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Monday, August 27, 2012

Used car dealers fear the worst

The Star Motoring, Monday, August 27, 2012

PETALING JAYA: Industry players are hoping the reportedly gradual car price reduction in the upcoming National Automotive Policy will be of minimum impact to the current automotive industry, in particular the used car sector.

“These are all hearsay right now, but the impact on the industry would be extensive if this turns out to be true. Details need to be known before we can project anything. Right now we can only assume,” said a reputable industry source who declined to be named.

He said the used car sector would bear the brunt of the move as cheaper new cars would impact the resale value of second-hand cars, and used car dealers would have to shoulder the burden of squeezed margins and even losses should new car prices drastically affect the value of existing stocks. 

“The price reduction would be great for consumers and the industry if it is done well, otherwise it would change consumer patterns, where car buyers would put off their purchase plans. Should that happen, it might drive the industry to a grinding halt, slowing car sales and that would possibly have a rippling effect on the economy,” he said.

With the possibility of cheaper cars due to the NAP, some concerns and questions were raised particularly on how the authorities would implement it.

Market talk indicated a sort of mechanism would be in place to address the gradual reduction of car prices in the country. A source indicated the public could expect reduction of 5%-15% on a gradual basis until 2015. However, details are still scant pending the official announcement of the NAP.

Take for instance, if a Japanese marque car is priced at RM80,000 now, it may be trimmed to RM68,000 via the reduction in excise duty and sales tax.

The Government is also said to be contemplating on implementing the end-of-life vehicle policy, which was scrapped in 2009 after a huge public backlash just after the announcement of the move.

“It might be made as non-mandatory for the first few years, and subsequently be made mandatory depending on public feedback. The public should look forward to this as it would promote usage of safer vehicles,” said the source.

Although the NAP is reviewed again, the Government had said it would maintain the termination of the Approved Permit (AP) system starting end-2015. The Government will stop issuing open APs from Dec 31, 2015 while the franchise AP will be terminated by Dec 31, 2020.

Started in the mid-1970s, the AP system was once a platform to encourage bumiputra participation in car distribution. However, the often-abused system has become a major hurdle for the liberalisation of the local automotive industry.

RHB Research analyst Alexander Chia said the industry needed to be restructured over a gradual period to ensure that the market continued to grow going forward, adding that market participants (car buyers, lenders, dealers and distributors) would have to adapt to this transition phase in the next five years, and not just buyers and dealers.

“Used vehicle residuals could be vulnerable as the market tries to find a new level. The lack of policy transparency could result in volatility of used residuals that could also adversely impact new vehicle sales since used residuals typically form the down payment or equity for a new vehicle,” he said.

He said structural impediments to the continued growth of the domestic auto market included high vehicle prices (relative to income) and was a product of the present duty and tax structure.

“The total industry volume is already close to saturation. Look at the statistics on household debt. Malaysia is possibly the only country to have hire purchase loans stretching up to nine years. The Government needs to communicate its policy effectively to the market to ensure there is no misconception. Misconception and conjecture could lead to irrational behaviour among market participants,” he said.

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