.

Will car prices increase? Or is it a case of “When?”

POSTED BY Yamin Vong ON 05 September 2015

DSC_0062

By Yamin Vong

 

Many things are happening in Malaysia in the context of the world currency contraction (the opposite of quantitative easing) and the collapse in oil and commodity prices and most of all, confidence issues. Let’s look at the auto industry in these circumstances.

The immediate issue is that the 30+ reduction in value of the RM vs. the USD will definitely lead to an increase in car prices in Malaysia with few exceptions – Mazda being one of them.

When will this happen? The brand managers are holding their breath and waiting for Honda or Toyota to go first.

“Yes, we have the stock at the old price but when the new stocks start coming in, we’ll have to adjust the price. But by how much? So we’ll wait for the market leaders to set the price and we’ll adjust accordingly,” said the manager of a niche car brand.

“If we do it alone without any other brands with us, our market share will probably be slaughtered by our rivals who will price their cars just a bit below ours,” he said.

So, talking about timing, let’s be certain that this global contraction is not a three month affair that we can dismiss as a bad dream. It’s going to be with us from a year or two.

The basis for this is the consensus that oil prices will be depressed for the next 12 – 18 months. And as long as Brent crude is in the USD50-70 barrel price range, we can forecast that Malaysia’s currency is also going to be a “shringgit”.

Isn’t there a more scientific way of predicting the price increase other than guessing about Honda and Toyota’s price strategy?

Yes, there was until early this year when a new director was promoted to the Road Transport Department (RTD). Before that, the RTD would supply big data on new vehicle registrations and used car sales to the data mining companies that service financial institutions and car companies.

This new director, in his zeal to improve government revenue, decided to increase the price of the data by a 100 times or from 10 cents a record to RM10 a record. For monthly registrations of about 50,000 – 60,000 units a month, that would cost the data mining company RM500,000 to RM600,000 a month.

For the past two quarters, the automotive industry has been operating on guesstimates.

Without data on new car sales, there is no information on stock overhang. Even the Customs Department has had to query car companies about what is understood to be a 40 per cent drop in excise duty collection.

DSC_0029

“The Customs Department asked why we were contributing less in excise duties,” said the chief financial officer (CFO) of a car company.

“For us, the answer is obvious. Sales are down,” he said.

“Why isn’t the government doing anything to support the car industry? It’s also affecting them in terms of excise duty collection.

“To promote sales, the government can give an income tax rebate of RM3,000 for the purchase of clean diesel cars, for instance,” said the CFO.

For car companies, sales are down. About the worst case so far is a 60 per cent drop and we can’t tell you the brand because the information was volunteered to us on a confidential basis. The average is a 20-30 per cent contraction in car sales. Perodua might be the exception because buyers may opt for the smaller, entry level car rather than the bigger car that they really want because of confidence issues.

Mercedes-Benz Malaysia is a study in contrast. It posted 1,200 unit sales in June, a historic high for that company and it’s going great guns. The assembly line in Pekan is on two shifts for the S400 hybrid and the E and C class is on one full shift in the day and the time-consuming final trim line is on double shift.

Now, here’s a more intriguing story about a new strategy for Volkswagen Group Malaysia (VGM): While a few VW dealers have voluntarily dropped out of the business, they may regret not having the stamina for a longer term play.

The logic for this is that as the world’s largest car maker, VW must have a presence in the region and the current hemorrhage in VGM is a minor setback that will be redressed by having a new strategy.

While Malaysia will certainly figure in this plan because it has the most sophisticated passenger car market, it must be in different circumstance, including business partners.

A successful strategic re-entry into the Malaysian market hinges on securing a more commercially-oriented and harmonious assembly partner as well as AP supplier, says a veteran automotive analyst.

The test bed now is with Audi Malaysia. It has big plans to be the leader in the premium market and no brand can be relevant without local assembly. The clock is ticking because Audi Malaysia is officially in business since Tuesday, September 1, located at the VW’s headquarters in Bangsar.

In addition to the Euromobil dealer network owned by DRB-Hicom, Audi Malaysia will enlist new dealers who will start in January.

Interestingly, a Japanese Audi dealer is part of the plan. In the first phase, these new dealers will be sited in Setia Alam and Penang. Goh Brothers gets the Ipoh dealership.

On its part, VGM is improving the after-sales service network and the waiting time for a normal service has dropped from 10 days to 2 days and reaching the one day target. It has established one Technical Centre featuring master technicians from VW AG for on-the-job training for Malaysian counterparts and another two Technical Centres are coming up; one at Goh Brothers Motor at Batu Caves, and the other at Swire Motor Puchong.

A VGM parts hub in Shah Alam has ramped up the spare parts delivery process to twice a day for most of the dealers.

AUTOSHOW-04