International Corner

Finance firm to pay up for forcible repossession of car

CHANDIGARH: For forcible repossession of a Maruti car, UT consumer forum directed Kotak Mahindra Primus Limited to pay Rs 25,000 as compensation, besides refund of Rs 1.94 lakh, original cost of car, and Rs 10,000 for the cost of car accessories along with Rs 2,500 as litigation cost to complainant Mohan Lal.

Holding that finance company is clearly and grossly deficient in services, the forum, led by Ashok Raj Bhandari, held, Kotak Mahindras officials did not follow the prescribed procedure for taking the repossession of the vehicle, which was the subject matter of the loan, in question. It has surely and definitely followed a shortcut and totally arbitrary procedure, trying to intimidate the complainant and forcibly repossessed the vehicle, which is an act of high handedness on their part.

A Rajpura resident, Lal, had purchased a white Maruti 800 car worth Rs 1.94 lakh in 2003 and he got it financed from Kotak Mahindra, which granted him a loan of Rs 1.55 lakh. He was to repay this amount in 48 EMI instalments of Rs 4,225 per month.

According to Lals complaint, the officials from the finance company allegedly asked him to visit their office for verification of his car. When he reached the finance company’s office, allegedly some officials took the car on the pretext that they had to send a report to their New Delhi office.

Lal was asked to hand over the keys for the routine inspection and without doubting the intention, he handed it to an official. The finance company took the possession of the vehicle and told him that they have confiscated his vehicle for outstanding dues, the complaint alleged.

The complaint claimed that when Lal contacted officials, they admitted that his car was sold at throwaway price. Claiming that he had paid Rs 1.52 lakh out of the total outstanding loan of Rs 1.55 lakh, Lal moved a complaint under the Consumer Protection Act.

By The Times Of India
timesofindia.indiatimes.com | Full article available here »

Jan 6, 2009

‘Adjusting’ for recession

It only needs a glance at the new vehicle sales graph over recent weeks to realise that the toxic effect of the financial crisis is now spreading into the wider economy with a vengeance.

American light vehicle demand plummeted by 27% during September alone, with even Japanese suppliers caught in the maelstrom. Nissan and Toyota suffered falls in excess of 30%, while GM’s comparatively modest 16% reversal was the result of boosting unprofitable sales to fleets in a bid to maintain volume.

In Europe, new car sales dipped by a less serious 8%, although this was the lowest September total for ten years and marked the fifth consecutive month of falling demand. Moreover, some markets performed extremely poorly, led by Spain where sales were 32% down. UK demand dropped by 21% with not even the arrival of the ‘58’ plate identifier generating much in the way of customer enthusiasm.

Carmakers have responded by ‘adjusting’ production. Nissan, for example, announced a two-week stoppage of Micra and Note models at Sunderland, followed by three weeks’ short-time working. The company’s Barcelona plant will cease production of Pathfinder, Navara 4x4s and the Primastar van (which is also sold as the Renault Trafic and GM Vivaro) for one week, followed by eight weeks of short-time working.

There’s a widespread resignation throughout the industry that an upturn will be delayed until 2010 at the earliest, while some independent forecasters suggest that even this is optimistic.

Aside from the loss of confidence, a big question mark hovers over the availability of credit. Stung to near destruction by the sub-prime market, financial institutions are tightening their lending criteria to ensure that only the highest rated will be able to borrow. And with vehicle repossessions forecast to reach 1.9m in America this year, allied to a rising tide of defaults in Europe, the priority of many will be to ensure they hold on to their existing car, let alone source a new one.

Who’s next with the begging bowl?
Without a rapid and sustained market recovery, the auto industry will be following banks in looking for government bail-outs.

In mid-October, rumours swirled around Wall Street that one or more of the US Big Three was on the verge of seeking Chapter 11 bankruptcy protection. At the present rate of cash burn GM is expected to require a capital injection within the next year and Ford will not be far behind.

In Europe, too, there are growing concerns that the majority of the region’s vehicle producers have insufficient resources to endure anything more than a mild recession – the more so as they confront the need to invest heavily to meet the EU’s increasingly stringent emission standards.

Already, the initial bail-out moves are in motion, led by the US where the federal government has promised at least $25bn in loans for manufacturers to develop and equip their factories to produce a new generation of fuel-efficient vehicles. In response, ACEA – Europe’s motor industry association – sought a €40bn low interest loan for its members from the EU at the beginning of October. German and French governments have confirmed that the money they have set aside for bank rescues can also be used by carmakers seeking refinancing in order to offer credit deals to customers.

The worry is that government aid could trigger a domino effect. If vehicle manufacturers receive help, why shouldn’t the component suppliers receive similar treatment in their quest for survival?

Perils of an under-funded aftermarket
It might seem logical that that the onset of recession would be positive for the automotive aftermarket. After all, squeezed personal incomes should equate to consumers deferring expenditure on new cars and instead spending money on keeping their existing ones on the road, even allowing that some will skimp on repairs and maintenance or reduce their vehicle usage.

Recent weeks, though, suggest that members of the independent aftermarket are likely to be among the principal casualties of the gathering economic downturn. With the recession hardly started, two famous names have entered into administration – Motor World, which operated retail outlets selling car parts and accessories, and LSUK, which supplied replacement car parts and provided repair services.

The sector should brace itself for more of the same over coming months. An alarmingly high proportion of the independent aftermarket – whether parts producers, importers, wholesalers, retailers or repairers – is woefully undercapitalised and dependent on accessible credit lines to keep going.

As participants throughout the production and distribution chain, together with the final end-users, experience payment difficulties, there is likely to be an increasing prospect of widespread default. If so, this would provide the perfect opportunity for the far-sighted to pick up the pieces and establish a dominant market position in a sector which should eventually enjoy attractive long-term returns.

Interior motives
It’s been apparent for some time that carmakers have considered interiors as a crucial means of gaining competitive advantage. A wide range of materials and systems – such as leather seats and air conditioning – have migrated from upmarket cars to volume ranges with the result that fixtures and fittings of current models are noticeably plusher than their predecessors.

As environmental concerns continue to sway product development, the application of new thoughts, materials and technologies will exert a growing influence on the design and specification of automotive interiors. Lotus has provided a glimpse of the future with the Eco Elise, unveiled as a concept car at the recent British Motor Show. Among other things, this featured the innovative application of renewable materials such as hemp fibres to produce seats which were upholstered in biodegradable woollen fabric, while hardwearing sisal was used to produce carpets. More recently, Nissan showed the Nuvu at Paris, featuring an interior produced from recycled materials.

In producing these concepts, the intention is to gauge consumer reaction before deciding on the next step and maybe incorporating some of the ideas into series production.

GM Chrysler mismatch
Considering the number of merger discussions with global competitors, it is surely only a matter of time before GM joins forces with another vehicle manufacturer. Proposed deals with Renault/Nissan and Ford foundered for a variety of reasons, but now there are growing signs of a developing love match with beleaguered compatriot Chrysler.

It’s easy to see why Chrysler is keen to make any match. Private equity group Cerberus must be rueing the day it rode to Chrysler’s rescue and did the patriotic thing by restoring a domestic manufacturing icon to American ownership after its unhappy affair with Mercedes-Benz.

It’s difficult to believe, though, that this would be the best option for GM which already has a surfeit of marques and too much manufacturing capacity in North America. Any merger would doubtless require a considerable financial sweetener from the government and be accompanied by widespread plant closures and job losses.

GM would do better to seek a partner with the financial and technological strength, as well as the global reach, to propel the lumbering American giant to new products and markets.

The Institute of the Motor Industry
motor.org.uk | Full article available here »

Jan 6, 2009

Jade Goody may have £150,000 Bentley repossessed after “mix-up”

Jade Goody may lose her car after a finance firm began repossession proceedings on the vehicle.

The former Big Brother star bought the £150,000 Bentley Convertible last year but finance company Lombard say she has fallen behind on payments over the last few months.

A spokesperson for the company explained: “An instruction to repossess has been issued as a last resort because of the failure by Miss Goody to meet the terms of the contract.”

But Jade’s spokesperson insists it’s a misunderstanding: “While she was in hospital, someone else was making the payments and there seems to have been a mistake.

“But the situation is now being sorted. Jade doesn’t have any financial problems.”

After undergoing a hysterectomy and radiotherapy in her battle against cervical cancer over the last few months, Jade is currently appearing as the Wicked Queen in Snow White And The Seven Dwarfs in Lincoln.

By fametastic.co.uk
fametastic.co.uk | Full article available here »

Jan 6, 2009

A time for checks and balances

With the end of the year almost upon us, ROGER HOUGHTON spoke to two banking experts to assess the state of the motor-vehicle market and provide a prediction of what the future holds.

IT IS essential that customers of new and used vehicles, as well as motor dealers, put checks and balances in place now to ensure that their finances are in order to cater for volatility in the local and international financial markets, says Karl Bauermeister, Standard Bank vehicle and asset finance’s director of origination and sales.

He says it is imperative that now more than ever dealers must ensure they have the right stock and must gear their business to the economic situation rather than to a business’s potential or they will be unable to meet their overhead costs.

Bauermeister says that they must be lean and mean in these times, which can result in difficult decisions regarding staff cuts and other cost reductions.

He says that all costs must be examined rigorously and managed to ensure the company is in good health and ready for growth when the economy turns for the better.

New and used vehicle customers should be even more vigilant in these times to ensure that the companies they do business with are not only reputable but are approved by a major financial institution, he says.

Bauermeister says that one must be aware that more than 100 new and used-car dealers have gone out of business already this year, either voluntarily or due to financial liquidation.

He says that Standard Bank had been relatively cautious going into 2008 after a downturn in the last quarter of 2007, but it had believed the current year would have improved even though the going would be tough. However, there were no signs then to indicate the catastrophic times that lay ahead.

Bauermeister says that the sudden change in the financial environment meant that many of the financial institutions had to revisit the way they operated immediately and to refocus on how they handled their various activities. They had to adapt quickly to the new situation.

Keith Watson, Standard Bank’s head of strategy, says that the fact that legislation such as the National Credit Act had been introduced before the onset of the recent financial woes proved a blessing in disguise for the local market.

“This cushioned many local credit customers from the impact of the international financial collapse and its subsequent effect on the local market.”

He says that this year SA’s local financial institutions had to deal with the implementation of the Basel 2 accords. These accords regulate international banking in terms of the amount of capital a bank should hold to guard against various types of financial and operational risks banks face to ensure solvency and overall economic stability.

Watson says that the introduction of these regulations impacted on the pricing methodology used by a bank and brought its own challenges. Some banks introduced the new system at the beginning of the year, while others phased it in over a period of time.

He says that the playing field is now virtually level and the South African public will be the beneficiary of these additional checks and balances in the local banking world.

Watson says that it was important that consumers understood that the sometimes arduous local financial lending conditions were in fact an excellent defence in these times of global financial turmoil. This was underlined by the South African banking system being rated highly among the international community, despite volatile times.

Bauermeister cited the banks decline in vehicle repossessions, compared with many of its competitors as an indication of the bank’s tighter financial controls having a positive affect that benefited consumers.
He says his team wanted to help people keep their cars at all costs rather than having them repossessed.

Bauermeister says he expected significant increases in new-car prices due to the weakness of the rand, but he believed that manufacturers and importers would do their best to cushion the rise to about 3% in the short term.

He says that these price rises would be accompanied by increases in the cost of all add-ons, such as insurance and accessories.

Watson stresses the importance of clients sticking strictly to the terms of their financial contracts, which include protection of the asset by means of a valid insurance policy.

He says it is beyond belief that some people take an insurance payment holiday over the festive season to ensure they have money to spend.

Watson says this constituted a breach in the contract with the financial institution and could lead to the contract being nullified.

Bauermeister stresses the willingness of his company’s team members to assist clients in obtaining the best price on vehicle insurance, as the bank was closely linked to the insurance industry.

Looking to next year, both agreed that new-vehicle sales would remain flat and that even interest-rate cuts would not do much to stimulate sales, as the financial situation is among the worst in history and could last longer than the time span forecast by some other industry commentators. Many agree that the lending environment is changing and that this includes the concept of prime rate, as recently there has been a wide range of incentive deals.

This situation could change in the future, with prime likely to become standard again. This is being driven by the increasing cost of raising money, both locally and internationally, and follows a number of good years when the cost of funding hardly rose.

Bauermeister says that he expected an upswing in nonmotor assets during the next two years while vehicle sales will remain flat, with substantial spending leading up to 2014, when further infrastructural development projects will get under way.

He says it is vital in these times of intense cost pressures on the financial institutions that they worked closer to the motor industry to alleviate unacceptable trading patterns. It will mean that both the motor industry and the financial institutions will be able to benefit when the good times start rolling again.

businessday.co.za
businessday.co.za | Full article available here »

Jan 6, 2009

Auto finance issues make cut redundant

Automakers don’t see much to cheer in stimulus package

MUMBAI: Just after massive price discounts announced a few days back, vehicle makers are cutting prices by another 4% to pass on the excise duty reduction announced on Sunday.

Maruti announced 4% price reduction which will see its best selling model Alto become cheaper by Rs 8,000.

But with no significant improvement seen in the availability of finance for buying vehicles, the overall sentiment in Motown may continue to remain weak.

The secretary general of the Society of Indian Automobile Manufacturers (Siam), Dilip Chenoy, welcomed the duty reduction announced on Saturday but said for commercial vehicle (CV) makers - which have seen maximum decline in growth due to the current slowdown - measures to boost overall economic and construction activity are crucial.

“The auto industry as a whole needs low double-digit or single-digit interest rates for better growth and increased availability of finance,” he said.

Maruti Suzuki India chairman R C Bhargava said that though vehicle prices will certainly come down because of the excise reduction, vehicle repossession rules need to be relaxed if financing is to become more prevalent.

“All vehicle financing is against assets (car, two-wheeler etc) and if repossession rules are unworkable, then non-banking finance companies (NBFCs) and banks remain reluctant to finance vehicles. This is creating a disturbed picture of financing,” Bhargava said.

TVS Motor Company’s Venu Srinivasan said that while every vehicle maker would be passing on excise benefit to consumers, the package is at best a welcome “first step”.

“We need much more to boost infrastructure spending. China is spending $600 billion; let us at least see $60 billion…….the lending and SLR rates also need to come down further. Even today, only 30% of two-wheelers are getting financed against 70% earlier.

Unless liquidity improves and banks come forward to lend, the situation may not show any significant improvement.”

Pawan Goenka, president, automotive business, Mahindra & Mahindra, said even now, the government has not done away with the additional duty (Rs 15,000 on cars with engine displacements of 1,500-1,999cc and Rs 20,000 for cars up to 2,000cc) imposed recently. He said M&M may look to cut prices by more than 4% on high-end cars and a decision would be taken by Monday.

Not just vehicle makers, the excise reduction should also help auto component companies though the exact impact could not be ascertained.

The Auto Component Manufacturers Association has been seeking major export incentives to combat slower exports as also the threat posed by cheaper imports from China.

But not much appears to have been done in Sunday’s package to address either of these demands by ACMA.

By Sindhu Bhattacharya
dnaindia.com | Full article available here »

Jan 6, 2009

Truck repossessions soar as owners default

Transporters catering to the steel, iron ore, cement, auto and mining industries have been hit the hardest on account of a slump in those sectors

India’s economic slowdown has started hitting truck owners, some of whom are defaulting on loans and surrendering vehicles, leaving financiers with hundreds of repossessed and idle trucks.

As movement of goods slows from a faltering economy, transporters aren’t in a hurry to reclaim their repossessed trucks, says Sudhir Khanna, executive vice-president, commercial vehicles division, Kotak Mahindra Bank Ltd, which has repossessed about 200 vehicles. About 90% of all commercial vehicles sold in India are bought with loans.

End of the road: Repossessed commercial vehicles parked at a farm in Nagli Dairy area of Najafgarh in Delhi. Mint

Finance firms and banks claim they aren’t too concerned yet as assets such as trucks are usually highly “liquid” and can typically be re-sold, says N.R. Narayanan, who heads the car and commercial vehicle loans division at ICICI Bank Ltd.

But some transporters say the situation is far worse than the financiers are willing to admit. Deepak Sachdeva, president of the Delhi Goods Transport Association, or DGTA, said that between April and December alone, close to 158,000 commercial vehicles were either surrendered or repossessed due to loan defaults.

“In the past four-five months, while freights have declined by 25-30%, operational costs have gone up by 15-20%,” said Malkit Singh Bal, president of the Mumbai Goods Transport Association.

“You have heard of farmers committing suicide, you will now hear of transporters doing the same!” claims Charan Singh Lohara, president of the All India Motor Transport Corporation.

Kotak’s Khanna admits his firm’s losses due to repossession have gone up by 15-20% over the last year, but insists the DGTA data overstates the problem.

This defaulting on trucks and continued softening of demand for transportation is a nightmare scenario for many truck firms, especially if the used-truck market balloons from all the repossessed trucks.

India’s industrial production fell 0.4% in October, the first decline in 15 years, and exports plunged 12%. Transporters catering to the steel, iron ore, cement, auto and mining industries have been hit the hardest on account of a slump in those sectors, said several financiers Mint spoke with.

Shyam Mani, managing director of Tata Motors Finance Ltd, or TMF, said loan defaults and repossessions have gone up in recent times and there is pressure on repayment, particularly for customers from the steel and mining sectors.

TMF is the financing arm of Tata Motors Ltd, the country’s biggest truck maker by market share, and provides loans for 35% of all its commercial vehicle sales.

While TMF declined to reveal the number of repossessed vehicles, business rivals said they have some 7,000 such trucks on their hands.

“We have close to 600,000 live contracts, hence there’s bound to be certain amount of repossessed assets,” says Mani.

By some industry estimates, ICICI Bank, which has been aggressively lending to transporters, could have some 3,000 repossessed trucks on its hands. ICICI Bank refused to put a number on its truck repossessions.

Shriram Transport Finance Co. Ltd, which said it financed 800,000 new trucks in 2008, has close to 8,000 vehicles in its repossession yard, said managing director S. Sridhar.

Ashok Khanna, executive vice-president, auto loans, HDFC Bank Ltd, which said it has an 18% share in the lorry finance market, said the number of vehicles repossessed by the firm has gone up by 1-1.5 percentage points on a month-to-month basis. “We repossessed 30 vehicles in October and 34 in November. Cumulatively, it has gone by 1.5% over the last year,” he said, adding that the bank currently has close to 90-95 repossessed vehicles.

Jasjit Sethi, chief executive of transporter TCI Supply Chain Solutions Ltd, said small operators have stopped buying new vehicles while larger, more organized players have also cut new buys by at least 15-20%. TCI, which typically adds 100-150 new vehicles a year, has reduced that number by 20%.

Meanwhile, the trucking industry itself—which accounts for 70% of freight movement in the country and provides employment, directly or otherwise, to some 20 million—sees some hard times ahead.

Parvinder Singh, who owns 85 trucks in Delhi-UP-MP Transport Ltd, said because there are more trucks than freight, his trucks have to wait for two-three days to load, compared with just a few hours before September. He attributes this to a fall in both exports and local consumption.

However, Sethi of TCI said transporters in the unorganized sector need to first put their business model in order.

“In our industry, in order to survive, we have to look at cash flow as much as profit. This is what most transporters fail to do,” he said, explaining that transporters tend to over-trade and rely heavily on credit to meet most operating costs, besides rotating money to repay loans, usually in equated monthly instalments. Thus, if business slows for even one month, things fall apart.

“They require support and on case-to-case basis, (and) depending on customer’s profile, we have been addressing their needs,” said TMF”s Mani about the transporters’ plight.

He added that the company is trying to maintain disbursement levels but loans have contracted by 10-15% over last year. Other financiers said the average reductions in loans across the industry ranged between 15% and 30%

Shriram Transport has also cut back on the number of loans, said Sridhar. “We have slowed down financing by at least 30% to Rs2,500 crore in the July to September quarter of the current year compared with last year,” he said.

By Shally Seth and Baiju Kalesh
livemint.com | Full article available here »

Jan 6, 2009