OPR adjustment positive for automotive sector

  • Business
  • Thursday, 09 Jul 2020

Market leader: Customers checking out Perodua cars in Petaling Jaya. Out of 22,960 vehicles sold in May, nearly 60% comprised national makes.

PETALING JAYA: The latest round of interest rate cuts is expected to be mildly positive for the local automotive sector, as it will increase consumers’ disposable income.

The cut in the overnight policy rate (OPR), however, is unlikely to have a significant impact, as the Malaysian economy is expected to contract this year, said CGS-CIMB in a report yesterday.

Bank Negara’s monetary policy committee cut the OPR by 25 basis points to 1.75% on Tuesday, as it expects the reduction to help speed the economic recovery.

The Covid-19 outbreak has negatively affected the automotive industry. TA Securities in a recent report noted that the automotive industry has been hit by weak demand and falling consumer confidence, which continue to weigh on vehicle sales.

“To stimulate the car industry, the government has granted a 100% sales tax exemption for locally-assembled or completely knocked-down cars and 50% for imported or completely built-up cars, from June 15,2020 to Dec 31,2020 under a stimulus package called the short-term Economic Recovery Plan.

“Overall, car prices have been reduced by 2% and 6% as a result of the sales and service tax exemption. Yet, many companies still cannot gauge the magnitude of the effect and prefer to remain cautiously optimistic on the plan.”

The research house said it was mildly positive on the news, as the sales tax exemption would help to increase car sales to some extent. “However, we do not expect the demand to increase substantially, owing to the weak economic outlook, which would discourage spending on big-ticket items.”

TA Securities also noted that the previous OPR cut to 2% will not make a meaningful impact on the auto sales. “In essence, we believe the current macro uncertainties will outweigh interest savings in most of the purchase decisions.”

A total of 22,960 vehicles were sold in May, with nearly 60% of the units comprising national makes, as more customers opted for smaller engine capacity vehicles or more fuel-efficient cars in light of the economic uncertainty.

Year-to-date May, total vehicle sales for 2020 stood at 129,561 units, compared with 253,731 units in the previous corresponding period. In May, the Malaysian Automotive Association revised downwards its sales target for 2020 to 400,000 units from 607,000 previously.

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