Car sales dive by 40% amid loan squeeze

CAR sales in Qatar have fallen by up to 40% amid an economic slowdown and subsequent tightening of the loan regime by financial institutions, industry sources say.

While sales of new vehicles are dropped by 40-50%, since the beginning of the last quarter of 2008, the figure stands marginally higher at about 60% for used cars.

And going by the reluctant admittance of the industry officials, it is too early to predict any improvement in the situation.

“Our last year’s target was to sell upwards of 25,000 units by the principals in Japan, but even by December we had a shortfall of 2,000.We always used to meet our targets,” said an official of one of the biggest distributors in Qatar, on strict condition of anonymity.

Ismail Fahad, a dealer of used cars, said: “My sales have dropped by 60% since the beginning of the last quarter of 2008. I was selling about 120 vehicles a month before that. Now it has come down to 30-40 a month.”

Asked for the reason, he said: “Why? New recruitments have slowed down, there is lack of credit availability in the market and a great deal of uncertainty. I mean, if some one tells you what will happen in a couple of months, don’t listen. Right now, no one knows what’s next,” Fahad added.

The trend has so far encompassed all: Japanese, European or American-made vehicles, new and used, individual and corporate sales.

However, from here, the pattern stops and diverges in all directions.

“Because of the strengthening of the yen the cost of importing cars from Japan has gone up, making matters worse by forcing us to maintain or even consider increasing prices, when there is a lack of demand,” an official of a distributor selling a Japanese brand said.

“Our new car sales have nosedived by about 50%, some bookings have been cancelled and the used car division hardly have any business,” he added.

Officials at other distributors aired similar sentiments.

A distributor for a European brand said: “Our monthly minimum target was 10 units and now it has been slashed to five a month.”

According to industry analysts a slump in global steel prices is expected to bring down the prices of Japanese-made cars as well, while prices for American cars are expected to dip as a result of the problems being faced by the US automobile industry.

Meanwhile, banks and financial institutions have increased interest rates on car loans as made availing of loans rather difficult by enhancing the customer profile, ostensibly, to cover their business risks.

The interest rates on car loans have been upped by 1% by some of the commercial banks, while the Islamic banks also have revised their rates upwards.

“In addition you will need to transfer three months’ salary, or pay 20% down payment and pledge other guarantees,” a car loan unit (CLU) official at one of the leading local banks said yesterday. “We have raised the interest on car loans to 4.99% from the previous 3.98%.” Their interest rate on loans for used cars is now 5.2%.

The interest on used cars is higher as the banks take into consideration the higher rate of depreciation of such vehicles.

“This has brought down our car loan approval rate steeply. Out of every 10 applications we receive now, chances are that only 2-3 will be approved,” the same official added.

Another non-retail bank that offers a host of financial services including car loans said around five out of 10 applications were being approved. Their car loan interest starts from 7% for new (up to five years) and 7.5% for used cars (up to four years).

Conditions, however, vary from one institution to another: account statements, salary certificates, guarantee from either a local or a government employee plus two cheques by the guarantor, a minimum salary bracket and salary transfer being some of the requirements for loan eligibility.

Meanwhile, potential customers wait and watch, hoping the situation to emerge in their favour, another banker said.