Posted on 14 Jan 2008
The automotive industry is expected to see better times this year despite concerns including the rising cost of petrol. The smaller-engine and fuel-efficient cars will be particularly attractive to many consumers
AFTER two years in the doldrums, the domestic automotive industry is set for a rebound on the back of new models, salary hike for government officers and the ease of financing.
The Malaysian Automotive Association (MAA) believes the worst is over for the sector and expects a growth of 2% to 3% this year.
President Datuk Aishah Ahmad said the continued strong economic growth forecast of 6.5% this year and the various planned economic corridors would result in more vehicles being purchased for new infrastructure development.
Two years ago, consumers held back on buying in anticipation of a further decline in car prices after the National Automotive Plan was announced in March 2006.
Aishah said the buying momentum, however, had recovered given the ease of hire purchase financing, acceptance of used cars and stabilised secondary value as well as the introduction of new models.
Furthermore, civil servants got a boost from the approved pay hike, which would encourage buying.
Nonetheless, external factors such as the state of the
Frost & Sullivan shared similar views, noting that Bank Negara had forecast a 5.8% Gross Domestic Product growth this year and 6.2% in 2009.
Higher employment and further liberalisation of Employees Provident Fund withdrawals are anticipated to encourage spending further.
The country's young population, with 30,000 to 40,000 graduates annually, would drive vehicle sales growth in the future, Frost & Sullivan said.
Moreover, Malaysian households have the propensity to buy, given that the majority of Malaysians are in the mid-income range of RM17,000 a year.
Kuwait Finance House (KFH), in a recent report, said vehicle sales were likely to be robust this month ahead of the Chinese New Year festival on expectation of attractive promotions during the season.
However, Aishah cautioned that another fuel price hike seemed unavoidable as the Government intended to reduce its subsidy burden especially with the prevailing high crude oil prices.
The impending fuel hike would impact the sales segmentation of the automotive industry as consumers opt for vehicles with smaller engine sizes due to their fuel efficiency, she said.
"Customers will still buy vehicles, but for those with some constraints in terms of spending power, they will downsize the cubic capacity of the vehicles to be purchased as well as consider better or more fuel-efficient vehicles," she added.
Other than fuel prices, toll, public transport as well as freight charges would also affect vehicle sales, as these reduce the spending power of consumers.
As such, auto players have to continue to undertake cost-cutting measures to improve efficiency and maintain new car prices at affordable levels.
These days, fuel efficiency seems to be the marketing tagline for most passenger cars.
Perodua cars, Toyota Vios and Honda City, which are popular models among young executives, have boasted of this feature.
Frost & Sullivan expects compact passenger cars to appeal more to the public due to their affordability while multi-purpose vehicles and sports utility vehicles are likely to be affected by the higher fuel cost and competition from spacious versatile and practical sub-compact cars.
The rising cost of ownership will shift trends towards fuel-efficient and lower maintenance vehicles.
Frost & Sullivan, which forecast vehicle sales to grow by 7% to 521,200 units from the estimated 487,000 in 2007, expects automakers to provide high-tech add-ons such as navigation and entertainment systems as optional upgrades instead of the usual makeovers to cater for more sophisticated consumers.
The revival of the automotive industry will not only benefit carmakers but also auto parts manufacturers, which have suffered from the past lacklustre sales.
To mitigate the impact of uninspiring automotive sales locally, Ingress Corp Bhd, EP Manufacturing Bhd and New Hoong Fatt Holdings Bhd (NHF), among others, have ventured overseas, especially to Asean member countries.
NHF has also carved a niche in the replacement market, thus reducing its dependence on automakers.
While auto players can now heave a sigh of relief on the improved outlook, it is still not an easy environment as consumer sentiment changes easily due to cost factors like highway, fuel, financing and public transport.
Those who are able to maintain efficiency and provide cost-effective options for consumers are likely to see favourable returns.
