Sri Lanka’s inflated car prices plunge as interest rates rise

ECONOMYNEXT – Sri Lanka’s overheated vehicle market has begun cooling after the Central Bank doubled its benchmark lending rates fuelling leasing rentals sharply, dealers said.

Vehicles advertised on-line were quoted at about a million rupees less than a month ago. The asking price of a popular Wagon R 2014 model has come down to around four million rupees from five million.

Bigger cars are seeing a bigger decline. A 2011 Toyota Corolla which was quoted at 8.8 million in April is now offered at 7.1 million.

There is a smaller decline in motorcycle prices. A 2019 Honda Dio which was being offered at 575,000 in April is now quoted at 560,000.

Traders said the high interest rates as well as the fuel shortages were weighing on the market which is seeing only a very few vehicles changing hands.

“I used to sell at least two vehicles a week at the start of the year, but now it is down to barely one a month,” a used car dealer at Piliyandala said. “Effective leasing rates are around 30 percent and not many can afford it.”

He said most leasing companies have also reduced the loan-to-value ratio (LTV) to 50 percent which means the buyer must put down half the value of the vehicle before leasing it.

At a time when the car market was on a steady climb last year, finance companies often provided the full value of the vehicle with the new owner not having to put up any capital up front.

Several dealers at Dutugemunu Street, Kohuwala said the number of people visiting their showrooms had also declined. Sales were few and far between. (COLOMBO/June17/2022)