Thai Auto Industry: Five-year Car Ownership Period Too Long

In a bid to boost sluggish sales and to address ill-effects of the poorly thought out First-time Car Buyers Scheme, Thailand’s Excise Department and the Federation of Thai Industry’s (FTI) automotive club is urging Thailand’s Finance Ministry to shorten the minimum ownership period for cars bought under the scheme from the current five years to three.

The First Time Car Buyer’s Scheme was proposed by the previous Yingluck Shinawatra’s government. It offered excise duty rebates worth up to 100,000 Baht for Thai-made passenger cars below 1,500cc and pick-up trucks priced no more than 1 million Baht.

The controversial move was derided by many economists and Thai intellectuals as a populist move aimed at shoring up support from the masses, at the expense of future demand.

The predictions came true and after two years of unprecedented boom in new vehicle sales in 2012 and 2013 – reaching 1.45 million and 1.33 million respectively, Thailand’s domestic car market collapsed in 2014 when the scheme expired, dropping by nearly 34 percent to 881,832 units in 2014.

The boom in 2012 and 2013 was spurred by artificial demand and stole future demand for new cars, and also worsened household debt among many low-income Thais.  

The market has yet to recover and the situation is worsened by an economic slump that is affecting many emerging markets in the region. In the first half of 2015, new vehicle sales in Thailand dropped 16.3 percent year-on-year to 369,109 units.

Thailand’s Excise Department proposal is supported by the FTI, reasoning that the move will allow cash-strapped buyers to sell their cars.

Surapong Paisitpatanapong, spokesman of the Federation of Thai Industries' (FTI) automotive club told the Bangkok Post, "Buyers can sell their own cars to pay debt or buy other essential consumer products or even new cars."

"This will boost the overall economic system," he added.

Mr Surapong estimates that as many as 112,000 buyers would be ready to sell their cars bought under the scheme if the condition on ownership was eased.

The Thai daily also added that a Finance Ministry source estimates that 600,000 to 700,000 cars would be freed up if the ownership period requirement was cut to three years (cars eligible to be sold).

However the source also added that there could be repercussions to the already soft used car market, and the move will affect resale values.