What went wrong with Thailand\'s first-car buyer subsidy program?

Too many customers can\'t make monthly payments
by Niky Tamayo | Sep 30, 2013


The end of Thailand\'s \"First-Car Buyer\" subsidy scheme has triggered a slew of articles declaring the ambitious $2.5-billion project a failure. Of the 1.2 million buyers who availed of the generous subsidy, anywhere from 100,000 to 200,000 are expected to default. That spells Big Trouble for Little Thailand. Worse yet, automotive sales are slumping as new-car buyers dry up, with sales in early 2013 down some 30%.

This is not surprising. The similar \"Cash for Clunkers\" program that ran in the US also saw car sales plummet at the end of the subsidy period. This is because most subscribers were customers who were ready to buy new vehicles anyway. The $2.9-billion dollar incentive merely made some customers buy earlier, stealing sales from the future. It is estimated that only a quarter to half of the nearly 700,000 sales credited to the program were \"new\" sales.

In this way, \"Cash for Clunkers\" mostly failed to help customers who could not afford a new car, with money instead going to people already set to buy. Thailand\'s \"First-Car Buyer\" scheme tried to sidestep this issue by targeting new buyers. Unfortunately, this requirement was easily bypassed. Regular buyers simply purchased in the names of their spouses and children.

Continue reading below ↓
Continue reading below ↓
Recommended Videos

Many young buyers, on the other hand, found that the $3,200 (P138,000) tax rebate did not make monthly payments after the first year easier, causing them to default on their car loans. With high inflation, many people simply cannot afford car ownership.

Since the 2008 Financial Crisis, Thailand\'s economy has relied more and more on domestic consumption. Of the 2.5 million cars to be produced in Thailand this year, over half are earmarked for local buyers. But these expected sales depend heavily on loans. Worryingly, consumer debt in Thailand has ballooned 12% per year over the past few years, and is now 77% of household income. As debt rises, car purchases become less of a priority for consumers.

Even worse, the large number of loan defaults means that manufacturers and secondhand sellers alike now have to contend with finance companies overloaded with repossessed cars. This means tough times for dealerships already hard hit by the 2011 floods and a loss of resale value for current car owners looking to sell.

Continue reading below ↓

For those who bemoan the lack of a similar program in the Philippines, this should serve as a sobering reminder that government dole-outs rarely ever work the way they\'re supposed to.

Our car market is different. The Philippines is largely a cash-based society, which has insulated it from interest rate and market shocks in recent years. But there are still parallels to be drawn here. With the promise of newfound prosperity, more and more buyers are taking out loans to purchase cars and condominiums.

While the extra sales gained by aggressive marketing and extreme \"low down-payment\" schemes contribute to the image of a growing market, loan defaults are a side effect that isn\'t often talked about. This is because, beyond new-car registrations, the automotive market is not closely monitored by the government. This is what made Subic and Port Irene such contentious issues, as lobbyists and critics alike lacked solid evidence to support their claims one way or the other.

Continue reading below ↓

In the long term, these factors must be studied by the government if it is truly serious about revitalizing the local car industry. Otherwise, the Philippine automotive industry is simply driving blind into the future.

Photo by Vernon B. Sarne

  • Quiz Results

  • TGP Rating:

    Starts at ₱

    TGP Rating:
    Starts at ₱