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Thailand a tough market for used car dealers
Publication Date : 12-09-2013
Used-car dealers are facing a tough situation due to the intense competition within the new-car market, with more potential buyers shifting towards new rather than second-hand vehicles because of the attractive promotions on offer.
Somchai Trakulpirom, general manager of Master Certified Used Cars, said used-car dealers needed to adapt their strategies to survive the difficult market situation.
"Although total new-car sales in the first seven months of the year showed growth, there is a clear trend that the new-car market is shrinking," he said.
"This would force major auto companies to fight even harder to win customers, and many potential used-car buyers would switch over to purchasing new cars instead because of the highly attractive promotions."
The company has lowered its 2013 sales target from 1,300 units to no more than 1,200. "So far, we have sold 883 used vehicles this year, and by year-end the best we could do would be about 1,180 units," he said.
Somchai said that in the past, automakers usually did not offer sales promotions for new models, but today many were starting to do so for new models to beat the competition.
Honda, for example, offered special promotions for its Brio Amaze eco-car right from the launch period, while Toyota - scheduled to launch its Yaris eco-car this year - could adopt the same strategy, which includes low down payment, low interest and other special offers.
He also said that in the past, used cars carried a depreciation rate of about 10 per cent, but this had now risen to 25 per cent because of a number of factors.
Bad debts mean fewer loans
Finance companies are becoming stricter in approving car loans because of a high rate of bad debts, he said.
"For example, the first-car-buyer scheme, which at first looked attractive because of the increased production volume and cash flow, has been responsible for stealing future demand. Some buyers made purchases under the scheme to make a direct profit, while some buyers who would not be able to afford a vehicle in normal conditions are now facing difficulties in paying the monthly instalments, and are allowing the vehicles to be repossessed by the finance companies, resulting in a large number of bad debts.
"If finance companies have a large number of repossessed vehicles, they will be more careful with loan approvals and deny more applications," he said, adding, "Demand for used cars is now controlled by financing requirements."
This has resulted in an increase of cash purchases over financing, and the ratio has shifted from 25:75 to 50:50, Somchai said.
The first-car-buyer programme is also responsible for lower resale value of used cars, due to the high tax rebate offered by the government of up to 100,000 baht (US$3,100) per new vehicle.
Cars like the Toyota Vios, because of the large sales volume, are suffering from huge depreciation rates as used vehicles, causing consumers to consider purchasing new vehicles instead.
But these days, auto companies are offering promotions that equal or better the first-car scheme, such as drive-now-pay-next-year offers as well as low- or interest-free options, he added.
"Auto companies will be launching even more campaigns towards the end of the year, or will ask for very low retail prices that are capable of stealing buyers from the used-car market," he said.
To battle the tough environment, Master Certified Used Car, part of Master Group Corp (Asia), which includes both new- and used-car businesses as well as car rental, is offering additional benefits to buyers.
They include a one-year/20,000-kilometre warranty, a maintenance package with Master Motor Services' Bosch Car Service, and even insurance for customers in terms of meeting their monthly payments.
"We need to carry out a large number of sales promotions for every used-car segment and think less of profits, since we want to |maintain our customer base and attract new customers," Somchai said.
Among the brands sold by the group are Rolls-Royce, BMW, Mini and Honda.
The company is also close to announcing a new unit, which involves an Aston Martin official importer entity.