Sri Lanka’s automobile trade and finance companies have received a severe blow due to governmental regulations including high loan-to-value ratio leasing regulations being imposed.

Accordingly, the overall automobile trade and market especially the segments involving the import of unregistered vehicles and vehicles registered within the last one year are experiencing a major decline due to governmental regulations.
It has led to a collapse in the market for vehicles.

The government introduced a 90% loan-to-value ratio for commercial vehicles, a 50% loan-to-value ratio for motorcars and vans and a 25% loan-to-value ratio for three-wheelers. Vehicles imported for tourism purposes have been exempted.

The Ceylon Motor Traders Association (CMTA) said that the overall market including the small car segment and the used car segment had been impacted by more than 50% while certain segments had fallen by 80%.

Immediate Past Chairman of the CMTA, Gihan Pilapitiya pointed out that while the SUV market at the top end and the brand new car segments had been the worse hit, the small car and the used car segments had not been hit so much.

“The Government which has already revised the taxes has indicated that there would be a revision of the taxes again in two years,” he said.

The CMTA also queried the need for governmental intervention in regulating the trade when leasing companies were willing to provide facilities and the buyers were agreeable with the settlements.

During 2015, 10,743 three-wheelers were registered on an average per month except during December, which was when the 70% loan-to-value ratio was introduced.

From 2016 January to November, on an average 4,585 three-wheelers were registered a month. While the average number of three-wheelers registered per month is 4000 to 5000, this could come down to 1,000 according to the industry.

Chairman of the Finance Houses Association of Sri Lanka (FHASL) Ravi Yatawara said that there was an immediate 30% to 40% drop in the registered and recently registered categories and their segments.

“In certain cases, the financial leasing given has come down from 70% to 50%. In the case of three-wheelers, we can only give 25% of the value. The restriction initially was for all vehicles. We however got a concession where we can even go up from the existing 70% to even 90%. The restrictions on the commercial vehicles segment (including buses, trucks, lorries and heavy equipment carriers) were relaxed,” he said.

Yatawara claimed that all this was the result of the government wanting to curtail foreign exchange going out of the country and vehicle congestion caused by certain types of vehicles.