Amid the rain clouds, a silver lining for cars


Passenger vehicle sales witnessed a temporary blip in June 2017 as buyers delayed purchase decisions in anticipation of the impact of the Goods and Services Tax (GST) on the automobile industry. With the introduction of the new indirect tax regime, car makers have reduced car prices because GST has subsumed other taxes like value added tax (VAT). While mass-market cars like Maruti Suzuki Swift saw a price cut in the range of Rs6,000 to Rs10,000; sports utility vehicles (SUVs) like Toyota Fortuner and premium vehicles like some models of Mercedes Benz saw the price reduction running into lakhs of rupees. The GST Council has now recommended to raise cess on SUVs and high-end cars from 15% at present to 25%. This would become applicable after legislative approval.

While the automobile sales may have recovered to a large extent from the lows in June 2017, some banks are offering many incentives to buyers to gain more retail customers for car loans. For example, some banks—including leading ones like Punjab National Bank—have waived off processing fees on car loans till 30 September. Such offers are being marketed as ‘monsoon bonanzas’.

Why these offers now?

These monsoon offers are not regular offerings, said Naveen Kumar, general manager, retail banking, Punjab National Bank, adding that the bank started it last year. Traditionally, banks and carmakers come out with offers to attract more customers during the festival season, which mostly coincides with the October-December quarter in India. However, the muted growth in car sales has also meant that banks are also witnessing a slowdown in the growth of car loans. And that is the reason they are coming forward to attract consumers even outside the traditional non-festive season. An effort is also being made to tap consumers who may have surplus cash from payouts of the Seventh Pay Commission or One Rank One Pension. “It is true that demand peaks before Diwali. But this time there are factors like the Seventh Pay Commission and One Rank One Pension and people have got their arrears. We feel these could be a good source to increase our car-financing business,” said Kumar.

Another reason for the offers at this time could be that the Navratras and Dussehra will fall in the July-September quarter this year. While there is no official confirmation yet, but banks are expected to extend the processing fee waiver till Diwali. “Last year also we extended the offer till the festival season,” Kumar said.

In fact, when the festive season is at its peak, expect these discounts to also get extended to used car loans. “For used cars, most banks come out with schemes during the Diwali time. The schemes are identical to the ones going on currently for new cars. Either the processing fee is waived or the banks offer 25 to 50 basis point discount on the rates. Not all banks, but the newer banks and non-banking financial companies (NBFCs) definitely do this,” said Namit Jain, business head-used car financing, Used car loans for a mid-sized car typically cost 3 to 5 percentage points more than regular, or new, car loans. One basis point in one-hundredth of a percentage point.

When are bargains better?

Typically, carmakers offer discounts and freebies on their products from Navratras to Diwali. These discounts and offers come directly from the car-manufacturing companies. However, deals can be grabbed at the point of sale as well. The dealerships have their own margins from which they can offer discounts. You can also negotiate with the dealership to include extended warranty, free services and insurance premium as part of the deal. However, dealerships are more likely to entertain such negotiations during non-festive seasons, when the inventory is moving slowly. One such season is the monsoon, when people tend to avoid buying cars. “At the manufacturer level, schemes might come out at festival time, but at the dealer level, there could be better deals in the non-festive seasons,” Jain said.

Monsoon myth

You may have come across people telling you not to buy cars in the rainy season. An oft-cited reason is: cars bought in monsoon wear down and lose value much faster. While there is a real danger that your new car coming out of a showroom may get muddied instantly if it is raining outside; the reality is also that the rains do not harm the core capabilities of your vehicle nor does it impact the car’s resale value. “The depreciation of the car has nothing much to do with monsoon. For all you know, there are better schemes in these months. Sales are down so dealers try to put their stock out, so you can negotiate better at the dealership,” said Jain.

Role of car insurance

While buying a car during monsoon is more or less risk free, certain precautions must be taken while using the cars during monsoons, which even the insurance companies insist on. Some of these are good driving habits like maintaining a safe distance while driving, especially during rains, to compensate for the lower visibility. Precautions also need to be taken while negotiating potholes and waterlogged roads.

Having third-party liability insurance is mandatory by law. This covers the damage to third parties’ life and property by the insured vehicle. However, while it is not mandatory by law, it is imperative to have an own-damage cover for your vehicle too. This cover is usually part of the comprehensive motor insurance offered by most insurers. It covers your vehicle in case of events like theft and unforeseen catastrophes like floods. So, damage to the car would be covered if it submerged in water. However, your regular insurance policy will not cover the damage if you try to start the car when it is flooded. Doing so can cause water to enter the engine and damage it. Insurers categorise this type of damage as a consequential loss and not as an unforeseen event; and their regular policies do not cover it. However, if you get the car towed to a workshop and have the engine flushed and dried, the policy will cover that cost. To cover such consequential damage to your engine, insurers offer add-on covers for engine protection. This add-on cover pays for repairs or replacement of the engine even due to consequential losses. Premium for such covers is around 0.15-0.2% of the insured declared value. Further, insurer will deduct depreciation while paying the claim. A zero-depreciation add-on cover will protect the claim against depreciation.

So if you happen to live or drive in an area prone to water-logging, you should consider motor insurance add-on covers. If your car is stuck in a flooded area and the engine stops, do not try to start the engine. Insurance companies advise you to leave the car at that place and inform the insurer, which will have the vehicle towed to a service centre.