Demand slumps in automotive sector as SST kicks in

KUCHING: The automotive sector’s total industry volume (TIV) fell 52 per cent, month-on-month (m-o-m) in September, as the new Sales and Services Tax (SST) regime kicks in.

With the new SST gazetted on September 1, 2018, vehicles are charged 10 per cent in sales tax at the vehicles manufacturing level (only on fully-built vehicles, CKD parts are exempted).

However, some analysts are unwary about this development as most automotive players have already reached or are close to reaching their full-year target, thanks to the tax-holiday period. In addition, they believe that the year-end festive promotions could also help boost demand for the next two to three months.

In a report, the research arm at MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out that the auto sector’s TIV in September fell 52 per cent m-o-m to 31,241 units as sales normalised off an inflated base throughout June to August It also noted that TIV was also down 24 per cent year-on-year (y-o-y), reflecting the impact of forward purchases on current demand. On year to date (YTD) basis, it said, TIV registered at 454,971 units, up seven per cent against the same period last year.

“Despite car price falling by two to three per cent post-SST (for CKD models, due to IAF adjustments mainly), we still broadly expect demand to normalise after an exceptionally strong June to August period as purchases have been brought forward as consumers took advantage of the tax-holiday period, and most auto players have already, or are close, to hitting full year targets, suggesting little reason to embark on the typical year-end sales campaigns.

“We expect the market to dry up in the fourth quarter of 2018 ( 4Q18) before normalising in 1Q19,” it opined.

In another note, Kenanga Investment Bank Bhd’s research arm believed that sales volume for October 2018 is expected to be flat, as consumers are still adjusting to the new SST environment.

“Nevertheless, we expect the TIV will recover in November and December buoyed by the usual year-end promotion and upcoming special event, The Kuala Lumpur International Motor Show (KLIMS) 2018 which will be held after five-year of hiatus,” it commented.

It is also assured by recent announcements by certain car makers regarding the prices for the locally-assembled and CKD units have dropped by one to three per cent (compared with the six per cent-rated GST), whereas the prices for the Completely-Built-Up (CBU) units have increased by one to three per cent.

“We believe the unexpected price decrease in locally-assembled and CKD units was attributed to the better compliance of Industrial Linkage Programme (ILP) regulation, which provides incentives and duty exemption to the original equipment manufacturers (OEMs) that use local components (under the National Automotive Policy 2014),” it viewed.