Cash deal ban to help auto finance

Mumbai: The ban on cash transactions above Rs 3 lakh will accelerate the ‘financing’ business of the auto industry, and lead to faster growth of the used car industry.

In India, the used car market which is already larger than the new car market (25 lakh sales per year for new car vs 40 lakh sales per year for used car), does not attract the same finance as the  new car said Vikram Chopra, CEO & co-founder, Cars.com.

With the increase in white transactions, there will be proper invoices for the exact number of transactions undertaken and once dealers generate white transactions, they will see benefits in terms of more organised lenders willing to fund their working capital requirements for business expansion.

This will help the many second-hand car businesses to expand by getting loans from mainstream lenders.

He said the Budget mentioned 1.25 crore car transactions in 5 years. However, it seems that this number only factors in the new car transactions.

The used car market is much bigger with around 40 lakh cars transacting per year and it is growing aggressively at 20-25 per annum, year on year.

In last 5 years, more than 2 crore car transactions would have happened in used car sales alone. To put things into perspective, he said, the number of cars being transacted in a year is significantly higher — about 2.7 times, compared to 24 lakh taxpayers.

Consumer lending in the used car segment, which is a very small percentage today when compared to new car lending will also get a boost as dealers are able to get funds to finance their car inventory.

This will create a positive flywheel once dealers realise that doing white transactions fuels their overall growth despite paying taxes, said Mr Chopra.