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A lot of the credit goes to business buyers

Sign here: Businesses lapped the federal government's incentives in December - borrowing credit to buy new cars.

Tax incentives drive up credit demand for vehicles by 74 per cent in December

General News logo1 Feb 2010

PRIVATE car credit demand has dropped significantly since the start of the global financial crisis in 2008, but it is a different story when it comes to business customers.

Vehicle credit information provider VedaAuto tracks the credit provided by more than 1600 companies and its data shows how commercial car credit demand is on a rollercoaster ride.

Federal government tax incentives, along with a traditional end of tax year purchases, are two key contributors to the up and down trend of credit applications.

The largest spike of the year was the traditional end-of-financial-year increase caused by customers wanting to minimise the time between their purchase and any tax benefit. This year, the increase was turbocharged by the federal government’s 50 per cent tax credit incentive.

The incentive, which applied to cars ordered by small businesses up to December 31, also triggered a second spike in December – not a traditionally strong month.

The result was a stunning 74 per cent increase in business vehicle credit demand compared with December 2008.

 center imageThis of course ties in with the December result for VFACTS that showed a 15.9 per cent rise in sales volume over the same month a year earlier.

VedaAuto’s David Scognamiglio said it was likely the demand for credit would drop in line with the end of the government rebate scheme which drew some customers before they would have normally purchased a vehicle.

“You’d have to figure that that has pulled some demand forward and has taken some stock and demand out of the next few months,” he said.

“With the tax deduction on vehicles for businesses ending last year on December 31, we expect to see a significant softening in the automotive credit demand in January and in the first half of 2010.”

VedaAuto also measures the demand for used-car credit which peaked in February 2009 but dropped off steadily.

Used-car credit demand for December was down 7.3 per cent on the same month of 2008.

“What we think has happened there is that a lot of the demand has been pulled across to new-car sales,” Mr Scognamiglio said.

“If I’m a tradie and I can buy an old ute for $18,000 or a brand new one for $25,000 and take the tax rebate, then I would go for the new one.”

With so many business customers opting for new cars, Mr Scognamiglio predicts an over-supply of used cars resulting in sharp pricing.

“The increase in business automotive credit demand should also result in an abundance of new cars being advertised online through motor dealers, as businesses deliver their traded in vehicles when taking delivery of their new vehicles in 2010,” he said.

Private new-car credit demand has been on a largely downward path since the middle of 2008 and dropped off sharply last December, down 14.7 per cent compared to December 2008.

Mr Scognamiglio said the softening was partly due to the general sales downturn and partly due to some people who might otherwise have purchased a car as a private customer instead buying it through a business to attract the 50 per cent tax deduction.

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