Tax holiday, robust liquidity, low interest rate to fuel auto sector growth

KUALA LUMPUR: Tax holiday, robust liquidity from stimulus measures and low interest rate are the strong catalysts to drive a rebound in vehicle-buying sentiment, according to MIDF Research.

Its analyst Hafriz Hezry said the local automotive market had seen early trend of recovery, despite dented consumer sentiment from the impact of lockdown to contain the Covid-19 pandemic.

“The sustained total industry volume (TIV) recovery in July underpins our upgrade of the local automotive sector, following announcement of the sales tax holiday which commenced on June 15,” he said in a report today.

Hafriz said car prices had generally been reduced by between two per cent and seven per cent from the tax exemption.

Previously, the three-month tax holiday in 2018 had lifted the TIV with additional 21,000 units per month or 32 per cent more against pre-tax holiday levels.

MIDF Research has kept its TIV target of 554,000 units this year, or an 8.3 per cent year-on-year (YoY) contraction.

Affin Hwang Capital said the government could potentially roll out additional incentives.

It could be in the form of an enhanced customised incentive via the industrial linkage programme or a possible reversion of the previous open market value methodology.

This would assist the recovery phase for automakers, said its analyst Brian Yeoh wrote.

“We gather that Malaysia Automotive, Robotics and IoT Institute (MARii) is also in the midst of reviving the idea of a voluntary end-of-life vehicle inspection mechanism, which we think will help address the high car ownership issue in Malaysia.”

Athough the Malaysian Automotive Association (MAA) had guided for a better second half, Yeoh said challenges would remain hampering the local automotive growth.

Among the challenges faced by the automotive players are economic downturn, weaker consumer and business sentiments, high unemployment rates, stringent loan approvals for purchase of passenger vehicles and highly saturated domestic auto market.

The MAA recently raised its 2020 TIV forecast to 470,000 units from 400,000 units, following the Sales and Service Tax exemptions for vehicles.

Moving past 2020, MAA expects 2021-2022 TIV to improve to 550,000-600,000 units in anticipation of an improvement in domestic spending as the global economy recovers.”

Malaysia’s new vehicle sales rose 13.2 per cent YoY to 57,552 units in July from 50,854 units recorded a year ago.

The MAA said passenger vehicles had made up the most of the July sales with a total of 52,119 units, while the remaining 5,433 units derived from the commercial vehicles.

The higher sales recorded was fuelled by the sales tax exemption incentive for both complete-knock down and completely built up cars vehicles.

“Aggressive promotional campaigns by car companies and longer working month had also contributed to the higher sales in July 2020,” it added.

Year-to-date until July, registration of new vehicles were 33.1 per cent lower with 232,245 units from 347,171 units registered a year ago.

Production of new vehicles in July dropped 2.6 per cent YoY to 47,631 units from 48,912 units a year ago.

New vehicles production had so far dropped 36 per cent to 213,680 units from 333,552 units previously.

The MAA said sales volume in August 2020 was expected to be similar as July, driven by sales tax exemption and ongoing promotional campaigns by car companies.

Source: NST