Plunging car prices in Thailand ‘signal rising economic woes’

Car prices in Thailand are plummeting, reflecting a weakening purchasing power of the middle and lower classes, economists say.

This trend has also raised concerns that this could lead to reduced consumption, employment and production. As car prices fall, consumers may abandon the vehicles they are using, as their car loans may no longer seem worthwhile to pay back.

Amonthep Chawla, senior vice president and head of research at CIMB Thai Bank, pointed out that while car prices drop primarily due to a price war, it also signifies a weakening of the population’s purchasing power.

“The automotive industry is a key sector in the country and essential to the economy. Therefore, the reduction in car prices is not just the result of competition, but also reflects a weakening purchasing power of the lower and middle levels of the economy, leading to a drop in demand,” he said.

Similarly, a drop in pick-up truck sales reflects the fragility of the agricultural sector, which is a vital component of the Thai economy. This decline in purchasing power could impact consumption, employment and production, heightening the risk to the Thai economy.

“The car market is an important sector that could have a chain reaction, particularly impacting related businesses. Therefore, the ongoing price war needs to be monitored closely, as it might lead to further declines in the used car market,” he warned.

One major concern with falling car prices is the potential of consumers abandoning their vehicles during loan payments, viewing continued payments as unjustifiable. This could result in a rise in car repossessions – a worrying scenario.

“One must be cautious about asset issues under continuously declining car prices, which could lead to changing consumer behaviour and result in more car repossessions. As time passes, the value of the vehicle may not justify the price paid, making it not worthwhile to continue paying off the loan. This is a scenario we do not want to see, as it could impact future borrowers, leading to subsequent problems,” Amonthep said.
 

Sales lowest in 15 years

TTB Analytics projects that the Thai automotive industry will face a significant decline in 2024. Over the first five months of 2024, car sales have dropped sharply by 23.8% compared to the same period last year, possibly leading to the most significant decline in 15 years.

The research house suggests that domestic car sales may not return to the pre-Covid-19 levels anytime soon, due to long-term structural demand issues stemming from five main factors: 

Market saturation: Nearly 20 million vehicles are currently on the roads, equating to 277 cars for every 1,000 people. This is far higher than Vietnam (50 cars), the Philippines (38 cars) and Indonesia (78 cars) for every 1,000 people.

Long car usage: Thai motorists on average keep their vehicles for 12 years compared to 6 to 8 years in other countries, reducing the likelihood of purchasing new cars to replace old ones.

Changing consumer behaviour: Thanks to the entry of Chinese electric vehicles (EVs), the standard price for new cars has reduced, with buyers being offered more choices.

Delayed purchases: Some consumer are delaying car purchases until they find one with a suitable price.
Shift towards renting: Younger people are choose to rent vehicles instead of buying them to enhance flexibility and to reduce expenses, leading to fewer car purchases compared to the past.