Drop in new vehicle sales in May was not as severe as expected

New vehicle sales during the month of May were expected to be limited as the General Elections took place in the early part of the month. There was uncertainty as to the outcome so for many, it may have been a pertinent move to just defer any expensive purchases until things had settled down after the elections.

However, the results produced a surprise as Pakatan Harapan won and with the new government came an early ‘present’ for the rakyat – the Goods & Services Tax (GST) of 6% would no longer have to be paid from June 1, 2018. This was announced during the second half of the month and caught the industry by surprise (although one of the items in the Pakatan Harapan manifesto was the removal of GST if they won).

While consumers were delighted as the cost of buying virtually everything should be around 6% less, the car companies had a headache because no one would want to buy a new car in May when they knew for sure that they could save 6% in June. It wasn’t like 2015 when GST was introduced and there was a degree of uncertainty about whether prices would become higher or lower because of the way GST was calculated.

Showroom traffic dropped to a trickle and those who did come said they wanted the transaction to only be done from June 1. Late-night meetings were held to find a way to ‘survive’ the short-term crisis as stocks piled up. Some companies offered incentives of the same value as the 6% difference but that didn’t seem to be appealing so companies like a few of the leading players decided to ‘bite the bullet’ and offered customers rebates equalling the 6% GST.

Perodua was one of those that made this offer and apparently, it worked really well because the company saw its market share zoom to almost 52% in May. That meant that half the new vehicles sold in the month were Perodua models.

By offering to give rebates equal to the 6% savings from not paying GST, Perodua got a boost in sales in May which took the brand to a market share of almost 52%, it’s highest ever.

Perodua Sales Sdn Bhd’s MD, Dato’ Dr Zahari Husin, said the company’s initiative ‘represents our commitment to customers to always place them first in everything we do.’ However, he said that it was also crucial to keep sales alive because of the rest of the industry eco-system. Although it was just a relatively short period of less than 2 weeks, in that time, stocks would pile up if there were no customers wanting to take them and dealers could face financial problems.

Suppliers of parts and systems would also be affected by the slowdown because the Just-in-Time system of delivery means tight schedules and if the plant had to slow down or suspend production, there would also be an impact on the suppliers. Typically, Perodua will do whatever it can to ensure that its suppliers can maintain healthy operating conditions at all times.

As it turns out, the overall Total Industry Volume (TIV) didn’t plummet greatly and although the volume of 42,983 units was 9% lower than April’s, it was still higher than that registered in February. However, while the sales of Passenger Vehicles were still just within the 40,000-unit bracket, the sales of new commercial vehicles fell by 46%, from 5,107 units in April to 2,762 units in June. Presumably, companies selling commercial vehicles did not offer incentives so businessmen decided to wait till June if they wanted to buy new vehicles.

The month of June is expected to be a ‘boom time’ for the industry as sales should be quite high. With no GST being charged, reducing prices, and the Sales & Services Tax only being introduced in September, there will be a surge in sales during the three months as people take advantage of the ‘tax holiday’. In fact, we hear that sales are very good with the premium brands and some models are even out of stock due to the sudden demand.

[Chips Yap]