The Federation of Thai Industries (FTI) does not agree with the Bank of Thailand’s new measures to control auto loans, saying they would put pressure on new car sales due to panic changes.

Still, auto distributors are bracing for new measures from the central bank, eager for a single standard for fair loan approvals.

On April 1, the Bank of Thailand announced that it plans to implement new measures for auto loans following a review of several marketing campaigns displaying simpler criteria for auto loan approvals, including in particular repayment and complementary loan incentives.

The minimum down payment required to buy vehicles usually depends on aggressive marketing campaigns, and some auto lenders don’t offer any down payment.

Lenders are expected to review each loan application based on the financial capability of each buyer. But lenders often decide on their own the requirements, such as the minimum down payment and the length of the loan.

The Bank of Thailand is concerned about the worrying level of household debt in the country.

The central bank issued new loan-to-value regulations to monitor asset quality in the real estate sector, effective April 1.

The new measures provide for a minimum down payment for the third and subsequent mortgage loans of 30% of the price of the home.

During this time, the minimum down payment for a second home loan is 10-20%, depending on how long the borrower has made payments on the first mortgage.

The punishment is better

Surapong Paisitpatanapong, a spokesperson for the FTI auto industry club, told the Bangkok Post the club would not agree to new auto loan controls.

The club understands the need to control household debt, but the next step should be to sanction any dealers or lenders who relax loan criteria to approve loans larger than what buyers can afford, Mr. Surapong.

“The central bank review should monitor the quality of loans and guard against future problems such as an increase in the country’s household debt,” he said.

Punishment for each lender in breach would address the central bank’s concerns about fairness in the loan market and which dealers maintain their lending criteria standards, Surapong said.

“I would say that the review and sanction could help the Thai auto market to operate in a very healthy way and benefit from the real demand of buyers,” he said.

Surapong said if new auto loan measures are issued, the auto market could suffer in the short term.

Thai household debt reached 12.8 trillion baht in the last quarter of last year, from 12.5 trillion recorded in the third quarter, according to central bank data.

The latest household debt figure stands at 78.2% of GDP on a seasonally adjusted basis.

Enthusiastic distributors

Wallop Treererkngam, Executive Director of Sales and Marketing at Suzuki Motor Thailand, told Bangkok Post new measures planned for the automotive sector could help strengthen the strength and sustainability of the local market.

He said the auto market has become defined by aggressive competition as distributors, dealers and lenders compete to increase their sales volume and the value of new loans in order to meet the goals of automakers.

“When the regulations are unclear, there are many tactics companies can come up with to attract potential buyers,” Wallop said.

“We hope that any new measure will promote fair competition between large and small businesses, including car brands.”

In the latest auto showcase that ended on Sunday, cash back rebates and additional incentives for auto loans took the form of substitute down payments.

This method has been used for a long time, according to a sales representative for a mainstream automotive brand who requested anonymity.

The representative said that the replacement down payment is offered to buyers who have a limited budget for down payments.

“For example, if a vehicle costs 680,000 baht but the dealership has a marketing budget of 50,000 baht per car from the car manufacturers, the dealership offers a 0% payment to interested buyers with limited income, and this budget is used as a down payment instead, ”said the rep.

“As a result, the dealer calculates the total loan amount at 730,000 baht for the buyer, who will have a higher financial burden than expected.

“The replacement deposit is also subject to a 7% value added tax, so the replacement deposit will be deducted.”

An employee of an auto distributor who requested anonymity said the cash back program could also take the form of an auto accessories budget that dealers and lenders would add to the loan amount.

“They will pay the cashier’s checks to the buyers,” the employee said.

“With the traditional method, each dealership can offer the marketing budget to lower the price of the car, while the buyer takes responsibility for the remaining amount.”

Suzuki’s Wallop said such methods attract many car buyers who lack the capacity to repay loans in the system.

“This means that the local market is heating up because of low capacity buyers,” he said.

Mr Wallop said the central bank’s new auto lending measures would bring back growth in the auto market and reflect real demand from buyers.

In addition, he said the new measures should require a maximum loan term because car dealers would accept a loan period of less than 84 months or seven years.

“Normally, the life cycle of a vehicle is between five and seven years before it is replaced with a new one, so a longer loan period will discourage buyers from switching vehicles,” Wallop said.