CAR loan rates may have risen recently, but motor distributors are dangling more carrots as competition heats up in a softening market, thus making the impact of higher rates negligible.
More and more motor traders are offering cashbacks and/or gifts in an attempt to retain market share, says the manager of one Japanese dealership.
"The uncertain economic climate is causing a lot of people to hold back on buying a new car," he explains. "Even if they are planning to buy one, they are looking for a cheaper product."
This may mean switching to a cheaper and smaller model, or buying the same product but from someone selling it at a lower price, such as a parallel importer (PI).
"The PIs are able to stay in business because people who would have gone to an authorised distributor are now buying from them," says the manager.
As a result, authorised distributors are working even more closely with financial institutions to woo new customers with additional incentives.
Some banks raised car loan rates about a month ago from 2.38 per cent to between 2.6 and 2.68 per cent for repayment periods of seven to 10 years. One even upped it to 2.85 per cent (these rates are offered to motor distributors and are usually significantly lower than those posted on the financial institutions' websites).
The hikes come even as the interbank rate is less than half of what it was a year ago.
Observers say this could be due to some banks becoming more risk-averse.
But even though rates have risen, they are mitigated by freebies given to the buyer. For example, at Kah Motor, the authorised distributor for Honda cars, this takes the form of a cashback. There is a $700 discount off the purchase price if the customer takes a $40,000 loan for seven years, and $1,000 if the quantum is $50,000.
The No. 2 brand (among authorised distributors) can do this because it gets a commission from the bank for each loan taken.
Borneo Motors Singapore, the authorised distributor for Toyota, offers other goodies during a sales promotion.
"Right now, there are no cashbacks because the profile of our Toyota customers is financially sound," says director of marketing Tony Tan of Singapore's top brand.
He explains that a loan package which charges a slightly higher interest rate will return a bigger cash amount upfront ? useful for someone who may have to top up the loan for his old car before buying a new one.
This provides an "easier entry" into the purchase but "you end up paying more".
Instead, a Borneo Motors promotion "is not just about the price but it is a comprehensive product offering", says Mr Tan.
"It is not just about a car or an interest rate. As a major distributor we are able to offer free service packages for one or two years, and sometimes support in terms of insurance and petrol vouchers," he adds.
Additional accessories such as special bodykits and alloy rims are also provided.
The boss of a European dealership says the consumer is unlikely to feel the pinch from the higher cost of financing because "it is a buyers' market".
He adds: "They won't feel it because we are absorbing the increase. At the end of the day, the distributors are the ones who will be hurting the most from all this."
This article was first published in The Business Times on Sept 3, 2008.
