To buy or not to buy, as car prices threaten to rise

Visitors pass by the Toyota booth at the Frankfurt Motor Show last month. The Japanese carmaker's Malaysian distributor has announced higher prices due to the lower value of the ringgit against the US dollar. – Reuters pic, October 15, 2015.

Civil servant, Hafizal Rahman, 25, was the happiest person when he found out that his wife was pregnant. His immediate thought was for his wife's safety, and he began thinking about buying a new car.

But with recent news that car prices are set to increase next year, plus the gloomy economic outlook with the ringgit hitting its lowest value against the US dollar since the last currency crisis 17 years ago,  Hafizal may have to again postpone his dreams for a new vehicle.

He currently drives a 20-year-old, beat up, manual transmission car, having once delayed buying a new car before as his low salary did not meet the minimum requirements for a loan.

Although the announcement on higher car prices was only for one make, Hafizal now admits to being in a dilemma. He wonders if he should buy now before other prices rise, as some people have advised him to, or wait until the economy improves.

Until then, his wife, who lives alone in Hulu Selangor while he works in Kuala Lumpur, will have to go to the clinic near their home on a motorcycle.

Best to buy now

Since the implementation of the goods and services tax (GST) in April this year, the automotive sector has been hit by slow demand from consumers.

Now with the spiraling ringgit, the industry is in a tough position keeping prices low to bring in sales against the rising cost of components, imported from overseas.

One carmaker that has been open on its intention to raise prices is UMW Toyota Motor Sdn Bhd, the distributor of Toyota vehicles.

The company recently announced a price increase of between 4% and 16% for Toyota and Lexus models starting January next year, attributing it to the weak ringgit.

It said this year, the ringgit declined by almost 20% against the US dollar, thus pushing up operating costs.

"The company is evaluating various methods to deal with this, but there are no options but to have to move some of this cost increase to consumers to offset the impact of the strengthening US dollar," the company said in a statement.

Its president Datuk Ismet Suki said since early this year, the ringgit's value has affected its business, as some parts and components are imported and affect overall operational costs.

Other industry players contacted by The Malaysian Insider suggested that those planning to buy cars, whether new or pre-owned, to do so before the price increase become inevitable due to the currency depreciation.

Abdul Rahman Mohamad, 54, an agent from Seremban, Negri Sembilan, said although the sales outlook at the moment was still encouraging, the depreciation of the ringgit will soon make price increase inevitable, especially for Japanese makes.

"If you want to buy a car, do it now, there is a fear that prices will rise again, especially cars from Japan," he told The Malaysian Insider.

"The market is still stable for now, but applying for loans will be more difficult soon," he said.

Hafizal agreed with Abdul Rahman that applying for loan would become harder, more so for someone like him who earns a monthly income of RM2,100.

"My wife and I have been saving up to pay for the deposits. She also works, looking after the neighbours' children," he said.

Would-be buyers can still opt for imported used cars if new car prices are too steep for them, say car dealers. – The Malaysian Insider file pic, October 15, 2015.However, Hafizal said he might have to abandon his plan altogether now in view of the expected higher living costs next year, including additional expenses for his first born. 

"What to do, with a child, spending will surely increase, how to buy a car then?" he asked.

Inevitable increase?

Meanwhile, president of the Malay Vehicle Importers and Traders Association of Malaysia (Pekema) Datuk Zainuddin Abdul Rahman said would-be buyers can opt for imported used cars if car prices become too steep for them. 

There was still stock available but this was only expected to last only three to four months, he said.

"Many are still selling at old prices as they had taken the stock before the ringgit crisis," he told The Malaysian Insider.

Zainuddin cautioned that once the units are sold out, Pekema too might be forced to increase prices by between 25% and 30% to cover for the ringgit's depreciation.

"If people want to buy, better buy it now," he said.

He added that car sales have also fallen by nearly 50%.

"Before this, we can sell 40 to 50 units per month, but these days we can only sell 20 to 30 units per month," he said.

"If the car sales grow rapidly, it means the economy is good, but now even houses are not selling well. These are indicators, reflective of the economy," he said.

Malaysian Automotive Association (MAA) president, Datuk Aishah Ahmad, said the rise in vehicle prices are unavoidable, and if not done, car companies will suffer losses due to the ringgit.

"It is like a chicken and egg situation. If companies did not raise their prices, they will suffer losses, and the depreciation of the ringgit really gave a bad impression on the automotive industry," she said.

However, she added that in the end, the decision whether to maintain or raise prices was up to the car companies.

- TMI