Driving up sales
Auto players to step up on promotions and rebates
PETALING JAYA: While the automotive sector may have received a shot in the arm in the form of a sales tax exemption, it might not be enough to cause consumers to make a dash for car showrooms.
Unlike the previous “tax holiday” that in 2018, which spurred vehicle sale, analysts and industry observers said the uncertainties of the current global economy may outweigh any plan for big ticket items including a new car.
RHB Research Institute head of research Alexander Chia said the tax exemption would help the auto industry, which was otherwise quite bleak as a result of the Covid-19 pandemic.
“Although the big question is, with consumer sentiment down, how many will step up to buy a big ticket purchase when jobs are at risk?
“The market reaction may not be comparable with the goods and services tax (GST) discounts given post the 14th general election,” he told Starbiz.
An industry observer said the latest tax exemption “looked good on paper.”
“There is definitely a need to pump prime the economy and it’s certainly an appetiser for customers looking to buy a car.
“However, in light of the current uncertainties, rising unemployment rate and many fearing they could lose their jobs over the next few months, I doubt many people will be thinking about wanting to own a new car.”
Nevertheless, many car companies will be vigorously pushing sales.
“I think the competition among auto players is going to get brutal and exciting,” said another industry observer.
Meanwhile, Raj, a 42 year-old executive, said he had planned to buy a new car back in January. However, the model he wanted was not available at the time and he chose to delay the purchase – something he now considers a blessing in disguise.
“With all that’s been happening, I’m glad I didn’t buy the car. It’s a long-term commitment and I prefer to be more liquid for now.”
In the Short-term Economic Recovery Plan announced by Prime Minister Tan Sri Muhyiddin Yassin last week, locally-assembled cars will be fully-exempted from sales tax while for imported cars, the sales tax will be cut from 10% to 5%, beginning next Monday to Dec 31.
The sales tax exemption is expected to see buyers saving several thousand ringgit to more than RM10,000 in their purchases.
When the former (Pakatan Harapan) government came to power in 2018, it announced a three-month tax holiday from June 1 to Aug 31, with GST being zero-rated during the period.
The three-months tax break spurred car sales, with total industry volume (TIV) growing 3.8% to 598,714 units in 2018, exceeding the Malaysian Automotive Association’s (MAA) forecast of 1.5%.
After TIV hit an all-time high of 666,674 units in 2015, it dropped almost 15% in 2016 before contracting further in 2017 to 576,635 units.
For this year, MAA president Datuk Aishah Ahmad said it is still too early to determine if the tax break will spur sales.
“It will depend on whether the incentives will entice buyers, the item is a necessity or if an individual can hold on to their existing vehicle. Furthermore, car companies will also be having their own promotions and incentives,” she said, adding that banks are also stringent in granting loans.
Meanwhile, UMW Toyota Motor Sdn Bhd president Ravindran K. said the recently announced tax exemption is good news for the auto industry.
“The full savings will be passed on to customers and we expect that the reduced prices will help to revitalise the automotive industry,” he said in a statement.
He added that the company has new models planned for launch this year.
“With the tax exemptions, we will be making the relevant adjustments to the retail prices of all our models and apply them by June 15.”
UMW Toyota Motor deputy chairman Akio Takeyama said the Malaysian auto industry has been greatly affected by the long period of inactivity during the MCO.
“Apart from lost sales and production, there is also consumer sentiment which is uncertain of the future. Therefore, we appreciate the support from the government to help boost the industry.”
Last month, the MAA announced that it was revising downward its 2020 TIV forecast to 400,000 units from 607,000 previously. The 400,000 units forecast would represent a 34% contraction from 2019’s 604,287 units. It also marks the first time in 13 years since the TIV failed to surpass the 500,000-unit mark.
Total vehicle sales plunged 99% year-onyear to 141 units in April, as the government’s MCO forced all automotive companies to cease operations during the month.
Year-to-date April, total vehicle sales for 2020 stood at 106,601 units, compared with 192,971 units in the previous corresponding period.