KUALA LUMPUR: The automotive industry could see a surge in sales in the last quarter of 2021, backed by pent-up demand post-lockdown and car buyers capitalising on the final months of the vehicle sales tax exemption.
Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad said orders for new vehicles have picked up since the government’s economic relaxation measures allowed automotive players to resume operations since the middle of last month.
“Car companies are seeing more showroom traffic and receiving encouraging orders due to the sales tax exemption,” she told StarBiz
Aishah is optimistic that vehicle sales could see a pick-up in the final quarter of the year.
“Yes, definitely,” she said, adding however that MAA was still maintaining its total industry volume (TIV) forecast for 2021. “We are still maintaining our TIV forecast of 500,000 units for this year, as we had lost almost three months of sales starting June 2021.”
Federation of Motor and Credit Companies Association of Malaysia president Datuk Tony Khor (pic) said most used car dealers had resumed operations since the start of this month.
According to Aishah, the local automotive industry sustained losses totalling RM14bil for the months of June and July as a result of the nationwide lockdown.
In July, MAA had cut its 2021 TIV forecast by 12.3% to 500,000 units from 570,000 units earlier due to disruptions caused by movement restrictions.
RHB Investment Bank Bhd regional equity research head Alexander Chia said TIV for the remainder of the year will be spurred by the sales tax exemption, which will end on Dec 31.
“Based on the assumption that the tax exemption will not be extended, those looking to buy a car within the next six months will certainly bring forward their purchases to leverage the tax holiday.”
However, Chia said automotive companies could have problems meeting the sudden surge in demand for new vehicles. “The ability of the automotive companies to meet demand could be questionable, considering the long lockdown period.
“With factories only recently re-opening, there is going to be some bottleneck. Supply, instead, might come from existing inventories,” he told StarBiz.
RHB Investment Bank Bhd regional equity research head Alexander Chia said TIV for the remainder of the year will be spurred by the sales tax exemption, which will end on Dec 31.
Chia said much will depend on car companies’ ability to quickly ramp up assembly and meet demand. “This will also hinge on how soon factories can restart their production, considering the semiconductor shortage and the need to inoculate all workers.”
The Covid-19 pandemic saw a surge in demand for personal electronic items such as cell phones and laptops, which eventually led to a shortage of chips worldwide, as production could not keep up with demand. Some cars need more than 3,000 chips per vehicle. Even if one of the chips is unavailable, the production of that vehicle cannot be completed.
Meanwhile, the vehicle sales tax exemption was announced in June last year under the short-term economic recovery plan or Penjana. Under the exemption, locally-assembled cars are fully exempted from the sales tax, while for imported cars, the sales tax has been reduced from 10% to 5%.
The tax holiday was initially supposed to last until the end of last year. However, it was extended to June 30, 2021; and then again until the end of the year.
The multiple extensions were mainly due to the repeated lockdowns over the past year-and-a-half, which disrupted business operations and prevented car buyers from being able to fully enjoy the benefits of the tax holiday.
Due to the multiple disruptions, some industry observers believe that the sales tax exemption might get extended again.
However, Chia believes that extending the exemption period repeatedly would not be conducive for the industry.
“If you keep offering the tax holiday, you’re going to end up sucking demand from the future into the present.
“Once the sales tax is reimposed, there will be a vacuum which will take months for car companies to recover from.”
Meanwhile, Federation of Motor and Credit Companies Association of Malaysia president Datuk Tony Khor said most used car dealers had resumed operations since the start of this month.
“For August, sales recovered up to 65% compared with the same month last year. For September, we do believe the recovery will be more than 70%.
“I think by October, sales should return to normal.”
Khor is confident that used car sales will be good in the final quarter of the year.
Nevertheless, he said the global chip shortage could also have an eventual impact on the used car segment.
“Until you receive your brand new car, you won’t be able to trade in your used one.
“However, those who can’t wait might consider purchasing a second-hand car, rather than waiting to buy a brand new one.”
Khor said about 400,000 used cars were sold last year.
“We expect to do the same in 2021,” he said.
According to MAA statistics, TIV stood at 7,086 units in July 2021, compared with 58,878 units in the previous corresponding period.
Sales were mainly from Sabah and Sarawak, where showrooms were allowed to operate under phase two of the National Recovery Plan.
Year-to-date July 2021, TIV stood at 256,215 units compared with 232,423 units during the same period last year.