Pay as you go on two wheels

Motorcycle financing takes hold in Thailand and Cambodia.

Motorcycles are the lifeblood for a lot of people in Southeast Asia. Affordable and easy to maintain, they have for decades carried millions of people to and from their homes, making commerce and efficient transport possible in places where it once didn’t exist.

“People pay [their loans] because they don’t want to lose their motorcycle, even in a time of crisis”

Chief executive,
APF Group

They also represent an industry worth tens of billions of dollars. The global motorcycle manufacturing sector generated $74 billion from the sale of some 53 million units in 2011, $45.2 billion of which came from the Asia-Pacific region, according to the UK-based research firm MarketLine.

Where global revenue growth for motorbikes averaged just 5.7% a year from 2007 to 2011, positive economic forecasts in Southeast Asia will help accelerate that growth to 12.9% by 2016.

That is where Mitsuji Konoshita, comes in. The chief executive of the Japanese investment firm Asia Partnership Fund Group (APF Group), he manages hundreds of millions of dollars in assets across a range of sectors including property, restaurants and even tennis schools. Konoshita turned his attention to motorbike financing back in 2007 when his company acquired majority stake in Thailand’s struggling Group Lease Financing (GL). It was a move that years later would result in an expansion to become Cambodia’s first motorcycle leasing firm.

Konoshita said the acquisition seemed like a good idea at the time because of the steady sale of motorbikes in Thailand, while the reconditioning and sale of reclaimed bikes bears virtually no cost and happens overnight.

Finally, he said, the nature of the small loans issued to finance bikes, typically for one to three years, would make the business resilient in the case of an economic downturn. He was right.

Thailand endured a series of economic setbacks stemming from political disputes at home and the global crisis in 2009. Nevertheless, GL Finance endured, growing from about 30,000 customers from its sole operation in Thailand in 2007 to 140,000 today.

GL posted a net profit of 357 million baht from financing Yamaha, Suzuki and Honda motorcycles in 2012. The growth represents a year-on-year increase of 66% from 215 million posted in 2011, according to a financial statement.

“After the takeover, I wanted to run the company conservatively because even though it would be easy to sell and finance the product, the return of the money would be slow,” Mr Konoshita said.

“People pay [their loans] because they don’t want to lose their motorcycle, even in a time of crisis. They may not be able to pay off expensive housing loans, but for a motorcycle they can pay it and still hang on to an important [mode of] transport.”

One in every four Thais owns a motorbike. Part of GL Finance’s success, Konoshita said, has been keeping non-performing loans to about 4.6%, well below the industry average of 7%, while offering competitive interest rates at about 2% a month.

“Part of the appeal for us is not just the [collateral] we hold on the bike, but the liquidity of the mortgage as well,” he said. “When we resell a motorcycle [at reduced rates], we can sell it immediately. House or land mortgages, on the other hand, are very difficult to sell and can take years.”

With its success in Thailand, GL Finance launched operations in Cambodia in October after signing a seven-year exclusivity agreement with Honda to offer financing on its line of motorcycles there.

Honda currently sells 180,000 motorcycles a year in Cambodia, a figure they are planning on increasing to between 350,000 and 400,000 by 2015, Konoshita said, adding that he wishes to finance half of those purchases.

GL Finance’s sales from Cambodia in the early going are estimated at about 2,000 accounts a month.

“Our goal now between Cambodia and Thailand is to have expanded our client base to 1 million customers by 2015, while we have the contract to expand into Laos maybe next year,” he said.

But such a lofty goal does not come without problems. Konoshita said that only one in eight Cambodians over the age of 14 currently has a motorbike, while most customers tend to pay with cash in order to avoid accumulating debt.

“This is the first time for them to use financing and they don’t have experience with it. The culture has to change,” he said.

“However, Thailand was like this 20 years ago and now everybody uses [financing]. Here, things are moving quickly and in one or two years things will change.”

About the author

Writer: Philip Heijmans