Car dealers want finance rules eased

Automobile retailers lock horns with the UAE's Central Bank over new limits on auto finance.

Forcing customers to make downpayments resulted in many car buyers drifting away from the market, said Gary Salah. Jaime Puebla / The National

Car dealers across the UAE have called on the Central Bank to loosen new regulations on car financing, which they say have caused a sharp drop in sales since becoming law two months ago.

Both the Abu Dhabi and Dubai chambers of commerce have held meetings with the Central Bank on behalf of the regional distributors of car brands including Toyota, General Motors, Nissan, Renault and Infiniti.

The lobbying effort over downpayments on car loans, now set at a minimum of 20 per cent of a vehicle's purchase price, pits the car industry against banks seeking to minimise the risk of debtors becoming unable to afford their loan repayments in times of hardship.

The Central Bank introduced the rules in an effort to bolster the strength of the banking industry, following a deluge of bad debts which has hampered their efforts to lend following the global financial crisis.

But forcing customers to make downpayments resulted in many car buyers drifting away from the market, said Gary Salah, the national sales manager for Al Masaood, which distributes Nissan, Renault and Infiniti in Abu Dhabi and the Western Region.

"There's definitely an effect," he said. "You lose the customer base of the market who cannot afford to pay cash … mainly blue-collar workers."

Last week, the Dubai Chamber of Commerce met Sultan Al Suwaidi, the Governor of the UAE Central Bank, and called for a reduction of the 20 per cent cash downpayment.

The Central Bank declined to comment on the progress of the lobbying efforts.

But banks said the old rules, which allowed customers to finance the cost of buying a "supercar" with no need for a downpayment at all, were unsustainable.

The mandatory downpayments would help banks minimise the effect of non-performing loans, which have hampered their ability to lend and make profits until relatively recently, said Mohammad Zaqout, the head of retail banking at Al Hilal Bank.

"Competition had moved banks towards the zero per cent downpayment rate, and that's what the industry is facing off today," he said.

Personal loans to residents, including car financing, fell 1.4 per cent to Dh244.3 billion (US$66.51bn) from March to April, according to the most recent data from the Central Bank.

Sales managers at Al-Futtaim Motors and Arabian Automobiles said the rules meant they had to offer other forms of financing to tempt buyers.

These include increased bundling insurance and service packages, and the introduction of personal contract purchase agreements, allowing customers to finance 50 per cent of a car's value in exchange for the opportunity to buy outright, upgrade or sell the car at the end of the contract period.