Indian carmaker Tata is offering a low down payment of 25 percent, free servicing, cash discount and back buy guarantee on purchase of its vehicles. Renault, another carmaker which is gradually gaining popularity in Nepal, is also offering lucrative deals, such as 9 percent interest on credit, exchange facility, 2 years of free servicing and 5 years of warranty.

Other carmakers are also offering similar deals in a bid to attract new customers. Yet these efforts are having no effect, as there are very few buyers of cars in Nepal these days.

The domestic automobile sector witnessed a surge in sales of passenger cars and other vehicles at the beginning of this fiscal year. But the sales screeched to a halt after the Nepal Rastra Bank, the central bank, in February, restricted banks and financial institutions from extending more than 50 percent of the value of the vehicle as credit to auto loan seekers.

The move was aimed at reducing the flow of credit towards an unproductive sector, such as automobiles, as the banking sector started facing shortage of cash that could be immediately extended as loans. This hit the automobile business hard, since most of vehicles plying on the roads are financed by banks and financial institutions.

Since then auto dealers have been doing their level best to attract customers, but recovery seems to be out of sight.

“Sales have plummeted by over 50 percent in the past two months and all we can do is hope for the situation to improve.” said Prasiddha Khadka, sales consultant for Ford. “As sales are falling, auto dealers are reluctant to introduce new models of vehicles.”

Nepal used to see sales of around 3,000 cars every month before the central bank made it mandatory for those applying for auto loans to make a down-payment of at least 50 percent of the value of the vehicle, according to the Nepal Automobiles Dealers Association (Nada), the umbrella body of auto dealers in Nepal. That number has now come down to 1,500 per month, said Nada Vice Chairman and Spokesperson Shambhu Dahal. “Sales of bikes, trucks and buses have dropped by similar level.”

Prior to the issuance of the central bank directive aimed at reducing the volume of credit towards the unproductive sector, most of the car buyers belonged to the middle-income group. They were mostly salaried people, who sought bank credit to cover up to 80 percent of the value of vehicles.

“Most of these people have now postponed their buying plans,” said Bushan Bajracharya of Hyundai. “The only ones who are buying cars these days are those who absolutely need one.”

To bring some vibrancy back to the market, some companies are offering their own schemes. A few companies like Datsun, Skoda and Toyota are offering down payment of just 30 percent. This sounds like violation of the central bank directive, but auto dealers say it is not.

This is because banks and financial institutions only cover only 50 percent of the car loan as per the central bank directive. The remaining 20 percent of the down payment is covered by auto dealers themselves. In other words, auto dealers extend 20 percent of the value of the vehicle as loan to car buyers on top of 50 percent of the credit extended by banks.

“This is kind of risky, but we cannot do business without taking risks,” said Anil Shrestha of Skoda, adding, “We have been able to attract few customers by launching this scheme.”