Tax incentives, mobility preference push higher vehicle sales in July

Recovery expected in 2H20 on cheaper car prices from tax exemptions

by RAHIMI YUNUS/ pic credit: Proton

THE sales tax exemptions and higher personal mobility preference could have contributed to the bumper vehicle sales in July amid the Covid-19 pandemic.

GlobalData plc director of automotive consulting Animesh Kumar said the sales surge in June and July can also be attributed to more people now opting for personal mobility due to safety and hygiene concerns.

“People who were earlier using public transportation, taxis or shared mobility services are likely to opt for either used vehicles or more affordable options in case of new vehicles, and that explains the high share of the Malaysian automotive brands.

“The change in consumer preferences coupled with positive steps by the government and industry have contributed to the growth,” Animesh told The Malaysian Reserve.

He, however, raised questions on how long the pent-up demand will continue, saying the growth rate witnessed in June and July would decline, but August volume is expected to be in the same vicinity as the July volume.

Automotive companies sold 57,552 vehicles last month, 13.2% higher compared to 50,854 units last year, according to the Malaysian Automotive Association (MAA) data.

Passenger vehicles’ sales posted a 12.8% yearly growth to 52,119 units in July, while the commercial vehicles segment rose 16.5% to 5,433 units.

The total industry volume (TIV) for July was 28.8% higher than in the previous month — which delivered 44,695 units and was 5% higher than in June 2019.

Production dipped 2.6% to 47,631 vehicles compared to 48,912 units a year ago.

MAA said the sales results in July were contributed by the tax incentives, aggressive promotional campaigns by companies and a longer working month, according to a statement on Wednesday.

TIV for year-to-date has declined by 114,926 units or 33.1% to 232,245 from 347,171 last year, after the industry was badly affected during the Movement Control Order (MCO) period before it was allowed to gradually resume operations.

The 232,245 units sold for the seven months formed 49.4% of MAA’s TIV forecast of 470,000 for the year. The forecast was recently revised upwards from 400,000 vehicles, following the introduction of the sales tax incentives.

Kenanga Research analyst Wan Mustaqim Wan Abd Aziz said in a note that the seven-month TIV was within expectation, making up 55% of the research house’s 2020 sales target of 420,000 units.

In early June, the government granted sales tax exemptions of 100% for locally assembled vehicles and 50% for imported units for six months until December to revitalise the automotive market after it grounded to a halt during the MCO.

“Original equipment manufacturers (OEMs) contributed through vehicle launches, especially the Proton Saga Anniversary edition. OEMs also continued aggressive and attractive promotions, which included vehicle trade-in offers, cash discounts, low or zero interest rates, low monthly instalments, extended service and free accessories,” GlobalData’s Animesh said.

Affin Hwang Asset Management Bhd analyst Brian Yeoh said in a report that the TIV is still projected to decline 22% year-on-year (YoY), although recovery is expected in the second half of the year on cheaper car prices from the sales and service tax exemptions.

He said myriad challenges lurk for the sector and opined that the government may step in with additional incentives to ease automakers’ burden.

The report quoted MAA president Datuk Aishah Ahmad who warned that the economic downturn, weaker consumer and business sentiments, high unemployment rates, stringent loan approvals for the purchase of passenger vehicles and the highly-saturated domestic automotive market may impede auto sales growth.

Affin Hwang cut its 2020 TIV estimate to 465,000 units from 485,000, following a cut in its estimate of real GDP growth projection for 2020 to -4.5% YoY.