The economic downturn that comes from the recent lockdown affects all countries affected by COVID-19 and there is no clear solution from any country. Malaysia is taking a severe hit and we are looking at the used car market and how it is moving forward.
Speaking recently to a car auction business who handles bank repossessed vehicles, showed that there was a marginal drop in repossessed cars after the recent Malaysian COVID-19 lockdown, possibly due to the banks relaxation of loan repayments. Before the lockdown, an average of 60-70 cars were being brought in by bank tow trucks a day to their holding yard. After the lockdown the numbers fell to below 10 units or less a day.
Then came the weekly auctions. Before the lockdown, each auction which is visited mostly by used car dealers would see a 55-65% total sales done at the end of each auction. After the lockdown there was a marginal drop in used car dealers attending the auction and the vehicles sold were less than 15%.
A check with the Customs Department auction vehicle division also showed a marginal drop in attending buyers and vehicles sold after COVID-19 Lockdown.
The possible worrying issue that will come in four to five months’ time when the Moratorium For Car Hire-Purchase Loans has been lifted will be the surge of non performing car loans from the many Malaysians who would have lost their jobs earlier in the year or the rest who have had a high salary cut which indirectly affects car loan repayments.
This will lead to a rise in vehicle repossession and with car loans becoming harder to obtain, the value of used cars will slowly drop quarter after quarter. Can the used car dealers survive this? Can the vehicle auction houses survive this? Can the owners of cars that are repossessed survive this?
Moratorium For Car Hire-Purchase Loans
Further to Bank Negara Malaysia’s (BNM) announcement on 25 March 2020, banking institutions are in the process of formalising agreements which reflect the revised payment terms with borrowers/customers with hire-purchase (HP) loans and fixed rate Islamic financing to give effect to the 6-month moratorium on loan/financing payments. This is to comply with the procedural requirements under the Hire-Purchase Act 1967 and Shariah requirements which are applicable to any changes that are made to the terms of these agreements, including changes to the payment schedules and/or amounts as a result of the moratorium.
In connection with the above, BNM has required banking institutions to take appropriate steps to ensure that borrowers/customers are provided with clear information on the process and changes to the terms of their agreements, as well as convenient means to conclude these agreements in view of the Movement Control Order.
Starting from 1 May 2020, borrowers/customers with HP loans and fixed rate Islamic financing will receive a notification via SMS, email or registered mail from their banking institutions on the necessary steps that they need to take to complete the process of deferring their loan/financing payments under the moratorium. Banking institutions will also provide to each borrower/customer specific details of changes to the terms of his/her HP loan or fixed rate Islamic financing agreement. This should contain information on the revised payment schedule and any changes to payment amounts, including those arising from normal interest/profit rate accrued during the moratorium.
Borrowers/customers who do not wish to take up the moratorium can still choose to do so at this time by informing their banking institutions and resuming their scheduled payments based on the terms of their existing agreements. In such a case, borrowers/customers will be given reasonable time by banking institutions to regularise any outstanding scheduled payments that were earlier deferred under the moratorium. Banking institutions will not impose overdue or late payment charges on these payments until they are due based on the revised payment schedule agreed with borrowers/customers.
Borrowers/customers are encouraged to refer to the websites, internet banking portals or call centres of their banking institutions for further information.
