Auto sector to slow down? BY CHOONG EN HAN

by **Cals** Sun 29 Dec 2013, 23:39

Published: Saturday December 28, 2013 MYT 12:00:00 AM
Updated: Saturday December 28, 2013 MYT 12:39:32 PM
Auto sector to slow down?
BY CHOONG EN HAN

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This year’s TIV is poised to exceed the record 627,000 units in 2012.
While automotive players revel in the joy of another record-breaking year in sales for this year, the party could be shortlived. Rising uncertainties, including policy changes and inflationary pressures, may put the squeeze on consumers’ wallets next year.
Market observers believe that it will be no mean feat for automakers to match this year’s 650,000 total industrial volume (TIV) mark.
Malaysian Automotive Institute (MAI) unofficial data showed that sales totalled 595,000 or 51,000 units alone up to last month, with the TIV poised to exceed the record 627,000 units in 2012.
“With stiff competition between the two national carmakers, and throwing in the non-national marques that are looking for a slice of the pie, it would not be an easy sell.
Consumers are spoilt for choice. The challenge is further compounded with tightened lending guidelines by the authorities, coupled with the Government’s subsidy rationalisation programme,” says a market observer who declined to be named.
Recently, the public saw subsidy cuts on necessities like petrol, sugar and electricity via the Government’s subsidy rationalisation programme. This would squeeze consumer spending.
“The manufacturing industry could still cushion the previous price hikes that were minimal, but the recent 15% hike on electricity tariff would be a hard one to swallow.
“Higher cost would ultimately be passed on to consumers,” he says.
Pricing wise, he says it would be a buyers’ market, with manufacturers pricing their models attractively and competitively, hence putting pressure on margins.
RHB Research analyst Alexander Chia expects auto demand to be resilient next year, on the back of a better economic outlook driven by domestic demand and an improving external environment. A strong pipeline of new models will also spur consumer interest.
“I’m still expecting some volume growth, there is nothing to suggest a contraction yet,” he says.
However, he says higher fuel and energy costs, rising interest rates and higher inflation will be negative for consumers’ discretionary spending, while some households are increasingly stretched given the rising household debt-to-GDP-ratio; salaries have not risen in tandem.
“Automakers with value for money models stand to benefit as consumers trade down. Next year will be a challenging year for automotive players with cut-throat competition resulting in margin compression. Consumers will have more options as more players enter the market,” he said.
On the other end, local auto parts manufacturers and original equipment manufacturers are poised to see earnings maintained, buoyed by resilient demand and a strong replacement parts market.
As of last year, about 22 million vehicles were registered with the Road Transport Department nationwide.

2013 in review
During the year, the industry saw a number of movements, including local players growing their presence among Asean member countries.
Emerging countries like Myanmar became a focus among auto boys including Tan Chong Motor Holdings Bhd, which is going to invest US$50mil in Myanmar to set up an assembly plant and showroom for Nissan cars.
Tan Chong also clinched a deal with Japan’s Mitsubishi Motors Corp in April to assemble selected models of completely-knocked-down (CKD) Mitsubishi models locally, which would address Tan Chong’s under-capacity issue.

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Automotive components manufacturer APM Automotive Holdings Bhd has also been given the go-ahead to set up a car parts and modules factory on a 12- ha industrial area in the Bago region of Myanmar.
Sime Darby’s automotive division is also setting a bigger stage for itself after adding the distributorships of BMW and Mini in both Vietnam and Australia, with a combined RM350mil buyout of existing dealers in the said countries.
On the local front, Japan’s component manufacturer Nippon Kayaku Co Ltd is also pumping in RM240mil to set up its fourth global factory in Sendayan TechValley in Negeri Sembilan.
Italian car lighting component maker Magneti Marelli also boosted its production from 1.7 million units to 2.2 million units, with a new plant in Batu Kawan, Penang.
While new car launches abound this year, the ones to be noted would be the entry of luxury performance cars like McLaren, Koenisegg and the new line-up from Ferrari, Maserati and Bentley.
On the affordable side, national carmaker Proton also launched several value-for-money models like the Saga SV and the Persona SV, in a fight to gain market share among competing non-national marques that launched affordable models like the Nissan Almera, and the new (CKD) Honda Jazz.

The NAP revision
Meanwhile, the salient points of the National Automotive Policy (NAP), slated to be announced on Jan 15, 2014, have been widely speculated. Specific details would dictate the reaction of automotive players. Over the past few years, the global automotive industry from the East and West have been in a revolution of sorts to strive for greener vehicles. Malaysia has a similar aspiration under the NAP. It intends to attract these players and make the country a regional hub for energy efficient vehicles (EEV) with high technology uptake among industry players for the domestic market and for exports.
MAI chief executive officer Madani Sahari says the third revision of the NAP would essentially mean a step forward towards liberalising the industry and attracting foreign investors to make Malaysia an automotive production hub.
“The potential for Malaysia to become an Asean production hub is still big for original equipment manufacturers (OEMs), and many of these automakers still do not have a foothold in Asean in terms of passenger cars production. When these OEMs come, it will in effect lift the capabilities of the local vendors and parts manufacturers,” he says.
With a larger production base, players stand to reap the economies of scale. This will result in cheaper cars, which will benefit consumers, he says.
Despite a focus on EEVs, the market is still faced with uncertainties over exemption of duties on hybrid vehicles. This will end on Dec 31.
Industry players reckon the incentive may be extended to next year but this may only apply to locally assembled CKD hybrid vehicles.
The end-of-life vehicle policy could make a comeback as well. This time, it is expected to be introduced with the mandatory vehicle inspection approach to ensure the roadworthiness of vehicles, and will not be a mandatory scrapping initiative.
Introduced back in NAP 2009, plans were scrapped almost immediately after the authorities bowed down to public pressure.
Chia said the NAP is unlikely to be a catalyst for next year due to the time lag as manufacturers will need time to strategise and put their plans into action.
“The Asean Economic Community initiative will not affect local assemblers and manufacturers as most of the local production is for domestic consumption. There is limited export volumes,” he says.
On the flip side, time would only tell whether the Government will have the political will to abolish the Approved Permit system by 2015 as planned.