The economic rebound in 2010 has boosted the auto industry toward a brighter direction with expected sales of at least 635,000-685,000 units, which would be higher than the sales of the last 3 years (2007-2009). This projection is based on two scenarios; the worst case scenario being where the market is affected by domestic political problems, thus preventing the economy from expected growth; this would put expected sales at around 635,000-660,000 units, increasing 16.0-20.0 percent YoY.
In a scenario where the political discord eases and the government proceeds with economic stimulus policies close to targets, car sales are expected to be around 665,000-685,000 units. This would result in improved auto-financing business at financial institutions that would then likely achieve a double-digit expansion rate, growing around 12.0-18.0 percent to THB445,000-470,000 million total turnover.
However, competition in the auto-financing market became more intense when some large commercial banks announced proactive policies to earn the top market share, forcing other banks that have large auto financing portfolios to follow suit by reducing interest rates and down-payment minimums. These two factors have resulted in no remaining margin on the business, forcing other auto-financiers to withdraw from the competition in the new car market, despite it being the cream of the customer base with high credit lines being extended to each customer.
Amid the recovering economy, domestic interest rates may rise, but auto financing rates – which are fixed rates throughout the contract term – may get weaker in 1Q10. Therefore, auto-financiers extending new auto loans this year may face greater challenges, especially if lucrative business at workable interest rates to support business is lacking. However, KASIKORN RESEARCH CENTER (KResearch) projects that auto-financiers will begin raising the baseline interest rate by 0.1 to 2.25 percent in April 2010, in concert with the direction of financial costs, and will gradually increase the nominal new car financing rate to 2.5 percent by the end of the year.
Auto Financing Rates for New Cars
|
(Units: %)
|
2006
|
2007
|
2008
|
2009
|
Q1/2010
|
|
Interest rate*
(Average rate)
|
2.95-3.70
(3.44)
|
2.85-3.40
(3.06)
|
2.65-3.50
(3.08)
|
2.25-3.50
(2.79)
|
2.15
(2.15)
|
|
Effective Rate
(Average rate)
|
5.31-6.66
(6.19)
|
5.40-6.12
(5.78)
|
5.04-6.58
(5.82)
|
4.20-6.62
(5.10)
|
4.10
(4.10)
|
Source: KLeasing
Compiled by: KResearch
* The rate at the end of the month is the nominal effective rate in the market. It is lower than the interest rate typically announced by financial institutions, and is extended on the condition of a 25% down payment and 48-month installment term.
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