Volkswagen AG and Ford Motor Co plan to close down their auto financing business units in India and the companies will stop providing new credit to car buyers and dealers in the market, said reports quoting information from sources with knowledge of the matter.
After having stopped giving loans to car buyers in India last year, Volkswagen Finance Private Ltd, the finance arm of the German car maker informed its dealers in May in India, which included sellers of Volkswagen, Skoda and Audi brands, to find other sources of financing, reports said.
The sources reportedly said that the finance unit has suffered losses because some customers failed to make repayments and therefore the unit will stop its business in the Indian market by December 31. The sources said that credit from the finance arm of VW is used by more than 50 per cent of the Volkswagen group dealers.
In order to service its retail customers, it had acquired a major stake in Indian loan brokerage portal KUWY Technologies, Volkswagen Finance Private Ltd said in a statement. The company further said that it is currently interacting with its dealers and its business strategy will be reviewed by it at the end of the year.
Classified as non-banking financial companies (NBFCs), the auto finance arms generally compete with banks for offering credit to customers for buying cars. However because of their access to cheaper funding, banks are able to offer lower rates of interest to consumers compared to those offered by the NBFCs or shadow lenders.
Report also quoted sources saying that incentives to those dealers who have used their credit finance would be resorted to by Volkswagen and Ford in order to offset the disadvantage. Typically dealers purchase cars from auto companies on credit and repay the credits after they sell the cars to customers.
Reports also said that many deals were surprised by the decision of Volkswagen to exit the financing business as the company is slated to launch Skoda’s new sport-utility vehicle (SUV) in a few weeks with the aim of boosting the company’s sale in the Indian market. Reports also claimed that dealers of Skoda were directed to work out new sources of financing and credit by the end of the month which is a tight deadline just ahead of the launch of the new model.
The financing arm of Ford – Ford Credit, had reportedly stopped providing credit to car buyers by the end of last year and now will also stop providing any credit to its dealers in India by June 30.
It is reported that Ford is finalising a new strategy for India after it ended its ties with Mahindra & Mahindra on December 31 which makes this decision of the company to exit the financing business an interesting one.
The company regularly assesses market conditions for its credit business, a Ford Motor India spokesperson said, and added that the company had conveyed its decision in October of discontinuing the credit business. That was prior to the company announcing the end of its partnership with Mahindra.
“We are confident the auto financing sector in India can support Ford customer and dealer new financing needs. Our team continues to service our existing book of business,” the spokesperson said, adding that 25%-30% of its dealers do business with Ford Credit.
(Adapted from Reuters.com)