After the crash of 2016, a cautious outlook for auto

  • Auto
  • Saturday, 21 Jan 2017

MALAYSIAN vehicle sales growth had been steadily moving at cruising speed over the past six years but came to a screeching halt in 2016.

Local automotive sales plunged 13% year-on-year to 580,124 units last year, its first decline since 2011.

In fact, the last time total industry volume (TIV) fell short of the 600,000-mark was in 2009 at 536,905 units. In 2010, sales hit 605,156 units.

Has growth in the local automotive industry become beyond sustainable? Has TIV hit a saturation point?

Or is the sector merely going through a temporary slump only to pick up again with all cylinders firing?

At the MAA’s first biannual media briefing earlier this week, president Datuk Aishah Ahmad says the local auto industry has not hit saturation point.

“The sector is cyclical. After a few years of steady growth, there usually is a downturn. But once the economy picks up, so do sales.”

An analyst from a local bank-backed brokerage concurs that the local automotive industry “has not hit a brick wall.”

“It’s normal. After a few years of steady growth, there tends to be a period where the industry needs to correct itself before picking up again.”

An industry observer points out that TIV plunged in the late 1990s following the Asian financial crisis - only to experience significant growth soon after.

“In 1998, sales were at the 300,000-mark. But within a few years, sales had almost doubled.”

According to the MAA’s website, vehicle sales stood at 343,173 units in the year 2000.

By 2005, TIV had jumped 60% to 552,316 units.

“And we’re nowhere near a financial crisis at the moment,” the industry observer adds.

Another analyst says the local automotive industry still has plenty of room for growth.

“Malaysia is still a relatively young population, which is generally an impetus for growth for the automotive segment,” he says.

Aishah also points out that Malaysia is still an attractive location for investors and continues to attract foreign parties.

At 580,124 units, sales last year narrowly met the MAA’s target of 580,000 units for 2016.

Of total sales during the year, 514,545 units comprised passenger vehicles, while the remaining 65,579 units consisted of commercial vehicles.

In terms of vehicle sales ranking, Perodua maintained its top spot at 207,110 units, followed by Honda at 91,830 units. For the first time, national carmaker Proton dropped to third at 72,290 units. Maintaining its fourth position is Toyota with 63,757 units.

Aishah says stringent hire-purchase loan approvals was one of the challenges facing the auto industry currently and would have the biggest impact on consumers within the low-to-medium income group.

This will be apparent especially on the national makes Perodua and Proton, which attract a lot of first time car buyers with a high-risk credit profile.

At its briefing earlier this week, Perodua president and chief executive officer Datuk Aminar Rashid Salleh admitted that 2017 will be a tough year for the local automotive industry.

The company is targeting to sell 202,000 vehicles this year - a 2% drop from the 207,100 units sold in 2016.

Meanwhile, all eyes will be on Proton, which will be announcing a foreign strategic partner by as early as next month in a bid to turn around its business and make it more competitive.

According to reports, it is believed that the company has shortlisted three potential parties, namely China’s Geely Automobile Ltd, as well as French carmakers Groupe PSA and Renault SA.

Proton has been a drain on parent DRB-Hicom Bhd’s earnings.

The latter marked its fourth consecutive quarterly loss, reporting a net loss of RM267.55mil in its second quarter ended Sept 30, 2016, compared with a net profit of RM52.67mil in the previous corresponding period.

Cautious outlook

Going into 2017, analysts and industry experts have forecast a conservative, if not cautious outlook for the local automotive industry.

Market research and consulting firm Frost & Sullivan forecasts Malaysia’s vehicle sales to grow 1.9% to 586,200 units this year.

“With the expected stabilisation of crude oil prices in 2017, Malaysia’s economy is expected to recover from the market slowdown that it witnessed in 2015 and 2016,” it says in a statement.

In the same statement, Frost & Sullivan mobility senior vice president Vivek Vaidya says he expects the ringgit to strengthen slightly this year.

“However, the sharp decline the currency witnessed in 2016 is not likely to repeat in 2017.

Stability in the ringgit will also trickle down and bring stability to prices of imported parts as well as complete-built-Up (CBU) models.

“Economic recovery will bring positivity to the market, reduce prices, create jobs and increase purchasing power. This will drive the sales of passenger vehicles.”

Vivek adds that the launch of key models in the second half of 2016 and in 2017 is also likely to have a positive impact on TIV.

“With the launch of the Perodua Bezza and Proton Ertiga in the second half of 2016, TIV growth in 2017 is likely to be driven by mass passenger cars, particularly energy-efficient vehicle models.”

Among the expected vehicle launches for 2017 are the Honda City, Honda BR-V, Honda Jazz, Toyota Altis, Mazda CX-9, Peugeot 3008 and Peugeot 5008.

Vivek says the strict auto finance loan approval policy by Bank Negara will continue to affect TIV in 2017.

“This will have a direct impact on the purchase of vehicles in the market and would affect young buyers and small/medium enterprises as they may find it difficult to secure loans.”

He also says recent boosts in public transport and ride-sharing may also slowly takeaway the need of buying cars.

“The extension of the LRT lines and launch of the MRT in 2016 have further enhanced the public transport modal share in the Klang Valley area.

“There are future opportunities in ride-sharing services as it offers a hassle-free option to commuters.

“Ride-sharing compliments public transport infrastructure by offering first and last mile connectivity.”

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