Thailand's uneven economic recovery has affected some auto loan borrowers and increased default risk.
The number of impounded cars sold via auctions rose significantly in 2023.
Car seizures are expected to continue in 2024, though growth should be lower than the previous year, Varunyoo Sila, director and chief executive of Union Auction Plc, Thailand's largest car auction service, said in an exclusive interview with the Bangkok Post.
Peak year in 2023
Although the economy continues to recover from the pandemic, growth is uneven and fragile, affecting some auto loan borrowers, particularly low-income earners.
Spending by lower-income groups is pressured by a combination of rising living costs, in particular energy and food prices, as well as high inflation eating into the purchasing power of consumers, affecting their debt repayment ability.
"People who earn less than they owe often choose to spend on daily expenses before repaying debts. As a result, late payment and debt default have increased," Mr Varunyoo said.
Under the Bank of Thailand's debt suspension measure for auto loans during the pandemic, financial institutions were able to control auto non-performing loans.
However, special mention (SM) loans, defined as loans overdue from 30 to 90 days, increased significantly in the auto segment after the measure expired at the end of 2021.
The central bank implemented a debt restructuring scheme to replace the debt moratorium to avoid moral hazard, but some borrowers, including in the auto segment, still struggle to service debt.
Many cars were confiscated by financial institutions and put up for auction.
According to the National Credit Bureau's data, SM auto loans continued to increase since the beginning of 2023.
In the third quarter, SM auto loans amounted to 213 billion baht, up 17.5% year-on-year.
SM auto loans represented the largest proportion of SM loans, which totalled 493 billion baht.
He said he expects the impounded car total to increase by 20% in 2023 from the previous year.
Mr Varunyoo did not disclose the number of seized cars sold through Union Auction.
Union Auction is the market leader for car auctions, with a market share of around 40%. There are 4-5 sizeable players in the market.
Dip in impound rate
Mr Varunyoo anticipates the growth rate for impounded cars peaked in 2023 and will gradually decline this year.
However, the number of seized cars is expected to continue to increase this year, year-on-year, in line with the economic outlook.
"We forecast impounded cars will continue to grow this year, though at a lower rate than last year," he said.
"The growth rate may be either single digits or double digits, depending on several uncertain factors."
The assessment of a higher impounded car total is based on economic circumstances, new car sales, auto loan demand, debt restructuring measures in the financial industry and household debt, said Mr Varunyoo.
He said new car sales this year are forecast at 700,000 to 800,000 units, as annual sales have been steady over the past several years.
According to the Automotive Industry Group of the Federation of Thai Industries, car sales from January to November 2023 totalled 707,454 units, down by 7.71% year-on-year.
Sales in November amounted to 61,612 units, down by 9.76% as pickup sales plummeted by 38.8% as a result of tighter lending criteria for borrowers with high debt.
National household debt stands at roughly 16 trillion baht, representing 90.9% of GDP.
Car buyers must also consider elevated interest rates, though the fixed interest rates of auto loans do not significantly affect existing borrowers, said Mr Varunyoo.
Although the central bank terminated debt assistance measures at the end of last year, the regulator requires financial institutions to continue to help customers via long-term debt restructuring.
Union Auction will take into account such factors for its estimate of SM auto loans and impounded cars for this year, he said.
Used car auction prices
Mr Varunyoo said he expects the used car market to experience a gradual recovery in prices post-pandemic.
Auction prices plunged dramatically in early 2020 because of the Covid outbreak.
The used car market is expected to grow this year as used car auction prices normalise, he said.
Used car prices posted a historic plunge of around 20% on average in 2023, attributed to strong competition from electric vehicles (EVs). However, the prices of used cars should pick up this year, said Mr Varunyoo.
"We will monitor competition in the auto loan market, especially auction prices," he said.
"Despite higher demand for EVs, the share of EV sales remains small compared with total new car sales."
Out of roughly 700,000 new car sales last year, EVs represented around 10%.
Amid fierce competition and high demand, sales of EVs may comprise 20% of new car sales in 2024, said Mr Varunyoo.
Union Auction is studying the EV market to develop expertise in the segment, he said.
Online growth
The company plans to improve its operations in three core areas: an enterprise resource planning system, auction yards and online auction services.
Union Auction wants to develop both offline and online channels in response to demand from all customer segments.
"During the pandemic, the company provided a 100% online auction service called AUCT Live. After the consumer shift to online auctions, they now make up 70% of all auctions," said Mr Varunyoo.
He said Union Auction also plans to build up its ecosystem under a partnership strategy.
Partners are expected to include car insurance firms, garages, finance companies and other related businesses to better respond to customers' needs and changing lifestyles, said Mr Varunyoo.
The company expects to book high net profit growth this year after recording healthy growth in the first nine months of 2023, he said.
Net profit was 255 million baht for the first nine months of 2023, up 62.6% year-on-year.
"Normally the company would expand business in line with the auto loan market," said Mr Varunyoo.
"We want to grow our business sustainably over the long term rather than attempting expansion amid a sluggish economy."