Industry set for another strong year

But AIC expects sales under First Car scheme to drop by 30% as some applicants may not pass the requirements

The auto market is still expected to benefit from the government's First Car Buyer Programme despite the populist scheme coming to an end on December 31.

As many as 1.25 million applications were made under the scheme last year, with Bt91 billion in excise tax rebates set to be paid back to buyers.

This is three times higher than the original target, and deliveries of 700,000 vehicles have to be made in 2013 due to the limited production capacity of auto-makers.

Many say that auto sales are likely to break the 1.2-million-vehicle mark in 2013, dropping slightly from last year's record of 1.45 million.

However, industry insiders and economists have pointed out that the First Car scheme could start spitting out venom during the second half of this year. As many as one-third First Car applicants could lose their rights, while there is also a serious problem with the legitimacy of a number of other applicants, which would lead to more rejections.

The question now is whether the figures from the First Car scheme are trustworthy or not.

Auto production

Automotive Industry Club (AIC) chairman Suparat Sirisuwannangkura said that auto production in Thailand would exceed 2.5 million vehicles, with 1.3 million to 1.4 million for the domestic market and the rest for export.

However, the AIC expects sales under the scheme to drop by as much as 30 per cent from the 1.25 million vehicles because certain applicants may not pass the requirements, while some may not have true purchasing power.

The large number of back orders carried over from last year has not been counted by auto-makers as 2012 sales, and if the mentioned problems occur, auto sales figures in 2013 may not be as high as expected. Suparat said that a clearer picture would emerge after the mid-year period.

"The reason that auto sales in 2013 would be close to 2012 is because of the large number of back orders that would run until the third quarter of this year, which could reach 500,000 vehicles. However, the export markets will be a supporting factor this year. Don't forget that in 2012, we held back exports in order to satisfy the domestic market. So auto production could comfortably reach 2.5 million vehicles this year," he pointed out.

The largest market for major auto-makers in Thailand is Asia (32 per cent), followed by the Middle East (26 per cent), Australia and Oceania (20 per cent), Central and South America (12 per cent), Europe (7 per cent) and Africa (3 per cent).

First Car Buyer Programme

The First Car scheme has accelerated the growth of auto loans from commercial banks for 2012-2013, and the total value of credit is expected to reach Bt1 trillion, up 30 per cent for the second consecutive year, according to Kasikorn Research Centre.

It said that debt quality is a factor to be monitored, particularly the debt of consumers who made purchases mainly due to the tax rebate. The centre also stated that many finance companies wanted to increase their market share by offering low down payment and interest conditions.

Meanwhile, the amount of non-performing loans for commercial banks (ending September 2012) rose slightly to 1.32 per cent, compared to 1.15 per cent during the corresponding period a year earlier.

"However, in another dimension we can see that there is an acceleration of 52 per cent - worth Bt10 billion - from the same period last year. This may be a warning sign of [bad] debt quality and it has to be closely followed," it said, adding that the scenario will become clearer in the second half of 2013.

Cars 'will be repossessed'

Many economists have come out to comment on the effects of the First Car scheme.

They say that the purpose of the scheme is to help Thais who are unable to afford a new automobile and to raise the quality of life. Meanwhile, the auto and auto parts industry would grow along with the insurance and finance sectors that help drive the economy. Jobs would be created and the country would be financially stronger.

The First Car scheme offered an opportunity to those who have never owned an automobile to make a purchase and receive an excise tax rebate of up to Bt100,000 per vehicle with a retail price of not over Bt1 million. Passenger cars had to be locally assembled and fitted with engines no larger than 1,500cc. Single cab and double cab pickup trucks were also eligible.

Originally, the government's target for the scheme was 500,000 applicants, with Bt30 billion in tax rebates to be returned to the buyers after a year.

However, a much larger number of people booked cars under the scheme. Of the 1.25 million applications, 739,000 were for passenger cars, 258,000 were for single cab pickups and 257,000 were for double cab pickups.

The scheme was widely criticised by economists, who said it doesn't benefit the country and goes in the opposite direction of energy conservation; it would besides increase traffic problems. But the economists also conceded that even without the scheme, a large number of consumers would still purchase automobiles.

However, the government did not give importance to those comments and moved ahead with the project.

Large income for government

According to an automobile industry source, the government would not stand to lose Bt90 billion for free during the first five years.

"In 2012 it had already collected Bt47.6 billion in excise duty. The larger number of cars on the road also means that the government would earn more from fuel tax. It is expected that during the first five years, the government would receive Bt67.45 billion in fuel tax. These two figures total Bt115.05 billion, but this is just an initial estimation because motorists usually use more than 100 litres per month, so the government's income could be even higher," he pointed out.

"In addition, the government has other sources of income, such as driving-licence fees, third-party insurance and road tax, which would total another Bt5 billion. Then there are taxes from related industries as well," he added.

A source from the financial sector said buyers under the First Car scheme must follow the conditions designated by the government, otherwise the rebate could be waived.

"Once you purchase a vehicle there are costs that would follow, such as the monthly installments, fuel costs [which could be another Bt3,000-Bt4,000 per month if the owner uses 100 litres of fuel per month], expressway fees, road tax and insurance [which has been increased by 10 per cent]," he said, adding that expressway fees are to be raised by another Bt5 in September.

"Although the government promises to return the money [a maximum of Bt100,000] after one year, the question is whether the buyer will be able to maintain all these payments or not. If he/she borrowed money to purchase the car and wait for the rebate, it would have been an unwise decision because of the interest and monthly-installment burden.

"There are also other risks due to the economic climate and government policies. Those who are in the high-risk group could be laid off due to the Bt300 minimum wage policy as many companies could face problems. There is also the higher cost of living," he added.

He said there is also a large number of applications that are made for other people.

"Names and rights are being borrowed in the scheme and those who lend their names could be in trouble," he warned. "They must carry the risk of the payments as well as the eligibility rights. In the end, the number of NPLs from this project could be very high. There would be large-scale repossessions and this is what many have predicted. The government will benefit, because it enjoys higher popularity among voters, and this will pay off during the next elections. In addition, it is considered a gesture of goodwill from the Yingluck government to auto-makers, who were disappointed with how the government dealt with the flood crisis in 2011," he said.

The source also said the scheme served as a catalyst in finding customers for auto companies by using the tax incentive.

"You can see that before the scheme ended on December 31, the excise tax for automobiles had been totally revamped. With cars set to become more expensive, the scheme served as another year-end sales boost," he said.