2017 was another year of decline for new vehicles sales in Malaysia, making it the second consecutive year after a steady rise in the years leading to 2015. From a high of 666,677 units in 2015, the Total Industry Volume dropped 13% to 580,085 units in 2016, well below the initial forecast but on target with the revised figure that was announced in the middle of that year. The Malaysian Automotive Association (MAA) expected that 2017 would see slight improvement and forecast a TIV of 590,000 units which it maintained even after the middle of the year. However, the market remained sluggish and by year’s end, the TIV reached only 576,635 units, a drop of 0.6%.

Comparing the monthly sales volumes of 2016 and 2017, it can be seen that 2016 had more substantial fluctuations in the first half of the year whereas, during 2017, the variations were less. While the decline for 2 consecutive years may be due to the cyclical nature of auto industry sales, the effects of inflation and rising living costs have been keeping consumers cautious, making them less willing to spend on expensive items like new cars. Other factors like difficulty in getting hire-purchase (H-P) loans due to strict assessments (as directed by Bank Negara) also reduced the number of sales.

However, a closer look at the numbers shows that the number of passenger vehicles (PVs) sold was actually not different from the volume in 2016 – 514,679 units or just 85 units lower. The bigger decline was in commercial vehicles (CVs) which totalled 61,956 units, or a 5.4% drop (3,525 units) from the 2016 volume.

According to Datuk Aishah Ahmad, President of the MAA, the reduced number of CVs sold suggested that businesses chose to defer purchases of new vehicles or replacement of old ones at a time when their operating costs were rising. “The main segments which saw lower sales were in the light CVs as well as pick-ups, which are included in the CV category,” she added. “The big prime movers actually saw an increase in sales which, from what we understand, was due to strong demand in East Malaysia.”

Looking into the sub-segments of the CV category, the largest drop in sales was for pick-ups where 7.6% less of such vehicles were sold in 2017, translating to 3,379 units less. These vehicles form the largest sub-segment of CVs and though many are bought for private use, an agreement among ASEAN associations that compile data has them as part of the CV category.

Pick-up sales saw the biggest percentage decline among commercial vehicles.
Sales of panel vans like the Nissan NV200 saw a big percentage increase of 44% in sales during 2017.

One sub-segment – panel vans – didn’t decline and instead had increased sales of 44.1%. This could be due to the growing number of food trucks as many people who are unemployed decide to try this form of business to earn a living. There might also have been large fleet sales during 2017 to TNB, Telekom Malaysia and similar organisations that use such vehicles.

While window vans should be classified as CVs, they are part of the PV category and these vehicles (usually used as school buses or to transport tourists) had a big drop in sales during 2017. However, as they form a small proportion of the category (less than 1%), their decline in volume did not make a great impact.

The biggest impact was from passenger cars, which declined by 12,323 units. This was 3.2% lower than the volume in 2016 and while SUVs saw a 5.7% drop, the volume change was 3,670 units. MPVs were the exception, rising in volume by 30.4% to almost 74,000 units. The Perodua Alza would have been the topseller while over 6,000 units of the new Toyota Innova were produced and presumably, all were sold. Unfortunately, since the Competition Commissioner refuses to allow transparency where the public can know what actual sales figures for each model are, we have no figures to publish.

MPV sales rose during 2017, the only sub-segment in the passenger vehicle category to record an increase.

Not unexpectedly, the total production volume for 2017 dropped by 8.4% to 499,639 units. This would have been in tandem with reducing demand as plants lowered their output so as not to be over-stocked. If a simple calculation of TIV sold minus local production is made, it will be seen that in 2017, the difference was 76,996 units whereas in 2016, it was 34,832 units. On the surface, this might suggest that there were more CBU imported vehicles sold in 2017 but that is not necessarily the case. Because of the big decline in 2016, there may have been a lot of unsold stocks carried over into 2017, hence the higher figure. It’s hard to imagine that in a depressed market, more people bought imported vehicles which would generally have a higher price.

For 2018, the 590,000-unit for 2017 is set as the forecast again, which would be an increase of 2.3% in the TIV from the actual volume achieved in 2017. The MAA expects the CV segment to grow by 2.5% as more construction projects start up or progress further. These projects include the Tun Razak Exchange, LRT3, MRT2 and East Coast Rail Link.

However, the cost of doing business is also expected to rise with additional expenditures such as the Employment Insurance Scheme and Employer Mandatory Commitment and as this will have implications on profit margins, there may be less willingness to replace vehicles or get new ones. “Businesses will have to manage the increased costs and they may therefore defer fleet replacements and keep their vehicles longer. So this can have implications on the sales of new vehicles, commercial as well as passenger,” Datuk Aishah said.

The same cautious approach to spending will also be in the minds of many consumers. Rising cost of living would mean less disposable income and purchasing a new car would be a lower priority. The used car industry might benefit as some may turn to used cars which will require less outlay.

The issue of H-P loan approvals being strict and many people being unable to get loans has been going on for many years now, with those in the lower income group experiencing more difficulties. Bank Negara is firm on this to try to keep household debt from getting higher. From this year, banks themselves will become more stringent due to the implementation of the Malaysian Financial Reporting Standards 9 (MFRS 9). These standards, which are similar to those already applied in other countries, require banks to make provisions for loans that are not repaid. This could see interest rates become higher and risk-assessment will be even stricter. This will naturally worsen the H-P loan situation and impact new vehicle sales.

Datuk Aishah also noted that with ride-hailing services such as Uber and Grab, as well as an expanding network of rail services could see people being less dependent on their own cars to get around. This can ease congestion in urban areas which will be a good thing but the car companies are likely to be unhappy!

Beyond 2018, the MAA’s forecast till 2022 shows a growth range of between 2% and 2.3% annually and the TIV is expected to reach 642,000 units. Of course, by then things may change and new government policies or economic situations may influence vehicle sales in one way or another. For now, the MAA knows that expecting reduced taxes is futile but hopes that the government will address the processes that car companies have to go through to do their business and make things more efficient and easier.

The report on the performance of each brand in 2017 will be published soon.

Click here for the monthly market reports.

[Chips Yap]

 

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