Published March 4, 2009

More buyers flash cash to pick up cars

Credit squeeze and low car prices speed up cash sales

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(SINGAPORE) Credit may be drying up during the recession, but some car buyers are just driving around that financing obstacle.

Driving force: As many as 20% of sales of some small-car makes, such as Chevrolet's Aveo5, are now cash transactions

In fact, more of them are simply paying cash upfront as car prices stall, distributors say.

Cash sales apply mainly to smaller, less expensive makes, but some luxury models too, they add.

As many as 20 per cent of sales of some small-car makes are now cash transactions - a big jump from less than 10 per cent about six months ago.

There have always been cash sales 'but lately it's a bit more', says Cheong Chee Sing, sales director of General Motors Overseas Distribution Corp (GM ODC). GM owns the Chevrolet brand.

Cycle & Carriage Kia senior manager Chin Kee Min agrees. Cash sales have been 'slowly increasing since January and are very pronounced now with the launch of the new Kia Cerato Forte', he says, referring to the sedan launched two weeks ago.

The number of 'pure cash' sales has almost tripled from a year ago, and at the same time, more buyers are taking smaller loans over shorter repayment periods, he adds.

One reason is price, says GM ODC's Mr Cheong: 'Cars are cheaper now because of lower COE premiums.'

For example, an entry- level model such as Chevrolet's Aveo5 starts at just $38,788, while Kia's Cerato Forte costs from $41,999.

Another reason for cash sales could be difficulty in getting finance because of the credit squeeze, Mr Cheong adds: 'Getting a loan these days can be a hassle.'

Yet finance is relatively cheap. Interest rates start from 2.35 per cent for a repayment period of seven to 10 years - and can go as low as 1.99 per cent during a promotion.

A senior executive with a mid-size dealership says cash buyers are usually more affluent and do not want the burden of servicing a loan.

'Those who can afford to buy a car in this economic climate are probably wealthier,' he says. 'And since they are wealthier, they can afford to pay cash.'

Kia's Mr Chin says most buyers today are 'the ones with the real purchasing power, not the ones who need to stretch their budgets and go for extra high loans'.

'Those customers that were at the periphery have now dropped out due to financial considerations as well as tighter credit screening,' he says.

GM's Mr Cheong says those paying cash for new Chevys are a good mix of first-time buyers and households getting a second car for the family.

Kia's Mr Chin says he is seeing more older buyers, from their late 30s to their 40s and 50s, who are downgrading.

'These customers may have bought a much more expensive car during good times,' he says. 'Now they are more prudent with their budget and looking for value, like the Forte offers.'

But budget and mainstream makes are not the only ones seeing an increase in cash purchases. Some high-end dealerships are experiencing it too, though to a smaller extent.

At Volvo, for example, cash sales went up several percentage points in January from a year earlier on models costing between $110,000 and $130,000.