July 7, 2005

The problems faced by genuine car buyers have been covered quite extensively in the print media for quite some time now. Much centres around the fact that for most car models, a buyer has to wait several months before he or she gets delivery. And this happens after one has paid the full amount to the authorized car dealers.

This means that if, say, a car model costing Rs1 million has a nine-month waiting period, then the buyer of the vehicle is foregoing interest income (if it can be invested in securities) worth around Rs70,000 or more.

If, however, one does not wish to wait out the delivery period, then one can always go to any car showroom and pay an additional amount for immediate delivery. This additional amount is known as the premium or in car dealers’ lingo the ‘own’ (mostly pronounced as ‘on’), that a buyer has to pay.

However, if one has recently thought of purchasing a new car, there are various options. With financing from banks readily available just about every Tom, Dick and Harry can probably get their hands on a brand new car. Or so one surmised. What happens after that is quite an interesting story and might be instructive for others who are thinking of booking a new automobile.

It’s not just the waiting period inconvenience, or the troubling fact that one has to pay in full in advance and not expect to get a car for six or more months, or that premiums on some models are as high as Rs 100,000. The problem is that if you don’t want to take a loan from a bank to purchase a car and manage to save enough (or borrow from relatives and friends) to purchase it outright then the system is stacked against you.

For example, one happened to approach an authorized dealer of a well-known brand to book a CNG-fitted compact model. The first response was that the month’s quota was over (the request was first made in mid-June) and that nothing could be done at least till the next month. The prospective buyer then tried his luck at another authorized dealer and was told the same thing: that the monthly quota for those wishing to book a car on an individual basis was finished.

The quota had been imposed by the manufacturer, and the reason, according to the dealer, was to stop demand from spiralling out of control. However, anyone with even a basic knowledge of economics would know that imposition of quotas, when demand exceeds supply, often leads to a blackmarket -–– which is precisely what the car purchase market in this country has become.

This situation gives rise to more questions, especially regarding this particular situation where a genuine buyer with enough money to book a vehicle outright seemingly has no choice but to turn to the open market and pay a premium ––- even if he (the prospective buyer) was willing to wait out the delivery period. However, if the buyer wanted financing or if the booking was made through a company the dealer was more than willing to accommodate the request.

Asked why this was so, the first response was that those who booked cars without any bank financing were often investors who were buying cars to sell them later in the open market on a premium. However, upon some further goading, and albeit a bit reluctantly, the dealership employee admitted that his organization had some kind of arrangement with the banks and hence the preference for buyers who wanted financing.

As far as the advice that a booking made through a company had a far greater chance of being accepted, the reply was that the quota for corporate bookings was 95 per cent and five per cent for individual buyers. So not only is this system forcing genuine buyers to turn to the open market, where they must pay premiums, it is also pushing them, even if they don’t want to, into indebtedness.

In fact, even to book a car, one had to have connections or some influence especially since the quota set by the dealers for individual buyers is a ridiculously low five per cent. And this was the only choice left, since paying a premium was out of the question and since one was prepared to wait out the delivery period.

In such a situation, what is an individual buyer of a car supposed to do? Especially someone who does not have any recourse to any influence or, for the sake of principle, does not want to involve anyone. So much has been written about this apparent cabal of car manufacturers, authorized dealers and showroom owners whose operation is completely against the interests of ordinary consumers.

For example, why cannot the government force the car manufacturers to accept a token payment and the rest to be paid later upon delivery, as is the practice in most civilized countries? Also, the ministry for industries and production needs to sort out this quota business since a five per cent quota for individual buyers means that they will suffer the longest delays.

But instead of doing any of this, all that the government has done is to commend the car manufacturers for increasing (so they claim) their production and to lower import duties on mid-sized and large cars.

The latter, much touted in the federal budget for 2005-6, only helps the manufacturers since most have now started importing such vehicles. If the government really cared for the individual car buyer, it should have lowered import duties on small and compact model cars. But then, does anyone in this country care for the ordinary consumer?

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