Car leasing hits speed bump
DISTRIBUTORS who jumped on the car-leasing bandwagon last year are seeing business hit a speed bump due to cultural preferences and other factors.
Some firms began to offer leasing programmes to local customers after tough vehicle-financing restrictions introduced in February last year began to bite.
Almost everyone - from premium manufacturers BMW, Mercedes-Benz, Porsche and Lexus to mid-range and volume marques such as Volkswagen, Opel and Kia - introduced leasing deals.
Leasing is traditionally a popular option among expatriate and corporate customers.
But since the loan curbs require up to a 50 per cent cash down payment, distributors believed leasing - which is essentially a long-term car rental plan - would be a good alternative to traditional hire purchase.
The distributors were initially encouraged by the response, which although small appeared steady. But more than half a year after the rash of leasing plans hit the market, demand has dwindled for a few reasons.
The first has to do with the Singaporean attitude to car ownership.
The managing director of a luxury dealership said that with leasing, people feel that despite paying for the car every month, they do not own it.
"So even if cars have become more expensive, most Singaporeans prefer to buy it rather than lease it," he said. "That is also the reason why so many buy property instead of rent, and why freehold is more popular than 99-year leasehold."
Another reason is the lack of tax incentives. "In some countries, there are tax breaks for leasing," said the managing director. "But not here.''
In the past, firms which leased vehicles for their employees used to be able to write off the leasing costs from their tax claims, but not any more.
But perhaps the biggest reason for not taking up a lease is that most people believe that the supply of certificates of entitlement (COEs) will expand in the next few years on the back of an expected increase in vehicle deregistrations.
The sales director of another luxury dealership said that when the loan curbs were first announced last year, there was "panic".
"Some people ran to leasing because COE premiums were shooting up and financing was tightened," he said. "They were afraid they would not be able to drive a new car again."
But now that the dust has settled, most prospective buyers were less anxious, he said.
"They plan to keep their cars longer as they wait for more COEs to be released and premiums to eventually fall," he explained.
Still, the sales director isn't giving up on leasing just yet. He believes that there is potential amid high COE premiums because there are some motorists who cannot wait and need to change their ageing cars soon.
"For this group of people, leasing still makes sense because they prefer to keep their cash in the bank instead of using it for a down payment," he explained. "So with a leasing plan, I can facilitate their goal of driving a new car, instead of having to settle for a cheaper car or a used car."