s changing middle class tastes whet theappetite for automobile finance
Henry Ford invented the first automobile,right? Wrong. The first automobile was actuallyinvented by Sam McLaughlin, a Canadian fromOshawa, Ontario. He went into partnershipwith American David Buick to mass-produceMcLaughlin-Buick vehicles, a year before theModel
arrived. Subsequently, car registrationclimbed from 178 in 1903 to just over 2,000 by1908. Selling cars was a challenge during thisperiod, until an extraordinary salesman andentrepreneur, William Durant, entered thefledgling automobile industry. William
Durant founded General Motors and was the firstto introduce automobile financing.
Automobile loans were not common in India
until the 1990s, and were restricted to the rich.Ordinary citizens did not or could not take loansbecause they didn
t earn enough or thought
that it was less important to own a car when
compared to other essential needs. They fearedthe risk or were more interested in saving for the future. All that changed with the liberalizationof the Indian economy around 20 years ago.This paper analyzes the impact of affordableautomobile loans in the middle class consumer mindset and its long term impact andimplications on the Indian society.
Consumer perception and scenario in the 80s
The consumer mindset of the 1980s was one of caution and savings orientation. Government jobs - low paying, but secure - were preferred.People couldn
t aspire beyond one house, andspent their entire working life paying for it.Owning a vehicle was low priority and theabsence of easy, low cost vehicle finance was afurther dampener.If one analyzes the balance sheet of the banksin the early 80s, the percentage of vehicle loans(individual personal vehicles) in the books of the bank, when compared to the overall assetsize of the bank was very less. The number of products under vehicle loan category offeredby banks and the demand for loans from
customers was very less.
Emergence of automobile finance in Indiaand role of banks
The liberalization of the Indian economy in theearly 90s
brought in a host of foreign investorsand banks which revolutionized the growth of industries across the economy. There wasspecial focus on the automobile industry, whichproduced passenger cars and multi-utilityvehicles, since it contributed significantly to theGDP growth of our country.Job opportunities in automobile, IT and other industries increased the wealth and purchasing
power of the middle class manifold; peoplewho couldn
t afford a single vehicle, were nowbuying luxury cars or expensive two -wheelers.The automobile industry responded to therobust demand with both high-end andaffordable models, and approached banks andfinancial institutions to offer vehicle financeat competitive rates. Both these measuresaccelerated the automobile industry