Strict loan rules weigh on vehicle sales
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Strict loan rules weigh on vehicle sales

Little chance for a second-half rebound given debt pressure, say BMI analysts

Car models are displayed at the Bangkok International Motor Show last April. (Photo: Bangkok International Motor Show)
Car models are displayed at the Bangkok International Motor Show last April. (Photo: Bangkok International Motor Show)

We have turned negative on Thailand's vehicle sales for 2024 after recording weaker-than-expected sales results for the first four months of the year, and showing little potential for a rebound over the second half of 2024 due to debt pressure.

Vehicle sales in Thailand experienced a significant 24% year-on-year decline in the first four months, with only 46,738 units sold, according to the Asean Automotive Federation (Asean Autofed). This figure is a decrease from the 59,530 units recorded during the same period in 2023. Initially, we had projected growth of 6.1% for vehicle sales in 2024, following a poor performance in 2023, when sales dropped by 8.7%.

However, due to stricter loan criteria by financial institutions amid high household debt levels and signs of stress among consumers, our forecast has now been adjusted to an 18.1% contraction for 2024.

The National Credit Bureau reported a 15% increase in non-performing loans (NPLs) year-on-year during the first four months of 2024, driven by a rise in defaults on automobile and home loans which supports our bearish outlook for Thailand's vehicle sales.

Another factor negatively impacting demand for new vehicles is slowing economic growth. GDP growth slowed to 1.5% in the first quarter year-on-year from a 1.7% expansion in economic activity in the fourth quarter of 2023. Thus, our country risks team has lowered Thailand's full-year growth forecast to 2.8%, from 3.0% previously, following the latest growth outturn.

Looking ahead to 2025, the persistent economic challenges and the ongoing credit squeeze have led us to revise our initial forecast further. We now forecast vehicle sales will contract by 4.2% in 2025. This revision accounts for the expected prolonged impact of current financial conditions and the anticipated slow recovery of consumer confidence and spending power.

We have also turned negative on Thailand's commercial vehicle (CV) sales in 2024 as stricter lending requirements by the banking sector affect the overall economy.

The impact of stronger lending requirements is particularly pronounced within the pickup truck segment, which has faced a high rate of loan application rejections. In 2023, the pickup segment accounted for 41.9% of total vehicle sales, and in the first four months of 2024, this segment has suffered the largest contraction of all, recording a 42.2% decrease.

Overall, we expect subdued economic growth to weigh on investment into fixed capital goods, particularly vehicles, while the delays in forming the government following the May 14, 2023 elections weigh on government spending negatively impacting the timely disbursement of projects.

Finally, we note that Thailand's electric vehicle (EV) segment will not be spared as stricter loan requirements negatively impact the pace of EV adoption, exacerbated by lower incentives offered to consumers.

According to the government's EV Policy 3.5 released in November 2023, incentives in 2024 have been reduced from 150,000 baht to 100,000 baht for EVs with a battery capacity higher than 30 kWh that cost between 2 million and 7 million baht.

Signs of sluggish EV sales are beginning to show, as reports indicate dealers are running out of space in their lots to store unsold inventory. However, we still expect growth in EV sales for 2024 as the continued drop in prices and increased local production will sustain EV sales growth. We have thus maintained our forecast of a 34.9% increase in EV sales.

However, we now anticipate Thailand's EV penetration rate (total EV sales as a percentage of total vehicle sales) to trend higher, due to a weak sales outlook for internal combustion engine (ICE) powered vehicles. Thailand will now achieve an EV penetration rate of 17.1% versus our previous projections of an EV penetration rate of 14.5%.

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