After a year of substantial decline in total industry volume (TIV) to below 500,000 units, Malaysian motor vehicle sales are expected to bounce back past the half-million mark in 2007 with a growth rate of 3.8% to 506,200 units. This forecast by Frost & Sullivan, a global growth consulting company, is based on an estimated 2006 TIV of 487,500 units, which would be an 11.5% drop from the 2005 record high of over 550,000 units. The Malaysian Automotive Association (MAA) has not released the December data so official full-year numbers are not available yet.
?We estimate that passenger car sales should grow by 5% to 383,350 units and 4×4 vehicles by 7% to 34,580 units. However, commercial vehicle volumes ? which include models like the Toyota Avanza and Innova ? are expected to decline by 2% to 88,270 units in 2007,? said Kavan Mukhtyar, Partner and Head of Automotive Transportation Practice (Asia-Pacific) at Frost & Sullivan.
He said that besides factors such as the many new models expected to be launched, easing of loan restrictions and changed consumer sentiments, other factors which should improve sales in 2007 were the stabilization of used vehicle values, a healthy economic growth of around 5.2% to 5.5% and implementation of the 9th Malaysia Plan projects. However, he added that the latter factor would only make an impact on commercial vehicle sales towards the end of the year.
Frost & Sullivan?s view is that the market will only begin picking up after the middle of 2007, a view which is also held by many executives in car companies. This is when consumers will finally come to terms with the fact that the values of their vehicles will not become any better so they might as well not hold back an intended purchase.
?After the NAP was announced and the new tariff structure saw a general lowering of new vehicle prices, values of used vehicles dropped by up to 15% so many people were caught off-guard and put off purchasing new vehicles in 2006. The wait-and-see attitude should end during the first half of 2007 and those who have been wanting to buy a new vehicle will proceed and this will boost sales,? he explained.
Mr Mukhtyar said that sales volumes would also increase as financial institutions eased their strict policies which had seriously affected sales in 2006 because of the high rejection rates of loan applications. The banks have been making full use of the data provided by the Central Credit Reference Information System and have been very quick to reject applications where the applicant has even the slightest record of not making payment on credit cards in time.
?The rejection rate should be lower and I expect that financial institutions will have a higher ?risk appetite? in 2007 though they may not be as liberal as before,? he said. He did not foresee the government intervening directly to ask banks to give out more loans, as what happened in 1999.
In 2006, Proton lost significant market share and slipped to No.2 position while Perodua became No.1. National makes accounted for almost 75% of the TIV though some non-national makes still had gains in spite of the difficult market conditions. In 2007, Mr Mukhtyar said that the national makes will still be dominant but may lose total share slightly to Japanese and Korean brands.
?Though Perodua will be launching a replacement model for the Kancil and Kelisa, it may not see increased share as the new model would be replacing one already in existence so they may maintain their share. Therefore, you could say that the reduction in market share of national makes would most likely be from Proton,? he predicted.
On Proton?s future, Mr Mukhtyar said that the problems it needs to resolve are not related totally to distribution and marketing nor financial issues. The company needs to update its technology and offer new products in order to move ahead and regain share, he felt.
?The Malaysian parties which are currently bidding to buy over the substantial stake in Proton won?t be able to offer any technology. Proton does not need financial assistance nor new distribution channels; it needs a foreign technology partner,? he said.
Looking further ahead, Mr Mukhtyar said that there should be high demand for passenger cars in Malaysia till the end of the decade. This demand will come from young adults entering the workforce but this too would depend on economic factors and a healthy job market. In 2006, the unemployment rate was 3.5% and there were signs of increase towards the end of the year while inflation was 4.8% (a 7-year high).
Frost & Sullivan monitors the auto industries of many markets globally and has been partnering with clients to support the development of innovative strategies for over 40 years. The company?s industry expertise integrates growth consulting, growth partnership services and corporate management training to identify and develop opportunities. Its comprehensive industry coverage offers a unique global perspective with ongoing analysis of markets, technologies, econometrics and demographics.