September sales volume dropped to level not seen since since February 2009

The 3-month ‘tax holiday’ when the new government stopped the charging of the Goods & Services Tax (GST) saw new vehicle sales surge like never before. During those 3 months, the Total Industry Volume (TIV) reached almost 200,000 units or 32% higher than for the same period in 2017. Many people didn’t want to miss the opportunity to save money on their purchase and perhaps some even decided to add a second vehicle to the family fleet.

The people in the car companies should have been happy but the sudden high demand had caught them unprepared and as they had not increased their orders from the factory, they didn’t have many extra stocks to cater to the extra orders. And as it would take at least 4 months for a request to be met, it was also pointless to do so since the tax holiday was for just 3 months.

Worse, after those 3 months ended, the government would introduce a Sales & Service Tax (SST) which would raise prices again. Compared to the GST-free prices, there would be another 10% to pay for SST from September 1 onwards. As it turned out, while SST did mean higher prices, the revised prices did not reach the same levels as when GST was applied due to the different method of taxation.

Nevertheless, the end of the tax-free period and then the start of higher prices saw September new vehicle sales fall significantly. From an average of around 66,000 units a month in June, July and August, the TIV for September dropped to 31,241 units. The last time the TIV for a month was below 40,000 units was so long ago that many found it hard to remember but it was in the first two months of 2009.

“I am hoping that these 3 months will give enough buffer to cover the shortfall from September onwards as market is expected to freeze in ‘digestion mood’ due to possible increase in the priced as a result of the re-introduction of SST,” said Dato’ Dr. Zahari Husin, MD of Perodua Sales Sdn Bhd.

So the big drop was not unexpected (although it may not have been expected to be so massive); after all, most people who wanted a new car would have made their purchase (some earlier than they may have planned) so the market was ‘dry’, so to speak. It will be a while before demand picks up again as people need to get used to the revised prices, Fortunately, it’s understood that the government no longer announces tax changes for the auto industry only during the Annual Budget presentation which takes places in October.

So most people will not be waiting to see if there is any ‘good news’ although it’s hard to expect any tax reductions at a time when the national debt is so huge. In fact, the PM has already hinted that we should be prepared for tough measures necessitated by the financial situation so don’t expect him to be agreeable to letting car purchases be cheaper.

The companies will struggle through the remaining quarter and by the final month, the sales promotions will start as stocks have to be cleared before the end of the year. That’s when we could see the market picking up again but still, the Malaysian Automotive Association (MAA) thinks that sales could be so slow that it revised its 2018 forecast downwards to 585,000 units, 5,000 units lower than what it had forecast at the beginning of the year.

[Chips Yap]