As expected, there was a surge in new vehicle sales during June when the Goods & Services Tax (GST) was no longer charged. Not having to pay the 6% tax meant that purchases of vehicles were cheaper and especially for the more expensive models, the savings were attractive enough to persuade many Malaysians to get a new vehicle.

The unexpected boom in sales in the final month of the first half of 2018 pushed the month’s Total Industry Volume (TIV) to 64,502 units. The last time the TIV went past 60,000 units was in December 2016 when it reached 64,822 units. The volume grew by 50% compared to May’s TIV but sales in the latter part of May had slowed down when it was announced that GST would not be charged from June 1, so most people chose to defer their purchase. The sales decline might have been greater had a few of the leading companies not offered customers a rebate on the GST, absorbing the tax themselves in order to keep sales moving.

Nevertheless, if you look at the average monthly sales during the first 5 months which was around 45,000 units, June’s jump in TIV was 43% higher than the average for the year. However, because of the sluggish market conditions from January to May, the TIV for the first 6 months reached only 289,714 units or 1.8% more than for the same period in 2017. The main contribution came from passenger vehicles (excluding pick-up trucks) which totalled 261,043 units in 2018, which was 2.1% higher than for the same period in 2017. Commercial vehicles (including pick-up trucks) saw a marginal drop of 0.1% or 34 units to 28,671 units.

Looking at the 6-month data more closely reveals that not all segments of passenger vehicles saw a sales boost. Passenger cars (sedans, hatchbacks, stationwagons, etc) and SUVs were sold in larger numbers than in 2017 but window vans and MPVs saw a drop. In fact, MPV sales fell by 25.3% in 2018 or almost 10,400 units less than in 2017.

Although sales are expected to be higher than usual in July and August as well, the confirmed introduction of the Sales & Services Tax (SST), which is likely to be 10%, is expected to dampen sales during the final quarter of the year. Prices are almost certain to go up but it should be noted that they should not be 10% higher than prices in May when GST of 6% was applied; perhaps the increase may be 4% and depending on their individual strategies, some companies may find a way to reduce the impact. At this time, without complete details of the SST implementation, the companies can’t give an indication of pricing yet.

It is difficult for companies to get more stocks to meet the sudden surge in demand as suppliers of parts need a few months to adjust their outputs.

The sales boom may be very welcome but because the removal of GST for a few months was not expected early in the year, vehicle orders and production schedules were set conservatively. It takes about 3 to 4 months for changes in orders to be able to take effect so it’s not like the stocks can be boosted to meet the higher demand. Whether assembled locally or imported from factories in other countries, time is still needed to increase supplies of the thousands of parts that make up each vehicle and if suppliers are pressured to supply more, quality may be affected as they rush. For this reason, some models are out of stock or low and new shipments are still based on the conservative orders made earlier.

“Understandably, customers want to take advantage of this ‘tax holiday’ when they can pay less and want their new vehicles before September 1st when SST will be added to the price. However, it is difficult to get more stocks within such a short time-frame. This is an unexpected situation for us and we are trying to manage it as best as we can,” said the senior executive of a car company.

When the year started, most companies didn’t expect sales in 2018 to be particularly high and even the Malaysian Automotive Association (MAA) offered a forecast of 590,000 units. It was the same number as what had been forecast for 2017 but the industry didn’t reach it and retaining the same TIV was a 2.3% increase.  The high TIVs for June, July and August are not expected to be enough to offset the expected decline in the final quarter so the MAA has decided to revise its forecast to 585,000 units or 4,000 units lower than the forecast presented in January. This new forecast is still higher (by 1.5%) than the TIV for 2017, with passenger vehicles accounting for 89% of the volume.

Looking ahead 5 years, the Malaysian market is expected to pass 600,000 units in 2020 on the assumption that the TIV growth rate will be around 2%. Given that the market is quite saturated, the MAA doesn’t see annual growth rates being more than 2.3% at most.

[Chips Yap]

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