Automotive retail segment losing sleep over expenses like high rental with no sales and delivery during the MCO

by RAHIMI YUNUS/ pic by MUHD AMIN NAHARUL

CORONAVIRUS measures are forcing thousands of car dealers, many of whom have invested millions in state of the art service facilities and posh showrooms, to the brink of financial ruin.

The Movement Control Order (MCO), in effect since March 18, has tanked sales and dealers are now fearing deliveries will not return to pre-MCO with about 50,000 new vehicles being driven off showrooms every month.

An industry player said the automotive retail segment is losing sleep over expenses like high rental with no sales and delivery during the MCO. The source said the situation is worse for dealers who recently invested a huge amount of money to upgrade their showroom to 3S (sales, service and spare parts) or 4S (3S and body paint shop) levels.

“Dealers are struggling with rental and overhead. Those who have invested recently, irrespective of the brand, will get hit hard unless those publicly listed companies,” the source told The Malaysian Reserve (TMR).

Under the MCO, all non-essential businesses, including car dealerships and showrooms, are prohibited from operating.

However, the government has relaxed the maintenance of vehicles, giving some space for the bigger dealers to operate their workshops.

Many dealers, as part of their expansion, had upgraded to 3S and 4S levels.

The automotive sector is a lucrative business, registering over 600,00 total industry volume (TIV) last year. The value of vehicles sold is estimated at about RM30 billion and Malaysia remains the third-largest car market based on TIV in South-East Asia.

It is not known how many dealers there are in the country, but Proton Holdings Bhd leads by car brand with about 121 3S/4S outlets nationwide.

It is believed that Perusahaan Otomobil Kedua Sdn Bhd (Perodua) and UMW Toyota Motor Sdn Bhd have some 50 3S/4S dealerships respectively, while Honda Malaysia Sdn Bhd has more than 80 outlets.

The main cost for dealers is the rental of their premises with rates in Kuala Lumpur for a 3S outlet could range between RM50,000 and RM70,000 a month, while for a 4S centre, the monthly lease is at about RM70,000 to RM120,000, another industry source told TMR.

“With a slowdown in demand and zero income,” the source said, “this is killing the dealers.”

Besides brand new car dealers, reconditioned vehicle operators — largely approved permit holders (AP) — are badly affected as many of them finance the purchase of the luxurious vehicles from abroad through loans.

The source said despite the six-month loan repayment moratorium, many of these reconditioned car dealers financed the purchases via Japanese creditors. It is believed that a sizeable number of vehicles from Japan have arrived since last month in expectation of higher demand before Hari Raya Aidilfitri.

Five car dealers associations — namely Perodua Dealers Association Malaysia, Proton Edar Dealers Association, Honda Dealers Association Malaysia, Toyota Dealer Council Malaysia and Federation of Motor and Credit Cos Association of Malaysia — have submitted a joint memorandum to the Finance Ministry to recommend measures to help the industry.

The sector is asking for a grant allocation or subsidies to car producers, “handling fees” increment for hire-purchase loans’ commission from financial institutions and excise duty exemption until the end of the year.

According to the document sighted by TMR, the industry is also seeking a rate cut for the Employees Provident Fund employer contribution and exemptions from contributing to the Social Security Organisation, the Employment Insurance System and the Human Resources Development Fund, among a few other measures.

The Malaysian Automotive Association president Datuk Aishah Ahmad said automotive players are asking the government to relax hire-purchase financing rules and reduce taxation for at least one year.

Moody’s Investors Service Inc rated the automotive industry as “high exposure” to coronavirus’ impacts, putting it in the same bracket as airlines, gaming, retail and hospitality, oil and gas, and global shipping.