Covid-19 exhausts car dealers and importers, 50,000 workforce at risk

KUALA LUMPUR: Some 50,000 local workforce of car dealers and importers are at risk of losing their jobs if the Covid-19 crisis prolongs more than two months, market observers said.

Industry players generally said over 4,000 used/re-conditioned car dealers and importers could also be drowned in red ink due to almost-zero sales, higher inventories and weaker consumer sentiments amid high fixed operational cost.

Dealers can only endure up to two months of the challenging period without sales, while continuing to fork out an average RM150 million in operational expenditure (opex) monthly to pay for salaries, utilities and rentals.

Market observers said the local car industry was on the brink of bankruptcy due to temporary closures of automotive plants and car dealerships, since the government enacted the Movement Control Order (MCO) on March 18 to contain the invisible virus.

This has halted sales, services and manufacturing activities within the local automotive segment, among others.

The government subsequently allowed for certain segments of the sector such as after-sales service and operations related to fully-imported vehicles to open for business under the extended MCO until April 28.

The Malaysian Association of Malay Vehicle Importers and Traders (Pekema) president Datuk Zainuddin Abd Rahman said its members had a monthly commitment of more than RM35 million in fixed operational costs to maintain network of dealers nationwide.

Pekema, which has 177 members, said the association could not afford to bear the brunt of operational cost beyond two months without any sales in sight.

“If the situation prolongs, we have to reduce manpower cost (salaries) or might reduce headcounts. We also have high debts of RM1.8 billion among our members in terms of inventories (stocks),” he told the New Straits Times (NST) when contacted recently.

He said on average, each member has a monthly commitment of RM200,000 (salaries, utilities and rental). Of the total, RM24 million per month is allocated to pay salaries involving over 9,000 staff across all its members.

As of March 1, Pekema has more than 18,000 unsold vehicles, excluding incoming stocks from suppliers in the United Kingdom and Japan.

“When we import cars from the UK and Japan, we have to pay the suppliers. And it usually takes about three months for the vehicles to arrive in the country by shipment,” he added.

Zainuddin said the current MCO would make the situation more difficult as showrooms were forced to close and people were not visiting.

To date, he said Pekema members had contributed over RM2.8 billion to Kumpulan Wang Amanah Dana Automotif Bumiputera (KWADAB) leveraging on a RM10,000 approved permit fee paid to the government for each imported vehicle.

“We hope the government would consider us to tap into the fund as a means of financial assistance to help us in bracing this challenging period,” he said.

Established in 2010, KWADAB is to assist Bumiputera entrepreneurs in automotive, especially for Pekema members to expand their businesses.

Kuala Lumpur and Selangor Car Dealers and Credit Companies Association president Khoo Kah Jin said about 4,000 members had high inventories between 70,000 units and 80,000 units of used cars in the peninsula and Sabah.

“We have difficulty in selling our cars during MCO. Our dealers’ margin will be further compressed if the situation does not improve.

“We might end up losing money (paper loss) as more dealers find difficult to continue with the business,” he told the NST.

The MCO extension will also deteriorate the auto industry, prompting dealers to reduce their prices to encourage sales.

“We have a total workforce of 40,000 locals comprising office personnel and salesmen. Our members (used car dealers) spend about RM120 million monthly for salaries, rentals and utilities,” he added.

Khoo cautioned that the association might reduce its headcounts if the Covid-19 worsens.

He said a dealer’s fixed operational cost for its rental and salaries payment averaged between RM20,000 and RM30,000 a month.

“We do have adequate cash reserves to buffer for a period of two months in terms of fixed operational cost without sales.

“However, if the crisis prolongs more than two months, we need financial assistance from the bank to help us,” he said.

Source: NST