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 January 25, 2014

Slowdown in used car sales likely


THE gradual reduction in vehicle prices by between 20% and 30% over a five-year period, a policy under the recently announced National Automotive Policy (NAP 2014), could potentially result in a slowdown in used car sales as consumers adopt a “wait-and-see” approach.

“A lot of customers are still unclear about this policy, and so are many used car dealers,” says Federation of Motor and Credit Companies Association of Malaysia (FMCCAM) president Datuk Tony Khor.

“The policy says gradual reduction in prices. But what does that really mean? Will it be a steady reduction spread over five years? Or will it be volatile? What if it’s 1% for four years and then over 20% in the final year?”

Whatever happens, Khor does not deny that there will be an impact on used car sales.

“If the price drops, our existing stock’s value will follow,” he says, adding that many used car dealers were now trying to replace their inventory with “fast-moving models,” namely brands that can be sold off quickly so as to mitigate any drop in vehicle prices.

“If we can’t replace the stock in time, then the used car dealers will have no choice but to face the losses,” says Khor.

Still, he says a gradual reduction in vehicle prices is better than one that happens overnight.

One Kuala Lumpur-based used car dealer is hopeful that any drop in vehicle prices, should it happen, will not happen suddenly.

“The used car market functions in tandem with new car market. When prices of new cars fall, the same thing will also happen to used cars. And if that happens, it means that we will be forced to sell our cars at a lower value, below the margin price.

“Furthermore, if vehicle prices drop significantly, many people may opt to buy new cars rather than used ones. Therefore, there are already quite a number of potential customers who are waiting and seeing what happens.”

Khor says prices of many vehicles had already fallen in 2013.

“Many car companies last year offered promotions and discounts – and this directly affected used car dealers.”

Khor says around 400,000 units of used cars were sold last year. He expects the market to remain flat this year.

Malaysian Automotive Association president Datuk Aishah Ahmad, meanwhile, feels that there won’t be an impact on sales for the used car industry, at least not in the near term.

“Because the policy talks about a 20% to 30% cost reduction over a five-year period, it is unlikely to have an impact on the used car market,” she says, adding that unless the economy improves, the Government is not going to adjust excise duties.

“But it is hoped that competition among car companies would result in reduced prices. This can be done if the vehicle specs are changed, the production costs of car companies improve, there is higher localised content or better economies of scale in their operations.”

On the gradual reduction in car prices, Frost & Sullivan partner and head of automotive and transportation practice for Asia-Pacific Kavan Mukhtyar says: “We believe that the approach of intensified market competition driving price reduction will soft-land the average price in the marketplace over the next four to five years.

“However, we believe this is likely to have an impact only on newly launched models or variants. With the current fiscal constraints, we do not expect a review in taxes in the immediate future. Thus prices will go through a process of incremental downward adjustment rather than a sharp decline.”

Nevertheless, Khor says he welcomes the Government’s move to open up the local automotive market, adding that he is hopeful that any vehicle scrapping programme, if implemented, be made voluntary rather than mandatory.

“We propose that it be voluntary with incentive encouragement, such as a RM5,000 rebate for consumers to give up their old cars when buying a new one. I believe that this will give customers a choice – maintain your-old vehicles or buy a new one with a slight discount.”

Khor also suggests that the Government consider offering soft loans for used car dealers, especially over the next five years.

“We would also like to propose to the Government, under the next NAP, that it considers setting up a used car auto city for used car dealers.

“If we can have something like that, a large piece of land that can house some 100 used car dealers under one roof, we could collectively promote and attract customers,” he says.

 - The Star