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Monday, August 21, 2006

Auto sector hopes for budget stimulus

Automotive players are hopeful that Budget 2007 will help to stimulate demand for motor vehicles and enable the industry to break out of its present doldrums.

Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad hopes the budget would provide some measures to improve sales such as introducing a policy to scrap used vehicles and less stringent financing facilities.

“Industry sales have slowed after eight years of growth with more stringent hire-purchase financing conditions, increased fuel costs and lower resale value of used vehicles.

“If the budget is a stimulating one which will create more business opportunities, then there will be more demand for motor vehicles especially with the Ninth Malaysia Plan under way,” she told StarBiz.

After eight consecutive years of sales growth, MAA is projecting a contraction in auto sales this year, with sales dropping some 6% to 520,000 units from 551,042 in 2005.

The revision was made after sales dropped by 5% in the first-half year against previously. Earlier this year, MAA forecast a 2.5% growth in total industry volume (TIV) to 565,000 units.

In the January–June period, the TIV of vehicles sold was 248,407 units compared with 261,111 in the same period last year. Passenger cars make up 74% of the industry, and 184,725 units were sold, against 199,554 previously.

Sales of national cars dropped 3.9% to 144,060 while non-national cars recorded a 22.7% drop in sales to 40,665 units.

The used-car market has also been hard hit with sales falling by 30% to 40% on average since March, according to Federation of Motor and Credit Companies Association of Malaysia president Datuk Tony Khor.

He stressed that there was a need to bring back confidence into the market to stimulate vehicle sales, which had slowed down due to factors like increasing fuel costs, higher interest rates and more cautious lending by financial institutions.

“There is an overhang in the market and used-car dealers will not want to take in high-priced stocks. If used-car sales continue to slow down, prices will fall further and people will not want to trade in their cars to buy new ones. It is a vicious cycle,” he said, adding that used-car prices had fallen by an average of 15% since the announcement of the National Automotive Policy .

Industry watchers pointed out that about 75% of purchasers of new cars traded in their existing vehicles for new ones.

Khor said there were currently 6,000 used-car dealers in the country with stock-in-hand of over 150,000 units.

“Used-car sales and stock-in-hand do not balance currently,” he said, adding that an average of 600,000 used cars were sold last year.

Khor hopes Budget 2007 will look at two areas to boost the new and used-car industry – scrapping of old cars and exporting used cars.

“We have proposed to the Government to scrap cars aged 10 years and above as well as to provide a RM5,000 voucher to each owner who voluntarily scraps his car. The voucher cannot be redeemed for cash but can only be used to purchase a new car,” he said.

Another area to look at would be to export used cars, which are less than 10 years old.

Khor said a subsidy system could be implemented, for example, a tax refund of a portion of a vehicle's original import duty and excise duty to car owners who trade in their vehicles to be exported.

“Car owners will get the export/body value of their cars in addition to the tax rebate to purchase a new car, specifically locally assembled and national ones.

“This proposal may take some time to implement as we will have to look for buyers and markets for the cars. The exported cars will also have to be very competitively priced,” he said.


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