Increasing non-performing loans in the automotive sector could affect Thailand's car manufacturing this year after NPLs rose by 2.05%, with 20,000-25,000 cars seized a month, says the Federation of Thai Industries (FTI).
Last year auto NPLs tallied 1.89% of total car loans.
"If confiscations rise to 30,000 cars a month this year, which is the worst-case scenario, car production cannot avoid a negative impact," said Surapong Paisitpatanapong, vice-chairman of the FTI and spokesman for the FTI's Automotive Industry Club.
"But we still believe this NPL rate will not be a serious concern for global car companies and dealers. They believe banks and financial institutions can deal with granting car loans."
Earlier this year the club cut its car production target to 1.9 million from 1.95 million. The reduction was attributed to a drop in domestic car sales and an increase in imported electric vehicles (EVs) from China.
Car manufacturing for the domestic market is expected to decrease by 50,000 units, or 5.5%, to 850,000 units, compared with a previous projection of 900,000 units.
The club maintains its production target for export at 1.05 million units.
Domestic car sales have turned sluggish as financial institutions impose stricter criteria for car loans.
From January to July, total car sales decreased by 5.4% year-on-year to 464,550 units, down from 491,329 cars in the same period last year, according to the club.
Sales of pure pickups posted the largest decline among all vehicle types, with a year-on-year dip of 25.5% to 169,994 units, down from 228,070 pickups.
In July, total car sales dropped by 8.7% year-on-year to 58,419 units, down from 64,033 units.
Sales of internal combustion engine-powered cars decreased by 14.3% year-on-year to 47,546 units, while battery EV sales soared by 350% to 4,438 cars, up from 985 cars in July last year.
"Domestic car sales are projected to keep decreasing because of high household debt, banks' stricter loan criteria and EV imports," said Mr Surapong.
Household debt amounts to 16 trillion baht, or 90.6% of GDP.
If debts from loan sharks are included, the number could reach 120% of GDP, Kriengkrai Thiennukul, chairman of the FTI, said earlier, adding this issue is a major challenge for the new government.
Mr Surapong said the new government should come up with ways to stimulate the economy and ease auto lending rules during the second half of this year to reduce household debt and support domestic car sales.
According to the club, Thailand's car production in July increased by 4.7% year-on-year to 149,709 cars, driven by growing demand overseas that expanded exports.
From January to July, total car production rose slightly by 0.6% year-on-year to 1.07 million units, up from 1.06 million units, mainly because of a domestic sales slowdown.
Higher interest rates are among the factors that affected car production, he said.
On Aug 2, the central bank's Monetary Policy Committee voted unanimously to raise the policy rate for a seventh consecutive meeting by 0.25 percentage points from 2% to 2.25%.