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Handbrake on business vehicle credit

Falling flat: Businesses have reduced their applications for new-vehicle finance.

Danger signs as business credit demand wanes after business tax breaks end

General News logo1 Jun 2010

BUSINESS vehicle credit demand continues to slow after the federal government withdrew its 50 per cent business tax depreciation allowance on December 31.

The graph that accompanies this story reveals business (referred to as commercial) vehicle credit has flattened out after a rollercoaster ride from last May 2009 to the end of the year.

Vehicle credit information provider VedaAuto, which tracks the automotive credit provided by more than 1600 companies, says overall credit demand for private new and used vehicles is down four per cent year-on-year to the end of April.

Business automotive credit demand in April was 10 per cent down on April 2009, when the government’s 30 per cent tax allowance had just been increased to 50 per cent.

VedaAuto chief David Scognamiglio said this was in line with its predictions. “It is tracking where you would expect it to after a massive November and December,” he said.

A more accurate picture of the effect of the business tax break is expected to arise in the next two months, when business credit demand usually spikes towards the end of the financial year.

Demand surged at the end of the last financial year, as well as at the end of the calendar year because of the tax incentive deadlines.

Personal vehicle credit demand for April is sitting steady compared to the same month last year, dipping just one per cent.

It is a different story with used car credit demand, which was down 51 per cent year on year.

Mr Scognamiglio explains: “It is likely that many of the customers who would have bought used cars in the past were encouraged to purchase new vehicles last year under the government tax allowance scheme.”

Mr Scognamiglio said many car dealers had indicated that used cars sales were down and that they had significantly reduced the number of used cars they were purchasing from auction houses and other sources.

VedaAuto also had Galaxy Research survey vehicle credit, finding 35 per cent of respondents regard car purchasing decisions as a high priority, compared with 20 per cent six months ago. Just how this will translate in new-car showrooms remains unclear.

“We have definitely seen an increase in intent to buy new cars, but our data was collected before the last interest rate rise so it is not clear what effect that might have,” Mr Scognamiglio said.

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