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Loan delinquency drives used-car market -- Slowdown in IT, SSI sectors fuel the biz

Janaki Murali

C.Shivkumar

BANGALORE, July 20

REPOSSESSED cars have now begun providing the required volumes for the organised used-car market in the country, specially in Bangalore.

Whereas even a year ago, dealers struggled to sell even two used cars a month, now dealers in Bangalore are able to sell nearly 30 cars a month, through their various used-car schemes. Both Hyundai and Ford have their own used-car exchange programmes ope rating through some of their dealers and General Motors also plans to launch its used-car exchange programme soon.

Dealers say that while a lot of cars were still coming directly from the owners, many cars specially in the mid-size segment were coming from the auto finance companies, who repossess cars for loan delinquency.

Such delinquencies have been on the rise since the beginning of this year and is now being directly related to the slow down in the IT sector. This slow down has resulted in high levels of job losses and salary cuts in the industry. But vehicle repossess ions have also begun from the SSI sectors who have been worst hit by the industrial slowdown. Since large volumes of these car sales have taken place either through the hire purchase or lease financing routes, the hire-purchased vehicles are now being re possessed by the financiers on account of non-payment of monthly installments. On the other hand, lease financed cars are being returned back to the lessors. Most of the cars now being repossessed/ surrendered fall in the mid-range segments

Sources now say that since the repossession has been on the rise, there were also attendant problems of warehousing these cars. Consequently, most of the financiers and lessors were now opting to liquidate these holdings in the second-hand markets. This liquidation is also being resorted to by the finance companies, especially the foreign banks, who have been the most aggressive sellers of car loans in a bid to reduce losses and eliminate the possibilities of any asset liability mismatches.

Dealers say that their offtake from the market has gone up in recent months, and many of the cars in the market were coming from finance companies. ``The severe liquidity crunch in the market, plus the IT slowdown and the problems that the SSI sector is facing with the economy being sluggish, this was bound to happen,'' says one dealer.

However, another dealer says that documentation was long in coming, as the original owners were reluctant to part away with the papers. Some dealers, meanwhile, are reluctant to touch repossessed cars, as the history of the cars is not known, and they pr efer to pick up cars directly from the owner himself.