Expect gloomy auto sales next year

A Proton showroom. The automotive industry is expect slow sales next year as cost of living continues to rise. – The Malaysian Insider file pic, December 15, 2015.

Next year is expected to be a gloomy one for the automotive sector as consumer confidence takes a hit, weighed down by rising cost of living and a weakening ringgit.

Additionally, the price hikes widely expected by industry observers beginning January serves nothing more than a short-term sales boost for end-2015.

Auto sales rebounded in October, rising 9.1% month-on-month and 2.9% year-on-year to 55,700 units.

But for the 10 months up to October, total industry volume (TIV) of 541,142 units was 1% lower than a year ago.

The Malaysian Automotive Association (MAA) has a TIV target of 670,000 units for 2015.

TA Securities is sceptical of MAA’s target, given that TIV surpassed 60,000 units a month only five times in the last five years – March 2011: 63,300 units; July 2013: 68,400 units; December 2013: 60,500 units; July 2014: 60,300 units; and March 2015: 67,300 units.

“TIV estimates of 128,900 units, or average monthly of 64,400 units for the remaining two months (November and December) appears a bit optimistic,” TA Securities wrote in a note dated November 20.

TA Securities analyst Angeline Chin told The Edge Financial Daily that its TIV target for 2015 stands at 657,000, 1.94% or 13,000 less than MAA’s. She said there would be an increase in sales at year end, but it would not be up to 65,000 units.

“Most buyers would have already bought their cars in March, in anticipation of the goods and services tax (GST) implementation,” Chin said, referring to one of the five times that TIV surpassed the 60,000 mark, in March 2015.

She added that moving into 2016, she sees TIV decline 1% to 2% from this year. MAA has a target at 683,000.

“Rising cost of living is definitely a major concern, as disposable income drops, it would affect loan application,” Chin said.

Kenanga Research analyst Desmond Chong told The Edge Financial Daily in an email that for auto distributors, the still-softening ringgit would lead to higher completely built-up and components costs, and would continue to pressure their margins.

On the possibility of a tightening of auto financing terms, Chong said the government would usually tighten financing when they see rising household debts.

Kenanga Research has a TIV forecast of 667,000 units for 2015, 0.45% or 3,000 units less than MAA’s target.

Another analyst, Daniel Wong from Hong Leong Investment Bank Research, said the average basic car price would be higher than in 2015, even after discount, and the automotive sector would see negative sales in 2016.

“Given that it is one of the big-ticket items, consumers will be reluctant to buy new cars next year, unless there is an attractive discount.

“Consumer confidence has been trending down since the GST implementation. What is needed now is a certainty platform for everyone to work with, and then you will see that the spending starts to flow again.”

While it was not clear whether lending would be tightened, he said a bigger concern was the ringgit depreciation, which had also given opportunists the chance to increase prices in general, leading to rippling effect among consumers.

“Realistically, let’s just hope it stays at the RM4 level (against the US dollar), and people will start to adjust to their new environment,” Wong added.

While the mood for the auto industry going into the new year appears sombre in general, managing director of Volkswagen Group Malaysia Armin Keller told The Edge Financial Daily that although there was definitely an impact on the margins for the German auto car maker with the weakening ringgit, it will not be passing the cost on to consumers “for the time being”.

“We will maintain accessibility and affordability to Malaysians as we will not be increasing our prices for the time being, despite the economic climate,” Keller said in an email. – The Edge Financial Daily