Local auto hitting speed bumps

Slowdown: In the first half of this year, Proton sales dropped to 35,727 units from 50,205 units in the previous corresponding period. Sales in July were less than encouraging, dropping 64 year-on-year to 3,866 units from 10,867 units previously.

Growth has been slowing in the sector, with forecast TIV for this year cut down to 580,000 units

SINCE coming out of the global financial crisis, the Malaysian automotive industry has been cruising steadily upwards in terms of sales over the past five years, hitting a record-breaking 2015 with total industry volume (TIV) of 666,674 units.

However, going into 2016, the highway to growth seems to have hit a number of speed bumps, with the Malaysian Automotive Association (MAA) slashing TIV forecast downwards to 580,000 units for this year.

The last time TIV was below the 600,000-mark was in 2009.

Some car companies are forecasting conservative growth, and many are slashing their initially higher sales targets. Is the local automotive industry gearing up for its worst performance in nearly a decade? What’s dragging the local automotive sector?

Weak demand

At its half-year briefing in July, MAA president Datuk Aishah Ahmad says the association had revised its initial 2016 TIV forecast of 650,000 units due to weak sales in the first six months of the year.

The poor sales, she says, can be attributed to the poor economic outlook and cautious consumer sentiment.

“The automotive industry is cyclical in nature and would be among the sectors that would be hit most by any downturn in our local economy.

“Demand for new vehicles during such tough environment would generally fall as consumers cut back on spending big ticket items such as motorcars,” she says during her presentation in July.

Year-to-date July 2016, vehicle sales stood at 317,930 units, which was a 16.5% drop from 380,931 units in the previous corresponding period.

Kenanga Research in a recent report says that sales so far this year has been adversely affected by poor consumer sentiment from higher living costs, as well as the lack of new model launches to generate buying interest from consumers during the prior month.

But with cars being a necessity these days, it’s only natural to see consumers downgrading to cheaper vehicles during an economic slowdown.

An example was during the financial crisis of 2007/2008, where Perusahaan Otomobil Kedua Sdn Bhd’s (Perodua) achieved the most bookings in its 15-year history in July 2008.

Such a huge phenomenon it was for the company that its managing director at the time remarked: “We were in Nirvana.”

But this was nearly a decade ago.

Things have since changed and today, more people are seen to be holding back purchases in times of uncertainty and it’s becoming commonplace for financial institutions to record lower profits and higher doubtful debts.

So how are current car companies fairing with the current economic climate?

National makes

According to MAA statistics, Perodua sold 97,370 units in the first half of 2016 compared with 108,502 units in the previous corresponding period.

Aishah: The automotive industry is cyclical in nature and would be among the sectors that would be hit most by any downturn in our local economy.

The compact carmaker recorded its highest ever annual sales in 2015 with 213,307 units sold; making it the number one car company in terms of TIV.

For this year, Perodua is maintaining its sales target of 216,000 units, as it expects to more than double sales to 118,600 units in the second half of the year from the 97,400 units it sold in the first half.

The company expects sales to be driven by its new energy efficient sedan, the Bezza, which was launched in July.

As of last month, Perodua had delivered 10,000 units of the Bezza, with bookings growing to 25,000 units since it began taking orders on July 16.

The company had earlier targeted 15,000 bookings per month. It expects bookings to stabilise over subsequent months, with average monthly bookings likely to reach about 7,500 units.

Analysts are optimistic that Perodua is likely to achieve its sales target for the year.

“Perodua can still meet their target, given the response for their newly launched model, which starts from an affordable RM37,300.”

Another analyst meanwhile, was less than convinced, believing that Perodua could miss its sales target.

“Sales in July was actually down 16% year-on-year to 15,121 units from 17,957 previously, which is not an encouraging sign, even with a new model at hand.

"Furthermore, there is still the possibility that sales of the Bezza could cannibalise sales of its other models, which could suffer because of the popularity of the Bezza."

An analyst from a local bank-backed brokerage meanwhile says Malaysian TIV is being affected by sub-par sales of national carmaker Proton, and former non-national segment leader, Toyota.

“Proton sold 102,175 units in 2015. With the current statistics, it is doubtful the company will surpass the 100,000-units mark this year,” he says.

In the first half of this year, Proton sales dropped to 35,727 units from 50,205 units in the previous corresponding period. Sales in July were less than encouraging, dropping 64% year-on-year to 3,866 units from 10,867 units previously.

The company recently launched its new Persona model last month and the Perdana in June. The company is banking on the launch of new models this year to help boost sales.

The company is expected to launch the new Saga this month, followed by a multi-purpose vehicle in October (the first product of the joint venture with Suzuki).

An analyst said Proton was on the right track in introducing new models into the market.

“Proton is going through a phase where it is replacing its bread and butter models, namely the Saga and Persona, to make way for newer models that can help boost sales and appeal to customers.

“It remains to be seen how these new models will perform,” he says.

Proton chief executive officer Ahmad Fuaad Kenali has been quoted as saying that the new models that the company is launching this year will give it an advantage, and that Proton aims to sell between 3,000 units and 4,000 units of its newly launched Persona per month.

The cheapest 1.6-litre model in South-East Asia, Proton says the car will compete in the B-segment and will not cannibalize sales of its Saga model.

Non-national segments

Another car company that has not been performing as well as it should, is Toyota, which sold 93,760 units in 2015. For the first half of 2016, sales dropped to 27,249 units from 38,796 units in the previous corresponding period.

The analyst from the local bank-backed brokerage says the reason Toyota has been replaced by Honda as the top-seller in the non-national car segment is because the former has been facing competition from its non-national counterparts.

“Toyota is going through a phase where its models is facing stiff competition from the models of its rivals. They need to update their products to meet current demand of the market,” he says.

He points that while the company’s Toyota Hilux is still a major contributor in terms of sales, its market share within the commercial vehicle segment has however been eroded by other models on the market.

“Toyota used to have a lot of models that were top selling, such as the Vios and even the Camry.”

He adds that the company should consider introducing a new model within the compact sports utility vehicle (SUV) segment.

“The SUV segment is the fastest growing segment in the world, and the company should consider introducing a model within this sub-segment,” he says.

Economic slowdown aside, he adds that TIV sales have mainly been dragged due to the poor performance of Toyota and Proton, which used to dominate vehicle sales in the non-national and national segments respectively.

According to automotive intelligence provider Jato Dynamics, Europeans are now favouring makes within the SUV segment - similar to the shift towards SUVs in the US car market.

In a report in February, it said the SUV segment drove most of the growth in 2015, as more consumers moved away from the traditional segments and multipurpose vehicles towards SUVs and crossovers.

Earlier in March, Toyota unveiled its Toyota C-HR at the 2016 Geneva Motor Show - a model that can directly take on Honda’s HR-V.

According to a report by Hong Leong Investment Bank, upcoming launches of the new Innova and upgraded Vios in the second half of this year will likely promote higher sales volume for Toyota.

Meanwhile, Honda saw its sales drop to 39,654 units in the first half of 2016, compared with 43,596 units in the previous corresponding period.

Sales in July dropped to 7,827 units from 8,443 units in the previous corresponding period.

The company launched the Civic in June and the Accord earlier this week.

The company expects flat sales growth this year due to the challenging economic outlook, and has forecast sales to hit 90,000 units for 2016 - the same level the company recorded last year.

The company expects sales of the Civic and Accord to drive sales this year.

The Civic, which was launched in June, had already received bookings of up to 6,000 units, according to Honda managing director and chief executive officer Katsuto Hayashi.

He says the company is targeting to sell 500 units of the new Accord per month.

Mazda, meanwhile, also recorded a growth in sales in the first half of 2016 - 7,346 units compared with 6,582 units in the first half of 2015.

Kenanga Research in a report says this is likely because its targeted customer base is within the middle-income to high-income bracket and less sensitive to the rising cost of living.

Premium car segment

In spite of the conservative vehicle sales outlook, the premium vehicle segment still continues to hold its own, signifying that there are customers who are still willing to splurge on big-ticket items.

According to the MAA, sales of Mercedes vehicles rose to 6,094 units compared with 5,233 units in the previous corresponding period, while BMW saw its vehicle sales increase to 3,964 units from 3,075 units a year earlier.

"Customers within this segment are the ones that have the money to spend.

"Many are not affected by issues such as loan approvals or even a slight slowdown in the economy,” says an industry observer.

It was recently reported that Mercedes-Benz Malaysia is looking forward to another year of record sales.

In 2015, Mercedes-Benz Malaysia enjoyed record sales of 10,845 vehicles. That marked a 56% year-on-year increase.

Meanwhile, it was reported earlier this year that BMW Group Malaysia expected 2016 to be a better year in terms of sales, driven by existing and new models.

The company sold 7,515 units in 2015. One industry observer says he’s still optimistic about the local automotive industry.

The observer points out that car companies still continue to launch new models despite the slowdown in the economy and cautious consumer sentiment.

"Perodua and Honda are maintaining their sales targets.

"Consumers in the premium segment still continue to purchase vehicles and the fact that local car companies are still launching new models is testament that they believe there is demand for cars."

Kenanga Research in a recent report says that new upcoming model launches should help to rejuvenate consumer demand.

Most year-to-date July TIV sales were adversely affected by poor consumer sentiment from higher living costs as well as the lack of new model launches to generate buying interest from consumers during the prior month.

“We believe the lacklustre demand would improve, led by several recent model launches, such as the new Perodua Bezza, the new Proton Perdana, new Honda Civic, diesel engine models from Mazda and the recent Toyota Sienta.

“Other forthcoming model launches such as the new Honda BRV, the facelift City, Jazz and Accord, and new Toyota Hilux, Fortuner, Innova and upgraded Vios, are anticipated to attract consumers back into the automotive market.” The MAA in July had said it expected vehicle sales in the second half of 2016 to surpass that of the first six months of this year.

This would be driven by new models such as the Perodua Bezza.

The association believes that sales in the second half of the year should account for about 53% of TIV for 2016.

MAA’s Aishah also says the decision by Bank Negara to cut the benchmark overnight policy rate to 3% from 3.25% previously would help to stimulate domestic spending. “The trend towards fuel efficient and small engine capacity vehicles is expected to continue as consumers become more conscious on costs and maintenance and spending,” she says.

She adds that on-going aggressive promotional campaigns by car companies, especially towards year-end, will also boost sales.