Showroom traffic takes a hit as buyers stay away

In the first weekend following the introduction of the cooling measures on the local car market, car dealers have observed a decrease in showroom traffic by around 50 to 80 per cent. Even as some dealers are offering sizeable discounts on their cars, fewer people were out making their rounds at showrooms – a clear indication that buyers are either holding back or have been priced out of the market completely. The reduction of the maximum period for car loans from ten years to five, coupled with the limitation of the loan amount to either 50 to 60 per cent of a vehicle’s purchase price (depending on the car’s OMV), means that a greater pinch is now felt by prospective buyers who do not have sufficient amounts of cash in hand and thus require a large loan to finance the purchase of a car. Since the period of repayment for the purchase has shrunk, buyers are now looking at a bigger financial outlay within a short period of time.Check out: Car ownership after Budget 2013 part 1

OneShift Editorial Team

04 Mar 2013

A simple calculation for a car with a price of $150,000 including COE (and OMV of over $20,000) is shown below, assuming a fixed interest of 2 per cent per annum.

Car price:

$150,000 (including COE)

Previously

Now

90% loan

for 10 years

70% loan

for 10 years

50% loan

for 5 years

Downpayment

$15,000

$45,000

$75,000

Loan amount

$135,000

$105,000

$75,000

Loan amount including interest at 2% per year

$162,000

$126,000

$82,500

Monthly instalment

$1,350

$1,050

$1,375

Total payment after 2 years (Downpayment + 24 instalments)

$47,400

$70,200

$108,000

If a buyer took a 90 per cent loan over 10 years previously, he/she would have only needed to part with $15,000 for the upfront payment and $47,400 in total over the first 2 years. Now, he/she has to foot a downpayment of $75,000, and be able to set aside a total of $108,000 over the first 2 years to keep up with the instalments. For those who already have other financial commitments (such as a housing loan), it may be a beyond what they can afford from their monthly salaries.

Check out: Upgraded New car loan calculator following new MAS restrictions

Despite not being subject to the revision to the ARF structure, used car dealers have been affected badly too. Previously, they could count on a pool of customers who considered used cars as alternatives to new ones because of the high COE prices. While used cars may continue to be a better option for this group of buyers since they are comparatively cheaper and require a lower downpayment than new ones, the loan curb might still prove too prohibitive.

Fearing for a major slump in business, the Singapore Vehicle Traders Association (SVTA) has appealed to the Monetary Authority of Singapore (MAS) to consider easing up on the drastic measures. Their concern is understandably so, but it may not be easy to get the Government to change its stance so shortly after the changes were introduced.

Assuming they manage to ride out the current storm, used car dealers may face a further slowdown in the future. If most people are holding on to their cars as a reaction to the regulation changes, a big question mark hangs over how used car dealers are going to source for cars locally to sell. For now though, it is a matter of reducing what they have in hand first as they seek to avoid having too large a stock of vehicles stuck in their showrooms for too long.

Check out: Upgraded Used car loan calculator following new MAS restrictions

It is still early days to predict what direction the automotive market will be headed to, but judging by the lack of showroom visitors over the weekend, dark clouds loom over it.