After two years of healthy loan growth thanks to the government's first-car tax-break scheme, new lending for car purchases will likely be flat this year.
Anuchart Deeprasert, chairman of the Thai Hire-Purchase Association, said sales of new vehicles this year were expected to be 1.2 million units or fewer. About 85 per cent of car buyers finance their purchases with hire-purchase (lease-to-own) lenders, so if car sales are flat, auto loans will be as well, he said. Financial institutions are also expected to tighten up loan approvals because the prospects for the economy this year are not bright, and the unclear political situation does not help.
Outstanding loans in the auto segment are currently between Bt800 billion and Bt900 billion.
Competition in this segment will ease in line with the economic slowdown, and “captive leasing” firms will have a stronger role. These are companies that offer loans through vehicle producers, enabling them to offer financial incentives to buyers to support car sales.
Car buyers are divided into two segments, those getting their first vehicle and those wanting to replace an old one. Customers in the first segment can be expected to buy smaller vehicles or those with engines below 1,500cc, such as eco-cars, as they want keep their monthly instalments low.
The trend of new models of passenger cars is towards small vehicles. Such cars account for 12-13 per cent of auto loans, pickup trucks 50-60 per cent, and large vehicles for the remainder. Anuchart said used-car loans accounted for 30 per cent of auto lending, and a full recovery of this market was expected in the first half of this year. The first-car scheme caused a plunge in used-vehicle prices.
Used car benchmarks
After experiencing a reduction of used-car sales last year, this segment is expected to recover thanks to new benchmarks to help ensure that buyers get quality vehicles at reasonable prices.
The Used Car Association of Thailand was formed last August by 200 dealers nationwide with the objective of raising standards in the segment, said Kittithara Ruamtham, president of the organisation. The association will provide members daily updates, including on the auto-lending market.
“The problem faced by the used-car market was uncertainty on prices. We did not have benchmarks for buyers or sellers. The fluctuating prices affected the market. The association will set benchmark prices for traders, so consumers can see the price gap between new and used cars,” she said.
The association does not expect the political tension to have much impact on the recovery of the used-car market. However, the recovery would not be rapid, so the organisation has suggested that dealers avoid large inventories and analyse supply and demand in their regions.
Toyota is the most popular brand in the Northern region, while customers in the South prefer Isuzu. Buyers in the Central region prefer passenger cars and minivans, and those in the Northeast are not choosy as long as price is right.