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Auto sector may be in deep recession until 2023

POSTED BY Sri Fitrah Vong ON 16 April 2020

by Yamin Vong

MALAYSIA’s automotive sector will very possibly be in deep recession until 2023, says a veteran motor industry analyst based in Thailand and Malaysia who declined to be identified.

“The economic losses are too high. There will be a very slow recovery in 2021/2022. At best, the Covid-19 pandemic will cut automotive sales by 20% in 2020,” said the analyst who specialises in the Southeast Asian automotive industry.

“My personal estimate is that Malaysia’s auto sales will drop by 35% to 40%.”

His perspective is borne out by reports from the US where the coronavirus pandemic is pounding US consumer confidence. Car dealerships across the nation continue to shutter and total new vehicle sales fell by 37% last month from a year ago, according to a report on US website TruCar.

“Chinese and Japanese OEMs (original equipment makers) will dominate the market. Ford and GM will disappear. Honda, followed by Toyota (including Perodua) and Geely/Proton will be the ones left standing in 90% of the car market.

“The government will have to slash taxes, otherwise very few people will buy.”

Japan’s largest car maker, Toyota Motor Corporation, suspended production at five plants across Japan on April 3, joining Volkswagen’s earlier production cuts in selected plants worldwide. VW is the world’s largest car maker.

How will Malaysia’s automotive industry cope with the Covid-19 pandemic? In the Asian financial crisis of 1998 and the Lehman-US sub-prime crisis in 2008/09, it was a financial problem which was overcome by quantitative easing and central banks leveraging on their monetary tools. Malaysian car sales took a hit for about two years on those occasions.

Today’s pandemic is about the temporary lockdown of half the world’s population and the almost total disruption of global supply chains.

Unemployment will soar and directly impact consumption including the purchase of new cars.

This will see the intensification of competition for market share. On the cost side, how will motor assemblers and manufacturers keep the production line running at previous capacity if the demand has fallen off because of the pandemic?

Does the government and the relevant agencies – the Ministry of International Trade and Industry and the Ministry of Transport – have a plan for the fallout from the Covid-19 pandemic?

Malaysia has 11 days left of the MCO (Movement Control Order) period to announce some options.

This article was previously posted on FocusMalaysia.

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