Car buyers' incentive plan backfires in Southeast Asia's Detroit

Sun Sep 22, 2013 5:17pm EDT
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By Amy Sawitta Lefevre

BANGKOK (Reuters) - An incentive program for first-time car buyers in Thailand has backfired with more than 100,000 indebted consumers defaulting, leaving the big global manufacturers that dominate Southeast Asia's largest auto market struggling to defend their margins.

The tax breaks, which the World Bank estimates cost Thailand $2.5 billion, were intended to revive auto manufacturing in the region's biggest car-making hub following devastating floods in 2011.

But much like the U.S. "cash for clunkers" program in 2009, the incentives distorted the market, creating a boom in demand that collapsed once the tax breaks expired in December.

Research from IHS Global Automotive shows around 10 percent of the 1.2 million Thais who signed on to the incentive scheme have either changed their minds or couldn't pay monthly installments.

Japanese automakers, who control 80 percent of the local market, reported a 30 percent drop in sales on average in the second quarter of 2013.

Once buyers canceled, the vehicles were seized by auto finance companies and sold as used cars.

"Our prices have plummeted. On average they've fallen 20 percent this year," said Narongrod Chataratipa, general manager of Center Used Car which operates two showrooms in Bangkok.

"Some smaller dealers struggled to survive and shut down. Now that people realize they can't afford to pay, their barely used cars are on the market, driving down prices even further."   Continued...

An employee works at an assembly line in AutoAlliance Thailand, a Ford and Mazda joint venture plant, located in Rayong province, east of Bangkok September 17, 2013. REUTERS/Chaiwat Subprasom