STUCK IN LOW GEAR

BUSINESS FOCUS

It's no surprise that many consumers are hesitant to buy new cars these days, given uncertainty about jobs and future incomes. One would expect that the used-car market should be doing better as people seek cheaper wheels.

But sales of used cars in Thailand have declined by 30% this year - the same rate of contraction as the new-car market - as the economic slump curbs purchasing power while fluctuating oil prices affect customers' decision-making.

But dealers say the biggest brake on sales has been the inability of buyers to get financing.

"Economic factors have strongly dampened used-car sales volume, the same as the new-car market has experienced," said Sitachai Jeeratunyasakul, vice-president of Toyota Motor Thailand (TMT).

TMT, Thailand's largest automaker, has marketed used cars for the past five years under the "Toyota Sure" brand.

"We estimate the overall used-car market has dropped by 30%. Toyota Sure, however, expects sales to drop less than those of our new cars," he said.

When the economy slows, Mr Sitachai says more consumers are likely to seek used cars because they cost 20-50% less than new ones depending on models and age.

But leasing conditions have become very tough, while lenders have also raised down-payment requirements and interest rates on used-car loans, he said.

"Financial firms minimise risks from leasing services during the economic slowdown by strictly checking each customer's background and track record of debt payment," said Mr Sitachai.

Chaiyapol Cholprasertsuk, the owner of a used-car centre on Ratchadapisek Road, said his monthly sales had dropped 30% from 2008 to 20 units.

"Consumers' purchasing power have been lower while leasing firms have become so strict about approving auto loans," he said.

The 22-year-old business sells vehicles from Toyota, Isuzu, Nissan, Mitsubishi, Chevrolet and Ford, mainly pickup trucks. It works with more than 10 leasing firms such as Thanachart, GE, Tisco, SCB Leasing, and Siam City Leasing.

Since the beginning of this year, leasing companies have demanded a down payment of 25% of a used car's price, up from 10-15% last year, to cope with rising risks of non-performing loans.

The NPL ratio has reached an unprecedented 30% of total car sales at his centre, Mr Chaiyapol said.

"Interest rates for used-car purchases, varying from 3.5% to 10%, have not fallen even though banks have cut rates many times," he said.

"Even though down payments and interest rates for new-car purchases have been reduced, I think the price gap between new and used cars remains substantial and is a major deciding factor for car buyers."

Toyota Buzz, which sells used Toyotas on Ratchadaphisek Road, also expects its sales could fall 20-30% unless new marketing campaigns and increased after-sales services can lure customers.

With quality certification by TMT, Buzz used cars cost more than those sold by independent dealers.

"As consumers' purchasing power has decreased, used vehicles might be the option if they want to buy a car," said a Toyota Buzz executive.

He agreed that tough lending terms had deterred many customers. "However, we have seen customers buying cars with cash rising substantially."

Also hurting the used-car market is the heavy competition in the new-car market. Common promotions include price discounts, zero down payment, low interest, free first-class insurance, as well as extended payment periods.

Chawalit Wanittananun, the operator of Rodbaan Khun Chawalit, says used-car dealers need to put more effort into speeding up customer decisions.

"Their behaviour has changed a lot since the economy slowed down. They spend much longer time making decisions, they have a lot more conditions. They compare dealers' offers as they expect to see better offers," he said.

In a tough market, high inventories are a major burden for used-car dealers. Mr Chawalit has cut his inventory to no more than two months at his Rattanathibet showroom, focusing on Japanese cars for which there is steady demand.

Among the cars keeping their value are the popular Toyota Yaris and Vios. A 2006 Yaris can fetch between 400,000 and 580,000 baht depending on options, and a Vios for the same year will cost 350,000 to 450,000 baht, he said.