Attractively priced eco-cars are affecting market for used-car loans

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Well priced eco-cars dent used car loans  

Attractively priced eco-cars are affecting market for used-car loans
By SUCHEERA PINIJPARAKARN
THE NATION
Published on March 28, 2011

The growth of used-car loans this year is expected to be flat or slow because of the arrival of eco-cars, whose prices and interest rates are more attractive, according to Thanachart Bank, the market leader in vehicle loans.

The bank has witnessed slow growth in its used-car loan portfolio since last year, and the outlook this year should be no different, said Nophadon Ruengchinda, executive vice president of TBank.

He said that when eco-cars arrived in Thailand last year, the demand for used cars gradually slowed. Moreover, the increases in the oil price and interest rates this year were likely putting buyers off.

Used cars account for 30 per cent of total outstanding hire-purchase loans of Bt240 billion. New-car purchases account for the remaining 70 per cent, of which about 60 per cent is pickup trucks and the rest passenger cars.

Nophadon noted that there was not much difference between the prices of used cars and new eco-cars, and interest rates for used cars were higher than for new cars by 1-2 per cent.

"When customers weigh the advantages of eco-cars and used cars, they might prefer buying an eco-car because the cost is not much different, which is the reason for the faster growth of eco-car [loans] and the slowing growth of used-car [loans]," he said.

At TBank, the interest rate for new cars is about 2.35 per cent, which the bank will adjust in line with the market, he said.

He said the slowing growth of used-car loans had caused the bank to shift towards new vehicles, including eco-cars, to offset the reduced demand for used cars and to sustain its market leadership with a share of 20-22 per cent.

However, the bank still prefers giving loans for used cars because the margin is higher than for new cars, he said.

Nophadon said the bank projected new hire-purchase lending this year to grow by 10-15 per cent.

He noted that the bank would focus more on its "cash for your car" product, which is a type of instalment loan that caters to customers who need to borrow cash while keeping their cars.

Outstanding loans in this portfolio stood at Bt10 billion at the end of last year but the bank has set an ambitious target to become the market leader in this segment in the next three years, he said.

Meanwhile, Tisco Financial Group, one of largest provider of car loans, is more concerned about delayed delivery of new vehicles than about the used-car situation. Executive vice president Chalit Silpsrikul said that normally dealers delivered cars within one or two months of orders being placed, but problems with the delivery of auto parts from Japan after the earthquake disaster might delay the delivery of new vehicles to three or four months or even longer.

He said the surge in oil prices would attract consumers to buy eco-cars, including models fuelled by compressed natural gas (CNG). However, sales of used cars have witnessed slowing growth in line with the economy. Used cars at Tisco account for 20 per cent of total hire-purchase loans of Bt120 billion.

Eco-cars and CNG vehicles are popular models because they save energy, while larger cars have witnessed slowing sales growth. Tisco has also focused on lending in the eco-car segment.

Chalit said larger used-car models might be affected by oil prices and interest rates, while pickup trucks might be affected when the government withdraws the subsidy on diesel.

Pickups are used in the agricultural sector and for business, so demand has remained, but mainly for specialised users. The bank this year targets loan growth at 10 per cent. The interest rate for new cars at Tisco is 2.45 per cent and will be increased to 2.55 per cent soon.

Kiatnakin Bank, the fifth-largest car-purchase lender with outstanding loans of Bt80 billion, supports the withdrawal of the diesel subsidy by the government, which will shock the pickup market before it steadily recovers, said Tawatchai Sudtikitpisan, president and chief executive officer.

He said the bank was also monitoring the problems of auto parts in Japan, which might have impacts on auto assembly in Thailand and the delivery of vehicles.

The bank is concerned that fluctuating agricultural prices this year will affect outstanding vehicle loans, because the provinces account for 80 per cent of this market. The bank is monitoring the expected defaults, Tawatchai said.

Even given the bright trend of eco-cars in Thailand, the bank does not think they will affect used-car loans much as they appeal to different segments. Used cars account for 40 per cent of Kiatnakin's hire-purchase loans and new cars for the rest.

Kiatnakin Bank has outstanding car loans of Bt82 billion. Tawatchai believes that the used-car market will grow in line with the new-car market.

http://www.nationmultimedia.com/2011/03/28/business/Attractively-priced-eco-cars-are-affecting-market--30151898.html