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Mahindra Ford plays cheap finance card in bid to drive up Escort demand
M Anand
CHENNAI, Dec 29: Hit by a sluggish demand for luxury cars, Mahindra Ford India Ltd (MFIL) has resorted to `subvention' arrangements with banks and finance companies to stimulate the market. The arrangement has enabled car financiers to offer attractive interest rates of 13-13.5 per cent on loans for the Ford Escort. The market rates on car loans are currently hovering between 17 per cent to 18 per cent on a diminishing value basis.Under a subvention agreement, the car manufacturer gives monetary assistance to a finance company which then passes it on to the consumer through attractive interest rates. Though an MFIL spokesman denied the existence of such arrangements, sources from three banks and two finance companies which have slashed rates by over 4 percentage points said the cuts were made possible through subvention by MFIL. The car finance wing of Grindlays Bank recently kicked off a zero per cent finance scheme on loans for the Ford Escort. Under the scheme, the bank is offering a maximum loan
amount of Rs 6 lakh for a tenure of one year. For a two-year loan tenure, a maximum amount of Rs 3 lakh is offered interest free. "MFIL is offering us a subvention of Rs 45,000-50,000. We have built this into our zero per cent interest scheme," a bank official said.The Standard Chartered Bank, which charges about 18 per cent on other car loans, is offering a rate of 13.1 per cent on loans for the Ford Escort. This rate is applicable for a maximum loan amount of Rs 5 lakh repayable over three years.Citibank recently advertised a scheme offering 13.5 per cent interest on loans for the Ford Escort. Both Standard Chartered and Citibank officials said the low rates were possible due to an assistance of Rs 30,000 to Rs 35,000 from MFIL.Similarly, Gujarat Lease Financing Company Ltd is offering loans for the Escort at a rate of 13.28 per cent - thanks to subvention from MFIL. However, car financiers said the actual amount of subvention varies on a case to case basis. "Though the low interest rates have not created
a fresh demand, the response has been moderate," they felt.MFIL officials, however, maintain that no such subvention is being done. "The banks and finance companies are offering low interest rates on their own record," is the official comment. "Till recently, Ford Credit Kotak Mahindra Ltd was the sole financier for the Escort. However, we recently decided to rope in seven other financiers. They are now offering low interest rates," an MFIL spokesperson said.However, MFIL and most other luxury car manufacturers have faced a steep drop in sales. MFIL could sell only 338 Escorts in November, as against 532 sold in October. It had sold 4,321 cars during the first half of the current year.
Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.
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