Changing rules for first-time car buyers makes sense

The scheme, a Yingluck administration policy, was supposed to give carmakers a boost after the devastating 2011 floods. It requires eligible buyers to be locked into possessing their new cars for five years. Anyone who sells their car early has to pay the taxes from which they were exempt – up to Bt100,000 depending on the type of car. 

Finance Minister Sommai Phasee recently agreed in principle to the idea, which was proposed by carmakers, believing it to be good for both the automobile industry and consumers. The carmakers hope it will lead to higher purchasing power.

Domestic car sales in June fell| 26 per cent year on year to 76,774 units, while the projection for the full year has been revised down from 950,000 to 850,000 units.

 According to the Revenue Department, almost 400,000 cars out of the 1.3 million purchased under the scheme were possessed for three years (from September 16, 2011 to July 20, 2015). 

The idea sounds good, but not yet really good.

First, the government’s image might be not good, as it always overrides its rules. And what about the almost 5,000 people who had to pay exempted taxes for selling their car early – what would the government say to them? If the idea becomes reality, the government has to be fair and return the money, about Bt500 million based on Bt100,000 for each consumer.

The government has spent as much as Bt90 billion to amend the scheme.

Second, doubts persist about whether the proposal will spur demand for new cars, as expected by some automobile camps. 

On the contrary, it might lead to an increase in household debt, with the current debt-to-gross domestic production ratio exceeding 80 per cent. 

GM, Suzuki, Honda, Isuzu and Mazda all welcome the proposal although they are not sure it will boost demand from repeat customers, while Toyota and Nissan oppose it as they believe it will result in few benefits for the domestic car market.

Lastly, the move would result in the used-car market again being hit by a drop in prices, while many carmakers blame the scheme for the 15-per-cent drop in sales in the first five months of the year. 

And although 1.3 million people have bought cars through the scheme, what about the millions more who have not. 

Do they have the purchasing power to buy a new car? Why do carmakers expect repeat customers?

In fact, many people are spending less due to the economic climate, and research houses have revised down their GDP growth projection for the year to less than 3 per cent. 

 However, reducing the scheme to three years could help boost the economy if it results in a lot of people selling their cars and pumping the money back into the economy.