Revised hire-purchase rates unlikely to hurt car sales

December 10 2005

BY YEOW POOI LING

MOST local banks raised their lending rates this week, but among those offering car financing, only Bumiputra-Finance, a unit of Bumiputra-Commerce Bank, hiked its hire-purchase rates by 25 basis points. It is only a matter of time before other banks revise their hire-purchase rates, but industry players and analysts do not think that more expensive borrowing costs will dampen car sales.

According to Perusahaan Otomobil Kedua Sdn Bhd (Perodua) managing director Hafiz Syed Abu Bakar, the financing was still accessible to potential car buyers even if interest rates were to go up. The interest rates for financing purchases of Perodua cars are fixed across the board nationwide. Hafiz does not expect banks to raise hire-purchase rates by much due to the stiff competition for financing within the auto industry. The quantum of increase currently was marginal, he said, adding that the hike in fuel prices several months ago had been much bigger.
“For car buyers, higher interest rates is not an issue but more importantly is getting the loan approved. After all, rates were much higher a few years ago,” he added.

Premium carmaker DaimlerChrysler Malaysia Sdn Bhd also does not expect the increase in hire-purchase rates to have a strong impact on Mercedes-Benz cars as most of its buyers are from the higher income group. Vice-president of sales and marketing Konstantinos Tsiknas told StarBiz that the company was already in talks with its financing partner to make the hire-purchase structure more flexible for customers. He said the special financing packages offered for purchase of Mercede- Benz cars were offered by dealers, who were “in the best position to ensure that customers get the best deal.”

Observers said carmakers traditionally mount aggressive marketing campaigns to boost sales at the year-end. Honda Malaysia Sdn Bhd, for example, is offering cash rebates to buyers who trade in their cars to purchase the Honda Accord or the Honda CR-V. Inokom Corp Sdn Bhd, a unit of Sime Darby Bhd, is also offering a cash rebate of as much as RM2,000 to purchasers of Atos cars. Other incentives include free road tax, insurance and maintenance packages. Some even throw in petrol vouchers. It's also easier nowadays to own higher-end cars, given the easy ownership plans available. Volvo Car Malaysia Sdn Bhd, for instance, is offering buyers interest-free car loans for the first two years of owning a new Volvo Sedan. An automotive analyst at a local brokerage said car companies were able to offer such packages due to the bigger margins for medium- and high-end cars.

“Carmakers have to be competitive, especially those who want to clear their old stock by year-end. Sales tend to be difficult at year-end since not many like December for car registration,” she said, adding that such promotions, “at least help in moving car sales”. However, the analyst added, incentives like cash rebates or interest-free schemes were unhealthy for lower-end vehicles, as margins are smaller than those for medium- and high-end cars, especially if the automaker cannot sell enough cars to achieve economies of scale. The analyst also said the rise in interest rates was unlikely to hurt consumers' pockets as long as the loans were structured properly. “By stretching the years of repayment, the monthly instalment will still be affordable,” she added.

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