CONSEQUENTIAL IMPACTS: According to Aminar, car sales will indeed see an impact as the group might not be able to efficiently register the vehicles on time for its customers.
KUCHING: The recently amended Hire Purchase Act (HPA) 1967 has spurred much controversy amongst the parties concerned in the auto sector.
Although the new Act was implemented with good intentions, however one fundamental question lies ahead; does the implementation as a whole cause more harm than good or could there really be a further upside to the new Act?
To recap, the amended HP act was implemented on June 15 by the Ministry of Domestic Trade, Co-operatives and Consumerism on June 15.
Amongst others, the amendment was meant to protect customers from losing their bookings and deposits paid to unscrupulous sales advisors and car dealers. Apart from that, the new Act was aimed at avoiding unnecessary delay in refunding customers monies paid for booking and down-payment in the event of any cancellation of purchase or failure to secure hire-purchase loans.
Under the amended Act, buyers would only need to pay booking fees after being served with the duly completed Schedule 2 (part 1 and 2). In this regard, banks would only issue Schedule 2 after the hire purchase loan had been approved and this would take an estimated three days from the point of submission.
However, in order to get their loans approved, car buyers must first pay a down-payment of ten per cent of the total on-the-road car price to the bank.
According to Thomas Teo, a used-car dealer who has been in the business for the past 30 years, the down-payment of ten per cent would be a problematic issue for some consumers.
“Although the ten per cent of total down-payment may be a small amount to some people, but a lot of lower-income clients are not able to collect the total lump-sum of money in such a short time,” stated Teo.
Hence, although the amendment was aimed at filtering out customers who cannot afford to buy the car and protecting the bank from defaulted loans, the implementation as a whole would bring total car sales down.
According to a manager at the local used-car dealership in Kuching, with the new Act announced, the sales of used-car had also decreased by an estimated 50 per cent since its implementation.
According to Datuk Aminar Rashid Salleh, managing director of Perusahaan Kedua Otomobil Sdn Bhd (Perodua), car sales would indeed see an impact as the group might not be able to efficiently register the vehicles on time for its customers.
In addition to that, the new amendment which prohibits car dealers from collecting any booking fees before the client was served with a Second Schedule notice makes it difficult for dealers to ensure any form of concrete commitments from the buyers.
Furthermore, the one per cent maximum booking fee based on the total selling price for the car requires a 90 per cent refund of booking fees should the buyer decide to pull out.
“The new act will be unfair to the dealer as he would have spent all the time and effort as well as cost in completing the deal only to end up being turned down,” highlighted Teo.
Such a view was echoed by Proton Edar Dealer’s Association president, Armin Baniaz Pahamin who noted that without any firm order or commitment from the customer via the booking fees paid to the dealer, there would be a lot of ‘speculative buyers’.
Customers would also be at the losing end as the lack of commitment between the two parties could enable the dealer to break his promise and sell the reserved vehicle at a higher price to other clients.
Adding further, chief economist Anthony Dass of MIDF Research Sdn Bhd (MIDF Research) noted that one of the key protests of the act was the 18-point inspection on used cars. The additional 14-point inspection would bring a lot of hassle to the used-car dealers.
“The decision to amend the HPA can hurt used car dealers given that now they will have to cough out RM90 to Puspakom for inspection. While the said amount could be priced-into the car price, the key issue will be more of the hassle given that now Puspakom will focus on 14 more items,” Dass pointed out.
This would mean that the used-car dealer might have to hold stocks much longer before the car could actually be sold. Also, there could be added cost for these cars to be road worth before getting the green light from Puspakom.
This according to Dass, would have an impact on the sales of new cars since new car dealers tend to experience sizeable number of ‘trade-ins’.
“People are not able to sell their cars and hence, not able to obtain enough funding for further down-payment in their new cars,” said Dass.
After taking into account of the undesirable scenarios arising from the new amendment, it really does seem as though both parties, regardless of the consumers or dealers would be at a losing end of the deal. However, could we have possibly turned a blind eye on the potential upside of the amendment?
In a recent phone interview with The Borneo Post, a banker from a local branch was kind enough to share his thoughts regarding the new Act and its overall impact on the banking industry.
According to the banker, since the implementation of the new Act, the amount of car loans had decreased by 40 per cent to 50 per cent. From the bank’s perspective, car loans were expected to decrease by 30 per cent to 40 per cent within the next few months.
However, despite the negative effect that arose from the new Act, the banker was indeed supportive of the amendment.
“The ten per cent down-payment should not be an issue to car buyers. Unlike previously where most buyers face an outstanding loan that is higher than the eroded value of the car, with the new Act buyers will find that their outstanding loan in the future will be lower than the market value of their car then.”
“Hence, people are less able to sell of their cars because of the full loan given to them in the past. With a higher down-payment, customers will see that it is easier to sell their car in the future,” said the banker.
From a bank’s point of view, the amendment was also in part a security measure for the banking industry. With a higher down-payment for cars, owners would not allow their cars to be easily repossessed. This provides a form of reassurance for the banks to guarantee an on-going loan payment from clients.
With regards to whether the amendment would have an impact in the auto industry in the long run, an analyst from OSK Research Sdn Bhd (OSK Research) pointed out his disagreement on the issue.
“The new rule just needs time for the distribution chain to adjust. There will be some impact over the immediate term but over the longer term once the dealerships adjusts to the new ruling then everything should normalise,” said the analyst.
According to an undisclosed source, when asked to comment whether the government would do any adjustment to the recent amendment, the source noted that this was not possible. However, the source pointed out that the government had taken serious consideration of the issue and had taken some measures to dampen the adverse effects.
According to the source, Puspakom has recently invested an estimated RM20 million to update its outlets. This was to ensure that all Puspakom outlets were ready to inspect all the incoming cars within a short time span. The inspection would only take half an hour or less.
Apart from that, car owners could now register online to have their cars inspected. This would ensure a smooth process and less waiting on the part of the car owners.
PROTECTING CUSTOMERS: The amendment aims at protecting customers from losing their bookings and deposits paid to unscrupulous sales advisors and car dealers.
REASSURANCE: With a higher down-payment for cars, owners will not allow their cars to be easily repossessed. This provides a form of reassurance for the banks to guarantee an on-going loan payment from clients.