Big changes seen for local auto sector

Pakatan’s pledges may alter market structure

PETALING JAYA: Pakatan Harapan’s pledges following its recent election victory could lead to significant changes to the competitive dynamics of the local automotive industry.

Measures – such as the setting up of a new national car company – would have an impact on the automotive sector, said Frost & Sullivan.

“This could significantly alter supporting policies and the market structure itself. Depending on the technology and the focus segment, this move is likely to change the competitive dynamics of the market.”

It said the biggest challenge would be to ensure viability of such a company, highlighting that the market has been stagnating over the last few years due to high levels of motorisation.

“The Government may be able to do so by affording protection to certain segments and technologies, stimulating growth which could again skew demand.”

Furthermore, a review of the National Automotive Policy (NAP) framework by Pakatan could result in delays in execution of policies that are otherwise ready to be implemented.

“Though the NAP 2018 framework has been announced, the rollout of the policy by June or July this year should see delays as the Malaysian Automotive Institute will need to recalibrate the objectives and mechanisms and align them with the new government intents.

“To jump-start the industry and fast track investments, it is imperative for NAP 2018 to take off the ground at the earliest. Any delay could be detrimental to the stated objectives,” said Frost & Sullivan.

As for the roll-back on the goods and services tax (GST) to 0% from 6% previously, Frost & Sullivan said there would be some changes in car prices – albeit not significantly.

“While the impact in terms of prices is unlikely to be significant, we expect a huge positive impact on consumer sentiment, which should have a positive impact on overall vehicle demand and shore up the total industry volume.”

The zero-rating on GST takes effect from June 1 and will eventually be replaced by the sales and services tax (SST) – likely within the next two to three months.

“Since GST is the key mechanism to fund the country’s budget and operating expenses (contributing close to RM44bil in tax revenues), the key challenge would be for Pakatan to find a new source to make up for the shortfall (SST would bring in around RM15bil only),” said Frost & Sullivan.

MIDF Research noted that auto players are already rolling back GST charges on their products.

“The decision to absorb GST for the period of 13 days to June 1 is likely to have some impact on the sector’s second-quarter 2018 earnings, albeit temporary.”

The research house, however, said that if SST is reinstated at the previous 10% rate, car prices are likely to rise.

Affin Hwang Capital, meanwhile, said the price hike post-SST should be minimal.

“Nevertheless, we believe the impact will be minimal, as a sharp hike in prices will hurt auto sales, thus hurting profits and market share.

“Moreover, the ringgit has been favourable to the automakers while the removal of GST will also see a stronger middle-class segment that can afford big-ticket purchases.”

Meanwhile, the Malaysian Automotive Association said in a statement that sales of vehicles are expected to pick up in May after a weaker April, boosted by companies’ zero-rated GST sales campaign.

It said the Hari Raya festive season promotional campaigns would also boost sales.

The trade body said total industry volume (TIV) in April was 47,089 units, down 5.8% or 2,896 units from March. Passenger vehicles accounted for 41,982 units and commercial vehicles at 5,107 units.

However, the sales were higher when compared to April 2017’s TIV sales of 42,746 units, comprising 37,741 passenger veicles and 5,005 commercial vehicles.