Loan terms eased in first-car scheme

The Finance Ministry yesterday made its first-car programme more flexible for lenders that may need to repossess vehicles in case of default on instalments.

Moreover, the Trade Negotiations Department (TND) will suggest that the government change the wording on implementation of the programme to prevent disputes over unfair trade practice.

After a meeting with the Excise Department yesterday, Chalit Silpsrikul, vice president of the Hire Purchase Business Association, said lenders would be allowed to deal with defaults that come about under the scheme.

Previously, the ministry had determined that participants in the programme would have to keep their vehicles for five years. That condition would have made it difficult for lenders to do anything about a vehicle that became a non-performing asset.

However, it was agreed that lenders can seize a vehicle if the buyer has paid instalments for at least 13 months and defaults for three consecutive months. The lender has to send a warning letter to the buyer one month before seizing the car. Lenders also have to notify the Excise Department in case of default.

The department insisted that the rebate would only go to car buyers, not the lenders, in case of default.

The government will officially launch the project on October 4, with auto-makers and lenders invited to join in with special privileges to customers. Normally, the rate of non-performing car loans averages 2-3 per cent. With the first-car project, it is forecast that car loans will reach Bt400 billion to Bt500 billion from total car sales of 920,000-950,000 units, the ministry said.

Paiboon Phucharoen, honorary president of the Federation of Thai Industries, said no conclusion had been reached on whether imported cars could participate in the scheme.

The Excise Department has posted a list of car models with the possible amount of tax rebate on their purchase at www.excise.go.th. Meanwhile, some tax officials are worried that new graduates lured by the government scheme will spend beyond their means.

Srirat Rastapana, director-general of the TND, said the government had not breached its obligations under the World Trade Organisation or the Asean Free Trade Area with the first-car scheme.

However, it should change the wording in the policy, as foreign car producers could complain that they have been damaged by the scheme.

"It is normal policy for many countries to promote the use of domestic products. The scheme does not violate any obligations, but the wording should be changed to prevent future disputes," Srirat said.

Foreign car producers have threatened to sue the government for discrimination against trade partners, as the tax rebates are only offered for domestically produced cars and pickups.

Srirat said Thailand had the right to enact the policy, as it was aimed at benefiting the general public. However, as some car producers may lose out indirectly, the government should be careful how it words the programme's description.

The department will soon submit its suggestion for adjusted wording to Deputy Prime Minister Kittiratt Na-Ranong for proposal to the Cabinet next week.The Excise Department has put several car models on its website to inform consumers about which cars would be covered by the scheme, and also makes rough calculation of tax rebates.