Esteem

Baleno

Wagon R

Alto

Versa

Graph – 3b,3c and 3d

60


Comparison of Cars Sold in the Month of October 2004

40%

20%13%

4%

0%

11% 12% 0%

M 800

Omni

M Zen

Esteem

Baleno

Wagon R

Alto

Versa

Comparison of Cars Sold in the Month of November 2004

37%

25%13%

0%

1%

12% 11% 1%

M 800

Omni

M Zen

Esteem

Baleno

Wagon R

Alto

Versa

Comparison of Cars Sold in the Month of December 2004

31%

22%16%2%0%

16%

13% 0%

M 800

Omni

M Zen

Esteem

Baleno

Wagon R

Alto

Versa

Graph – 3b,3c and 3d

61


Comparison of Cars Sold in the Month of October 2004

40%

20%13%

4%

0%

11% 12% 0%

M 800

Omni

M Zen

Esteem

Baleno

Wagon R

Alto

Versa

Comparison of Cars Sold in the Month of November 2004

37%

25%13%

0%

1%

12% 11% 1%

M 800

Omni

M Zen

Esteem

Baleno

Wagon R

Alto

Versa

Comparison of Cars Sold in the Month of December 2004

31%

22%16%2%0%

16%

13% 0%

M 800

Omni

M Zen

Esteem

Baleno

Wagon R

Alto

Versa

62


Comparison of % of cars sold - Month wise Inference:

Table 3 gives us the percentage figures of the cars sold in respect of various models

during the months September to December 2004.

On an average, Mandovi Motors is selling 243 cars a month with a major

part coming from M 800, Zen and Omni.

As we observe, Maruti 800 is the leader with an average sales of 36%

followed by Omni and Zen in all the months. The sale of Wagon R and Alto are

gradually picking up. MUL will have to look into Versa, because right from its

launch in 2001 sales have been dropping every month. To quote, during the

observation months, only in the month of November, 2 cars have been sold.

Graphs 3a to 3d show us the comparison with respect to % of cars sold

during September to December 2004.

63


Comparison of No. of Cars financed by various banks- Month Wise

Table – 4

Month/Bank September October November December

Citibank 16 8 13 8

Stand Chart 19 30 14 25

ICICI 40 29 30 32

ABN Amro 24 13 8 8

Hongk ong 12 26 14 17

Nat.Banks 50 27 39 44

Sundram … … 18 17

Others 35 47 27 22

Total 196 172 155 173

Graph – 4a

No. of cars financed by various Banks in Sept.2004

16 19

40

24

12

50

0

35

0102030405060

Figure 1

64


Graph – 4b and 4c

No. of Cars Financed by Various Banks in October 2004

8

30 2913

26 2747

01020304050

Citi Ban

k

Stan C

hart

ICIC

I

ABN Am

ro

Hong

Kong

Nat. B

anks

Others

Total Cars Financed

No. of Cars Financed by Various Banks in November 2004

13 1430

8 14

39

1827

01020304050

Citi Ban

k

Stan C

hart

ICIC

I

ABN Am

ro

Hong

Kong

Nat. B

anks

Sunda

ram

Others

Total Cars Financed

Graph – 4d

65


No. of Cars Financed by Various Banks in December 2004

825 32

817

44

17 22

01020304050

Total Cars Financed

Comparison of no. of cars financed by various banks- Month wise

Inference: Table 4 gives us the details about the number of cars financed by various

banks during the month September to December 2004

On an individual basis, ICICI Bank has financed maximum number of cars

followed by Standard Chartered and HongKong Bank. Nationalized banks put

together have also financed maximum number of cars. Citibank which was the

leading finance company for Maruti cars in 2003 is slowly loosing its hold in the

market. There are many other finance companies with a very small share who have

been clubbed and shown as ‘others’ in the analysis.

Graphs 4a to 4d highlights the number of cars financed by various companies

on a month-to-month basis.

66


Comparison of No. Of cars financed - Company wise

Graph – 5 Citibank

Month/MODEL September October November December

M 800 4 3 6 1

Omni 3 3 2 3

Zen 5 1 2 2

Esteem 0 0 0 0

Baleno 0 0 0 0

Wagon R 3 0 2 2

Alto 1 1 1 0

Versa 0 0 0 0

Total 16 8 13 8

Graph – 5a

Cars Financed by Citibank in Sept.2004

11

2

770

9

4 0M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

Graph – 5b, 5c and 5d

67


Cars financed by Citibank in Oct. 2004

0

3

3

1

0

0

0

1

0

M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

Cars financed by Citibank in Nov. 2004

6

2

2

0

0 21

0

M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

Cars financed by Citibank in Dec.2004

1

320

0

2

0

0

M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

68


Comparison of No. of Cars Financed – Company wise

Table -6 Standard Chartered


M 800 6 10 6 8

Omni 4 6 2 6

Zen 4 5 3 2

Esteem 0 2 0 0

Baleno 0 0 0 0

Wagon R 3 2 2 4

Alto 2 5 1 5

Versa 0 0 0 0

Total 19 30 14 25

Graph – 6a


69


Cars financed by Standard Chartered in Oct.2004

0

10

65

2

0

25

0

M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

Cars financed by Standard Chartered in Nov.2004

6

2

3

0

0 21

0 M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

Cars financed by Standard Chartered in Dec.2004

8

62

0

0

4

5

0M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

70


Comparison of No. of cars financed – Company wise

Table – 7 ICICI Bank


M 800 11 4 9 8

Omni 2 4 4 2

Zen 7 4 5 9

Esteem 7 2 0 1

Baleno 0 0 0 0

Wagon R 9 8 7 6

Alto 4 7 4 6

Versa 0 0 1 0

Total 40 29 30 32

Graph – 7a

Cars financed by ICICI in Sept.2004

11

2

77

0

9

4 0 M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

Graph -7b, 7c and 7d

71


Cars financed by ICICI in Oct.2004

0 4

4

420

8

70 M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

Car financed by ICICI in Nov.2004

9

4500

7

4 1

M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

Cars financed by ICICI in Dec.2004

8

2

9

1

0

6

6

0

M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

72


Comparison of No. Of cars financed-Company wise

Table – 8 ABN Amro


M 800 9 5 3 3

Omni 5 1 4 3

Zen 7 3 0 0

Esteem 0 1 0 0

Baleno 0 0 1 0

Wagon R 0 0 0 1

Alto 3 3 0 1

Versa 0 0 0 0

Total 24 13 8 8

Graph – 8a

Cars financed by ABN Amro in Dec.2004

3

3

0

0

0

1

1 0

M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa


73


Cars financed by ABN Amro in Oct.2004

0

5

13

1

0

0 3

0M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

Cars financed by ABN Amro in Nov.2004

3

4

0

01 000

M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

Cars financed by ABN Amro in Dec.2004

3

30

0

0

1

1

0 M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

74


Comparison of No. of cars financed-Company wise

Table-9 Hong Kong Bank


M 800 6 10 8 6

Omni 1 5 4 2

Zen 0 3 0 3

Esteem 0 0 0 0

Baleno 0 0 0 0

Wagon R 1 4 1 3

Alto 3 4 1 3

Versa 1 0 0 0

Total 12 26 14 17

Graph – 9a

Cars financed by Hongkong Bank in Sept.2004

6

10001

3

1

M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa


75


cars financed by Hongkong Bank in Oct.2004

0

10

53

0

0

4

4

0 M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

Cars financed by Hongkong Bank in Nov.2004

84

0

0

0

1 10 M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

Cars financed by Hongkong Bank in Dec.2004

6

2300

3

3

0M 800

Omni

Zen

Esteem

Baleno

Wagon R

Alto

Versa

76


Comparison of performance of Mandovi Motors (P) Ltd. During 2003 and 2004 in terms of car sales

Table 10

Year/Month 2004 2003

January 327 304

February 368 368

March 337 486

April 172 258

May 243 379

June 243 379

July 181 348

August 256 355

September 269 421

October 235 233

November 207 256

December 258 362

Total 3,121 4,173

77


Graph – 10

Comparison of Sales of Mandovi Motors

0

100

200

300

400

500

600

Months

No

. o

f C

ars

The main reason for drop in sales in 2004 as compared to 2003 is because

of two new dealers being appointed for Bangalore city. The two new dealers, Bimal

Motors and Pratham Motors started operations in June 2002. Hence share of

Mondovi Motors in total car sales has seen a drop in 2004 compared to 2003.

The drop in sales after the month of September in both the year is because of

the half-year closing.

78


Table 11

Month/Model Dec-04 Dec-03

M 800 78 155

Omni 56 113

Zen 42 50

Esteem 6 10

Baleno 1 0

Wagon R 42 17

Alto 33 10

Versa 0 6

Total 258 362

Graph 11

Comparision of car sales at Mandovi Motors

155

113

50

100

1710 6

0

20

40

60

80

100

120

140

160

180

Dec-04

Dec-03

79


Bite The Bullet And Blow Your Balloon

You are a well-heeled executive in a leading firm and you are a proud owner

of a four-year-old Maruti 800 AC. But recently you have been toying with the idea of

replacing your Zen with a bigger Ford Ikon. Obviously you have been influenced by

the recent spate of advertisements, which quote the ratings given by leading auto

magazines. But there is one small problem. You are not sure whether you can afford

an Ikon with your present salary.

But then the new breeds of car financiers know their jobs well. They will

structure the loan package in such a manner that you will pay a lower sum as

installments and at the end of a fixed period pay a lump sum amount. This they call

the 'balloon' scheme of car financing. Under this scheme, the financier funds

between 50%-85% of the cost of the vehicle depending on your credit worthiness.

You will have to pay a monthly EMI for a period of two to five years. The rest can be

paid at the end of the above stated period. The only catch is that the scheme will

allow you to hold a maximum of up to 25% of the total cost of the car.

As of now only Ford Credit India (FCI) and ICICI are the two finance

companies to have offered this option. Under their scheme, you have to pay the

same initial payment and equated monthly installments (EMI), as you would have

done for a Zen or Santro.

At the end of the third year, you would have to make good the EMI differential

for the Ford Ikon. As is apparent, the scheme is based on the premise that by the

end of three years, the buyer is expected to see an increase in his/her emoluments.

There is another variant of the scheme, which aims to serve owners of a Zen

or a Santro. Ford Credit India will take upon it to evaluate the used car's value and

adjust it as the down payment for the Ikon. If the used car is financed, FCI will retire

the old loan and provide finance for the Ikon.

80


But it may so happen that the expected rise in salary does not materialize at

all or have risen beyond their expectations. Then what happens? According to Ford

Credit, they will give the option to the customer to turn in their old vehicles at the end

of a three-year period and allow them to upgrade to a new model from the Ford

stable. The residual value of the turned in Ikon will be adjusted towards the balloon

payment.

Another new invention is the 'bullet’ scheme. Here the customer pays equal

installments throughout the year and at the end of a certain pre-defined period pays

an incremental or bonus amount.

81


FINDINGS

There are 402 Key Players in the automobile market with an Investment of

US $ 2.3 billion.

India is the 3rd largest car market in Asia, surpassing China in the process.

Car market is expected to grow at 9.5%.

The auto finance industry comprises of mainly NBFC'S but also has a few

nationalized banks as well as foreign banks operating.

At present, 75- 80 % of the cars bought in the country are bought through

various car-financing schemes,

Financing schemes varies from Margin Money Scheme, Installment in

Advance Scheme, Stepped Schemes and as varying as Balloon Schemes,

No Income Schemes etc.

All financiers, before approving a scheme seek documents towards,

Proof of Identity & Signature

Proof of Residence

Income Proof

Proof of Office and Years in Business / Service

The interest rates differ between various car models of the same manufacturer,

depending on the model the company wants to promote.

Two individuals availing a finance scheme from the same source can get

different deals. So negotiations go a long way in getting better deals.

On an average 72% of Maruti cars sold at Mandovi Motors have been

financed.

Maruti 800 is still the most preferred car followed by Omni and Zen among

other models. 35% of the total cars sold is that of M 800.

82


On an individual basis, ICICI Bank has financed maximum number of Maruti

cars followed by Standard Chartered and Hong Kong Bank. Nationalized

banks put together have also financed maximum number of cars.

The number of cars sold by Mandovi Motors in the year 2002 has drastically

come down as compared to 2001.

83


CONCLUSION

Clearly, it seems, that finance companies will not hold anything back when it

comes to value added schemes. Here the customer is the king and the race is on

to woo him/her. And why not'7 Car sales have grown by a whopping 56% in the last

fiscal with the mid-sized car segment getting a new lease of life thanks to the rising

income profile, especially in urban areas and growing popularity of finance

schemes. Prices of cars having increased in recent months (due to Euro

compliance and rise in input costs) and are expected to go up further due to a rise

in sales tax rates. This will provide further fillip to finance schemes and may be in

the not so distant future, car buying could become more exciting and affordable.

Here's a secret. In today's world, the consumer is King. Two individuals

availing a finance scheme from the same source can get different deals. So

negotiations can go a long way to get you better deals and the maximum bang for

your buck.

Happy Financing!

84


SUGGESTIONS

Budgeting is very important because the costs associated with owning or

leasing a vehicle don't end when the vehicle is delivered or the loan is paid

off. In fact, possession is just one phase of the car cost-cycle. Costs,

including repair and maintenance, gas, insurance, plates, taxes, and

registration, can all add up very quickly. The key common sense issue of

affordability must be examined both at the time of purchase and over the life

of the vehicle.

First decide on the car you want to purchase keeping in mind the budget for

getting a financed car, the price, type (petrol/diesel), expected maintenance

costs, etc. You might be vacillating regarding which specific car to buy, but

you will still have a broad idea as to the kind of the car you intend to

possess.

Decide whether you want to lease or hire purchase the car. In a lease, the car

belongs to the financier. The financier passes on depreciation benefits to you

by charging you with a low rate of interest. You get tax benefits in the form

that, the lease amount, cost of maintenance and insurance can be claimed as

expense. In hire purchase, you can take the benefit of tax-shield on

depreciation as you own the car. Further, the interest paid on the loan, road

tax, insurance and repairs are deductible from the income for income-tax

calculations. If you are an individual, lease or hire purchase gives no tax

benefits.

Find a loan that suits you after deciding between leasing and hire purchase.

A loan should fit your pocket and the term you wish to take it for. You will

need to get quotes of all the finance companies and map them according to

your requirements.

85


Compare the rates of different finance companies on parameters such as

interest rates, pre-payment clause, upfront margin to be paid, etc. Things

you need to check for -

a. What the monthly loan payment is,

b. What interest rate that translates into,

c. The duration of the loan,

d. The percentage of the car price you can take as a loan,

e. Other incentives or discounts that the finance companies

offer.

Get your documentation in order. No matter who lends you the money, you

need to have some basic documents ready -

a. Proof of Income

b. Proof of Residence

c Banking History

d. Photographs

e. Proof of Identity

f. Signature Verification from the Bank

Ask questions and read the documents before signing them. Try to get a

copy of the Agreement or Contract before you get into one. Understanding

the important clauses within the agreement can help you avoid a lot of

trouble in future. Most banks and finance companies market their car

finance schemes through agents. Try and authenticate an agent's claim from

the officials of the bank or the finance company. You can get all ambiguities

resolved by speaking to the staff of the bank or finance company, in whose

favor you shall be drawing the post-dated cheques towards repayment of

your car finance contract.

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Most lenders, including foreign banks, are going to make you sign at least 20-30

pages of documents. And if you skip even one page, the loan will not be disbursed.

In case you are uncomfortable with the terms, simply don't take the loan from that

lender.

Always READ the loan application and offer documents and look for the hooks. Here

are some typical pointers -

Check if there is a pre-payment penalty. If there is one, find out which has

the lowest rate.

LOOK FOR THE LONGEST GRACE PERIODS. LOOK FOR LOANS THAT GIVE YOU

THE MAXIMUM NUMBER OF DAYS TO PAY BACK THE DUE AMOUNT WITHOUT AN

INTEREST CHARGE.

Find out whether the interest remains constant through the contract

period.

Read the fine print carefully. Remember, if there is a problem later, what is

written is what counts. What the marketing person tells you verbally

carries no weight.

Sign an Agreement/Contract in which the blanks have been filled up.

Signing agreements with blanks does not work favorably for you.

The documents usually contained in the agreement booklet are Hire-Purchase Agreement

Schedule of Charges, Deposits and Rates

Irrevocable Power of Attorney

Promissory Note

FORM 20 for Registration of Vehicle

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Certificate of Inspection

FORM 26 for Intimation of Loss or Destruction of Certificate of

Registration and Application of a Duplicate Certificate

FORM 27 for assignment of new registration mark on removal of the vehicle

to another state

FORM 28 for "No-Objection Certificate" and grant of certificate . FORM 29

Form of Notice to Transfer of Ownership of Vehicle .

FORM 30 Report of Transfer of Ownership of a Vehicle

FORM 34 Application for making an entry of an agreement of Hire-

Purchase/Lease/Hypothecation subsequent to Registration

FORM 35 Notice of Termination of an Agreement of

Hire-Purchase/Lease/Hypothecation

• Dealer Authorization Letter

• Signature Verification

• Disbursement Memo

Give the cheque of Margin Money, processing and insurance after signing

the documents.

Take the delivery of the car directly from the car dealer.

Pay your loans regularly. Ask for the interest computation sheet or the loan

statement at the end of the year. Verify the interest rate charged.

Get the bank to release the lien on your car after payment of all the

installments.

There is no law or regulation that requires lenders to use a standard format

to disclose all his or her interest charges and fees. That gives lenders the

opportunity to play around with the way they sell you the loan. The loan

could turn out to be very expensive if you added up the processing charges

and the dates on which you have to pay back your installments. Get the

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lender to give you all the charges, obvious and hidden, in writing, with a

statement that there are no other charges. Most lenders may hesitate to give

you anything in writing, so don't just believe the lender, talk to a few friends

and relatives who may have taken a similar loan from the same lender and

see what their experience has been.

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BIBLIOGRAPHY

Company Brochures, Manuals, and Annual reports.

Magazines:

Overdrive

Auto India

Auto car

WEBSITES:

www.auto.Indiamart.com

www.marutiudvog.com

www.automandi.com

www.automobile.com

www.indiainfoline.com

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http://www.indiainfoline.com/

http://www.automobile.com/

http://www.automandi.com/

http://www.marutiudvog.com/

http://www.auto.Indiamart.com/


ANNEXURE

QUESTIONNAIRE -RECENT TRENDS IN CAR FINANCE"

CAR FINANCING COMPANY: ---------------------------------------- ADDRESS: ------------------------------------------------------------------

-------------------------------------------------------------------

--------------------------------------------------------------------

NAME OF THE PERSON: ---------------------------------------------------------------

DESIGNATION: ---------------------------------------------------------------------

1.What are the various purposes for which you provide car loans?

a) Purchase of new carb) Purchase of used carc) Any other (specify)

2.Please name the schemes of your car loans.

3.What is the minimum and maximum amount of loan offered under each?

Minimum Amt Maximum Amt.

--------------------------------------------------------------------------------------------------

4.Which is your main focus area?

----------------------------------------------------------------------------------------------

5.what service charge are levied by you

----------------------------------------------------------------------------------------------

6. Do you charge penalty for prepayment of loan?

-----------------------------------------------------------------------------------------------

7. Can you briefly outline your core competencies?

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8. How many DSA's are there and with whom are they tied up?

9. Who is doing well and what are there set up?

10. What percentage (%) of cars is financed thro' DSA's?

11.Which of the following aspects do you think makes your car finance

more attractive?

a) Interest rates

b) Flexible scheme

c) Quality and personalized service

d)Location

e) Others (Specify)

12. What is the quantum of loan disbursed every month?

13. How many cars are financed every month?

14. Vat in your opinion gives your bank/company the 'competitive edge'

as compared to other banks providing car finance?

15. Mention the Value added services' offered to your existing

customers/new customers.

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16. Give your opinion regarding the current developments in the car

finance sector and also the future trends in this sector.

17. Do you think reduction of interest rates is the only way to attract

customers in present business scenario?

18. What are the other strategies adopted to capture the market apart from

reduction of interest rates?

19. Which strategy of your car financing has made you a 'pioneer1 in the

market?

20. Do you provide the following kind of services?

a) Free personal accident insurance

b) 48 hour loan sanction

c) Online service

21. What charges are levied for rescheduling of loans?

22. Is there any discount available for the customer holding a credit card of

pour bank?

23. Since this market is full with similar products/services, is there any

product innovation-taking place in your car financing?

24. What is your current percentage (%) of market share?

25. Anything you would like to add?

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Project Report on Maruti Showroom Management

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