Not surprisingly, new vehicle sales in April were lower than for March as many people began to feel that perhaps they should wait till the General Elections are over before making their purchase. It was going to be a major event (which had an unexpected outcome) so human nature made them pause. This resulted in the Total Industry Volume (TIV) for the month dropping by 5.8% or 2,896 units less than the March TIV. However, compared to the same month a year before, the figure in 2018 was significantly higher by 4,343 units or 10%.

Source: Monthly reports of the Malaysian Automotive Association (MAA)

Generally, the early part of the second quarter is a ‘slow’ period; the major festivals have passed so time is needed for the market to generate new demand again. This year, the Hari Raya festival falls towards the end of the second quarter which would normally have meant that a boost in sales can be expected with festive buying. In fact, the sales campaigns had started in May but then came the General Elections and the outcome was a complete change of government – which has a lot of implications to business.

The most significant impact, of course, is that buyers now know that the Goods & Services Tax (GST) will no longer be charged from June 1, so it’s only natural that they will defer their purchase. On other occasions, there was only speculation that prices would drop so it was a question of whether you believed the rumours or not. This time, it’s a certainty and so from the end of the elections, showrooms started to see less and less traffic.

The unexpected development has given the car companies a problem since there are still many days left in May. Those that could afford it have decided to sell their vehicles at prices which do not include GST and pay for the tax themselves out of the profit margin. Those that cannot use that approach to keep sales going in May will just have to endure the difficult period and hope that June will see a boost in sales to make up.

Perodua is absorbing the GST charge in order to keep sales moving in May so that dealers and suppliers do not face difficulties in their business which can have a longer-term effect.

Writing in his personal blog, Dato’ Dr. Zahari Husin, MD of Perodua Sales, said that Perodua subsidizing the GST amount will cost the carmaker, on average, about RM2,500 per vehicle until May 31. “This is a very costly exercise to Perodua but just like other carmakers, it has to be done in order to spur the business back in May. Otherwise, many Perodua dealers will suffer from stalled business, lots of accounts will be aging, and stocks will be piling up to wait for the return of customers from June 1st onwards. These 2 weeks gap, if not properly handled, can lead to a much bigger problem to the eco-system later,” he wrote.

The Malaysian Automotive Association (MAA) is hopeful that sales in May will be high since some of the major players have announced that they will absorb the GST charge and customers do not have to wait till June to make their purchase.

It could well be that June and July will see extremely high sales as this is a rare period when there is no extra tax charged on purchases. Sometime during the third quarter, the Sales & Service Tax (SST) will be re-introduced, the Finance Ministry has confirmed. There is the belief that it will be set at 10% although that’s speculation at this point. It would be understandable that the government will want to charge some tax since it does need to get revenue to operate. As it is, changes in fuel prices have been suspended and the new PM has said that should it be necessary to maintain the prices, subsidies will be introduced.

The ‘new era’ for the country changes many things and it could also have an effect on the car market. But we’ll have to wait a few more months before a clearer picture can be seen of which way the market will go.

[Chips Yap]

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