Used car market losing competitive edge

Average new car price has dropped by 13% since 2014, says analyst


THE used car industry is losing its competitiveness as a result of price reductions, along with discounts and special packages, that are offered by dealers of brand new cars.

Frost & Sullivan associate director of automotive consulting practice Animesh Kumar told The Malaysian Reserve (TMR) that cars are getting cheaper and the used car industry has been affected for the past several years.

“Reduction in prices of new vehicles and the attractive deals on them have played a significant role.

“They are covered by the manufacturers’ warranties of up to five years, which the used car market cannot afford to offer. Customers are now opting for new cars,” he said.

Animesh, who has been tracking the automotive, ride-hailing and auto leasing markets in Malaysia, said the average new car price has dropped by 13% since 2014. The reduction is primarily driven by the energy-efficient vehicle incentives introduced by the government in the National Automotive Policy 2014.

For instance, the price of the nation’s favourite car, Perodua Myvi, has gone down 12.15% from RM50,424 to RM44,300. A secondhand 2014 Myvi is currently sold within RM29,000 to RM35,000.

A brand new Proton Persona is now priced at RM44,431, RM8,281 cheaper than its original published price tag, while a pre-owned car of the same make could be tagged as high as RM31,000. The price for a Honda Jazz hybrid also saw a reduction of 8% to RM84,537, against the second-hand version which is sold at around RM50,000.

The reduction in prices of new cars is certainly lauded by consumers, but used car dealers are now struggling with a new set of challenges in an industry that has been depressed for more than 10 years.

TMR recently reported that the used car market has remained stagnant with about 400,000 units sold annually, while sales of new cars are reaching 600,000 units.

“In countries like the US, used car sales more than double the sales of new ones.

“In Europe, sales of second-hand cars are twice the number of brand new cars, while Japan’s used car segment is 1.5 times more than new cars,” Federation of Motor and Credit Companies Association of Malaysia president Datuk Tony Khor said.

Apart from the price cuts of new vehicles, the industry is also plagued with issues including customer confidence and stringent loan approvals.

“Private financial institutions demand higher down payment, higher interest rate and shorter loan tenure. These requirements increase the monthly instalments and push them out of reach of some potential buyers,” Animesh added. Animesh said the used car market in Malaysia would remain challenging in the short and medium terms with the market volume likely to hover between 350,000 and 400,000 units.

“Smaller dealers would continue to go out of business,” he said.

As it is, used car dealers largely have shifted to online listings such as, motortrader. com, and to reach a wider audience.

Between 70% and 90% of second-hand car owners buy their vehicles online instead of the traditional brick-and-mortar experience.

As for the End of Life Vehicle (ELV) policy, Animesh said it could help the used car industry as long as the provisions on monetary benefits or discounts for new cars are not the priority.

“If it does not include any benefit for the purchase of new cars, some customers may be compelled to look towards the used car market for replacements. This will give a boost to sales in the short term,” he said.

However, Animesh said the value and rate of depreciation of used cars will be affected as customers tend to avoid older used cars due to the shorter lifespan.

The government has been delaying imposing the ELV policy due to possible public backlash.