Sri Lanka credit squeeze slows car sales, hits prices
ECONOMYNEXT – Sri Lankan car prices which spiked with the sharp depreciation of the local currency has seen weak demand following the central bank’s move to curtail credit for vehicle purchases, dealers said on Sunday.
Car dealers had jacked up prices on vehicles they had imported at an exchange rate before the depreciation triggered by a free float of the currency. The local rupee shed over 11 percent against the Japanese yen two weeks ago, but sales were hit as getting credit was more difficult.
Recent studies have shown that the vast majority of vehicles were imported on borrowed money with financial institutions in a mad frenzy to extend credit to the full value of the purchase price.
Some financial institutions were even offering free insurance for the first year in a cut-throat competition to corner the vehicle leasing market.
The central bank has now limited the amount of credit a financial institution can extend to 70 percent of the value of a vehicle.
With the credit crunch, many potential buyers were forced out of the market reducing demand and as a result bringing pressure on dealers to cut back on their margins.
The Toyota Axio G grade which was quoted around 5.3 million rupees was marked down to 5.0 million rupees this Sunday and many dealers advertising in the Hit Ad of the Sunday Times offered vehicles at the "old yen rate."
Dealers were also finding that the expected windfall from the stocks they had imported before the depreciation could not be realised as demand dropped sharply.