Auto finance market to double to Rs 2.6 trillion lakh crore by 2020: EY

The domestic auto market is expected to grow at a CAGR of 13% by value between fiscal 2016-2026

The domestic auto finance market, one of the most developed in Asia with 74 per cent penetration and with healthy asset quality of under 1 per cent bad loans, is set to double the asset base to Rs 2.6 trillion by 2020, said a report on Tuesday.

The domestic auto market, the second largest in Asia, is expected to grow at a CAGR of 13 per cent by value between fiscal 2016 and fiscal 2026 to reach $300 billion, said the report by EY, adding by 2020, the vehicle penetration in the country is expected to rise by 50 per cent.

"This huge growth potential provides an addressable opportunity of over Rs 2.6 trillion by fiscal 2020," said EY India partner and automotive sector leader Rakesh Batra, adding new passenger vehicle financing market stood at Rs 1.6 billion in fiscal 2015.

The market growth has been led by captive financier and at 75-80 per cent penetration with OEMs, this is higher than the overall market, primarily driven by innovative products and campaigns.

"Auto finance market is a key enabler of growth for the automotive market. Both private and captive auto financiers are focusing on building a more holistic relationship with both car buyers and dealers," said Batra.

Noting that at 72 per cent, the loan to value (LTV) is healthy, he said this is on par with developed countries.

The report noted the future of the auto finance industry is promising and a 3-5 per cent annual increase in ticket size of cars and growth in finance penetration from 74 to 80 per cent augurs well for the market.

The expansion will also be aided by a massive growth in the consumption story which is poised to rise 2.5 times by 2025 to reach Rs 110 trillion from Rs 43 trillion in 2010.

The report predicted 80 per cent of customers will consider buying a car higher than their Budget, if attractive financing schemes are available, and 58 per cent of dealers believe differentiated finance products can lead to more than 10 per cent increase in sales.

Another growth driver will be that 40 per cent of customers change cars within four-six years, followed by around 30 per cent, who do so in two-four years.

As per the report, 50 per cent of dealer profitability comes from servicing and accessories, followed by insurance, new car sales and then finance commission, while inventory funding is over 70 per cent of a dealer's cash requirement, making it the focal point of captive-dealer relationship.

Potential leasing opportunity from corporates can touch Rs 12,600 crore, while the average leasing ticket size is Rs 10 lakh compared to an average car loan disbursement of Rs 3.80,000, it added.