28% drop in TIV expected for the automotive sector

PETALING JAYA: The closure of automotive manufacturers, suppliers, service centres and dealerships due to the Covid-19 pandemic and the ensuing movement control order (MCO) will result in a 28% drop in total industry volume (TIV) by 2020 if no measures are taken to resuscitate consumer spending within the sector, according to a study conducted by the Malaysia Automotive, Robotics and IoT Institute (MARii).

Its CEO Datuk Madani Sahari (pix) estimated that a TIV of at least 500,000 units is needed to ensure that the automotive businesses do not fall into crisis.

“The year 2020 is no longer a year of profit for the automotive sector, but rather a year of survival,” he said in a statement today.

“While it is understandable that consumer sentiment remains cautious due to the current economic challenges, we must also understand that the economy’s sustainability is dependent on consumer spending.”

Temporary measures have shown an increase in vehicle purchases in the past, such as the tax holiday period which saw a 3.8% increase in vehicle sales year-on-year (yoy).

Madani explained that innovative incentives can be introduced to lower buyers’ commitment to own a car, such as a temporary hiatus on down payments (100% loan on vehicle), reduced loan interest rates and joint-subsidies between car makers and the government for road tax and insurance for a limited time period.

He stated that a combination of such incentives will remove the burden to buy a car but do not affect consumer’s purchasing power as there will be a negligible difference between the monthly repayment amount for car buyers at any level or segment.

The CEO gave the example that a car which cost RM60,000 will incur a 10% downpayment of RM6,000 upon purchase which translates to a monthly repayment of RM644 if interest is set at 3.2% as per the rate before the MCO.

With no downpayment coupled with a reduced interest rate of 2.5% will result in RM680 monthly repayment, a small difference but without the upfront payment that might hinder a buyer from purchasing.

Madani highlighted that the buyer now also enjoys the low maintenance cost of a new car, and the banking institutions still can ensure its financial services are utilised.

He said other innovative mechanisms can also be introduced, such as “subscription style ownership” – in which a car is leased based on certain conditions from the car maker (the car is still owned and maintained by the OEM) for a period of time before ownership is transferred to the buyer.

In addition, MARii also called for the voluntary scrap incentives for old vehicles by the carmaker as to be an option with a newer, safer vehicle with the latest technology as the main benefits for the consumer.

It believes that the introduction of incentives is an important measure to reduce consumer anxiety and address their concerns in purchasing vehicles.

There are currently 27 OEMs operating in Malaysia, with 641 parts and components suppliers depending on continued economic activity along the automotive value chain.

Furthermore, the automotive sector employs around 700,000 people, making up a significant portion of the manufacturing sector in the country.

It cited a survey by the Statistics Department, which found that 30% of the manufacturing sector’s workforce have been impacted by the pandemic fueled economic slowdown, and are receiving half of their salary, unpaid leave or have lost their jobs.

source https://www.thesundaily.my/business/28-drop-in-tiv-expected-for-the-automotive-sector-YG2495540