A dent in the auto sector

The global chip shortage has impacted deliveries from overseas and local chip suppliers leading to a backlog on deliveries by three to four months.

PETALING JAYA: The combination of rising raw material prices and chip shortage, which is having an impact on global car prices, could affect the Malaysian automotive industry if the situation worsens.

Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad said local automotive players are feeling the ripple effects of this global phenomenon.

“The global chip shortage has impacted deliveries from overseas and local chip suppliers leading to a backlog on deliveries by three to four months.

“Depending on the percentage increase in rising material costs, if local automotive original equipment manufacturers cannot absorb the costs, they may have to pass them to potential buyers, ” she told StarBiz.

RHB Investment Bank Bhd head of regional equity research Alexander Chia said the global chip shortage and rising material costs situation would have an impact on local car companies if the situation persists.

“For completely-knocked-down models, small changes will be absorbed by the price buffer along with foreign exchange changes.

“But the new cost structure will be updated into the prices of new models, ” he said.

In spite of the potential impact on the local car industry, Aishah, however, said the situation will be mitigated by the vehicle sales tax holiday, which has been extended until the end of the year.

“The extension of the sales tax holiday will help to cushion the price increase, ” she said.

Chia also concurred that the sales tax exemption would alleviate the impact on consumers.

“I would say local consumer-sentiment and purchasing power will have a bigger influence on car demand, ” he said.

Under the vehicle tax exemption, locally-assembled cars are exempted from sales tax while for imported cars, the sales tax has been reduced from 10% to 5%.

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.

A recent Forbes article cautioned that the automotive industry may have to bear with the global chip shortage until 2023.

“As demand for new cars and sport utility vehicles recovered from the lengthy shutdown, it turned out that other industries like gaming had been thriving during the enforced lockdown, which confined people to their homes and stopped car use and car buying.

“Semiconductor makers were happy to switch production to these new domestic customers, but when auto demand turned around, chip supply couldn’t suddenly be switched back on.

"With many new cars using more high-tech components, this required bigger and more sophisticated electronics and you have a perfect storm of supply aggravation for the industry, ” Forbes said in a report earlier this month.

Meanwhile, Bloomberg, in an opinion piece late last month, noted that global auto giants ssuch as Toyota Motor Corp and Ford Motor Co are preparing to produce far fewer vehicles this year because of the worsening chip shortage.

“No doubt, carmakers could digest the rising cost of production a bit longer by reducing incentives and discounts they have used to lure buyers. But that’s already been happening in the world’s largest auto markets, the United States and China, and you can’t trim back enticements forever.

“Companies have few options to offset creeping manufacturing expenses. With prices already high, consumers aren’t going to be as liberal with their wallets.”

On the local front, total vehicle sales in Malaysia doubled to 46, 663 units in May, as sales in the previous corresponding period were drastically affected by the implementation of the movement control order (MCO).

However, sales volume for May 2021 was 19% lower than April 2021, according to data by the MAA. This was due to the implementation of the MCO 3.0 in early May, coupled with a shorter working month due to the Hari Raya festive holidays as well as the shortage of computer chips which affected the sales of some models.

Year-to-date May, total vehicle sales stood at 245, 932 units compared with 128, 790 units in the previous corresponding period.

The MAA expected minimal sales for June 2021. Sales for the month will come from units that were registered (but not invoiced) in May and carried forward into June.

The association added that the lockdown would also affect sales for June, as showrooms are not be allowed to operate and most government agencies such as the Road Transport Department, Puspakom, Land Public Transport Agency and Malaysian Peninsular Commercial Vehicle Licensing Board are either closed or working with minimal workforce.

The MAA projected total industry volume to grow 8% to 570, 000 this year, on the back of the renewed sales tax exemption and stronger economic recovery. It is scheduled to hold its second bi-annual meeting next month.

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