The first car scheme is under fire from three sides

The scheme for first car buyers, promised by Pheu Thai during the election campaign and which will be in effect from Friday until the end of next year, has been heavily criticized by three sides.

Finance companies fear that the number of defaulters will increase. The automotive industry is concerned that the price difference between a conventional and an eco car is narrowing. And a trade war threatens with neighboring countries because imported cars are not eligible for the scheme.

Financing problems

The finance companies have proposed to pay the amount of the duty refund, which is up to 100.000 baht, to them and not to the buyers to reduce the risk of default. The number of repayment terms could then be reduced and the repayment amount lowered. They made that proposal yesterday in a meeting with Deputy Minister Boonsong Teriyapirom (Finance) and the head of the Excise Department. But Boonjong wanted nothing to do with it: the money goes to the car buyers, as decided by the cabinet. He also said that defaulting buyers who have already received the excise duty should return it.

The companies expect that the number of defaulters, which now stands at 100.000 per year, will double. Also because some people are encouraged by the scheme to buy a car, while they cannot actually afford it. Repossessed cars are a heavy burden for the companies, because they have to bear the auction costs. Moreover, the new buyer cannot claim the tax refund because the (old) buyers are not allowed to sell their car within 5 years. It is not impossible that the finance companies will increase the amount of the down payment to avoid having to take back cars too quickly.

Automotive industry

The car manufacturers already criticized the scheme yesterday because not all manufacturers benefit equally from it. Today they point out that the price difference between conventional cars, which are subject to a 30 percent excise duty, and eco-cars, which are subject to an excise duty of 17 percent, is narrowing. This is all the more problematic because previous governments and the Board of Investment have encouraged them to develop eco-cars. They have invested billions of baht in it.

Neighboring countries

Thirdly, criticism can be expected from car-producing countries such as Malaysia, China and India, because imported cars fall outside the scheme. According to auto industry sources, Proton of Malaysia sees the scheme as a form of protectionism, in violation of the Asean Free Trade Area. The company exports small displacement cars to Thailand, which if produced in Thailand would be covered by the scheme.

In the past, Thailand was on its hind legs when Malaysia taxed imported cars more heavily to protect its own national car, the Proton Saga. The two countries also clashed over Malaysia's refusal to lower import tariffs on Thai cars and auto parts. Thailand retaliated by raising the import tariff on imported palm oil.

Indian company Tata Motors Thailand makes pickups locally, which are eligible for the scheme, but the low-cost Nano, the cheapest car in the world, falls by the wayside because it is imported from Indonesia. The first Nano should arrive in Thailand later this year.

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