The Federation of Thai Industries (FTI) disagrees with new measures from the Bank of Thailand to control auto loans, saying they would pressure new car sales based on panic changes.
Yet car distributors are preparing for the new central bank measures, eager for a single standard for lending approvals that is fair.
On April 1, the Bank of Thailand said it planned to implement new measures for auto loans following an examination of several marketing campaigns displaying easier criteria for auto loan approvals, especially cashback and top-up loan incentives.
The minimum down payment required to buy vehicles usually depends on aggressive marketing campaigns, and some auto lenders offer no down payment.
Lenders are expected to consider each loan application based on the financial ability of each buyer. But lenders often decide the requirements by themselves, such as the minimum down payment and loan term.
The Bank of Thailand is concerned about the country's worrying household debt level.
The central bank has issued a new loan-to-value regulation to control asset quality in the property sector, effective from April 1.
The new measures call for a minimum down payment for third and subsequent mortgages of 30% of the home price.
Meanwhile, the minimum down payment for a second housing loan is 10-20%, depending on how long a borrower has made payments on the first mortgage.
Punishment is better
Surapong Paisitpatanapong, a spokesman for the FTI's automotive industry club, told the Bangkok Post the club would not agree with new measures to control auto loans.
The club understands the need to control household debt, but the next step should be to issue punishments for any dealers or lenders that relax loan criteria to approve loans larger than buyers can afford, Mr Surapong said.
"The central bank's examination should monitor loan quality and protect against future problems such as a rise of the country's household debt," he said.
A punishment for each violating lender would address the central bank's concern regarding fairness across the lending market and dealers maintaining their loan criteria standards, said Mr Surapong.
"I would say both the examination and punishment could help the Thai auto market to perform very healthily and benefit from actual demand from buyers," he said.
Mr Surapong said if new measures for auto loans are issued, the car market could suffer in the short term.
Thailand's household debt rose to 12.8 trillion baht in last year's final quarter, up from 12.5 trillion registered in the third quarter, according to central bank data.
The latest household debt figure stands at 78.2% of GDP on a seasonally adjusted basis.
Distributors keen
Wallop Treererkngam, executive director for sales and marketing at Suzuki Motor Thailand, told the Bangkok Post the new measures planned for the auto sector could help build the local market's strength and sustainability.
He said the car market has become defined by aggressive competition as distributors, dealers and lenders vie to increase their sales volume and new loan value to meet the targets of car companies.
"When the regulations are not clear, companies can offer many tactics to attract potential buyers," said Mr Wallop.
"We hope any new measures promote fair competition amid large and small companies, including car brands."
In the latest auto showcase that ended on Sunday, the cashback and top-up incentives for auto loans came in the form of substitute down payments.
This method has been used for a long time, according to a sales representative of a mass market car brand who requested anonymity.
The representative said the substitute down payment is offered to buyers who have a limited budget for down payments.
"For example, if a vehicle costs 680,000 baht but the dealer has a marketing budget of 50,000 baht per car from automakers, the dealer offers a 0% payment to interested buyers with limited income, and this budget is used as the down payment instead," the representative said.
"As a result, the dealer calculates the total loan amount as 730,000 baht for the buyer, who will have a higher financial burden than expected.
"The substitute down payment is also subject to 7% value-added tax, so the substitute down payment will be deducted."
A car distributor employee who requested anonymity said the cashback scheme can also come in the form of an auto accessories budget the dealers and lenders will add on top of the loan amount.
"They will pay cashier's cheques back to the buyers," said the employee.
"With the traditional method, each dealer can offer the marketing budget to discount the car price tag, while the buyer takes responsibility for the remaining amount."
Mr Wallop from Suzuki said such methods are luring many car buyers that don't have ability to repay loans into the system.
"This means the local market is heating up from low-ability buyers," he said.
Mr Wallop said the central bank's new measures for auto loans would bring back growth to the car market and reflect the real demand of buyers.
Moreover, he said the new measures should require a maximum loan term because car distributors would accept a loan period of less than 84 months or seven years.
"Normally the life cycle of a vehicle is between five and seven years before it is replaced by a new one, so a longer loan period will discourage buyers from changing their vehicles," Mr Wallop said.