This article first appeared in The Edge Malaysia Weekly, on November 2 - November 8, 2015.

At a time when consumers are feeling the squeeze and hire purchase loan requirements are becoming more stringent, most car companies in Malaysia have little choice but to launch aggressive year-end promotional campaigns to meet their sales targets and protect their market share.

According to the latest statistics from Malaysian Automotive Association, total industry volume (TIV) for the first nine months of the year fell 1.4% to 485,388 units compared with 492,322 units in the previous corresponding period.

The poorer performance was attributed to the continued uncertainty experienced by businesses due to the weakening ringgit and gloomy economic outlook.

As consumer sentiment remains weak, it appears that most car companies in the country — be they local or foreign — have taken aggressive measures in their advertising and promotional (A&P) activities, including offering attractive discounts in the hope of hitting their sales target.

Honda is offering up to eight free monthly payments for the City, Civic, Accord, CR-V, Jazz and Odyssey, as well as cash rebates and a year-end bonus of up to RM2,500.

Toyota is offering special prices from October to December this year with cash rebates of between RM3,800 and RM13,200 for its models, including the Vios, Camry, Altis and Avanza.

Over at Proton, buyers are being offered a seven-year extended warranty for the Saga, Iriz, Preve, Suprima S and Exora. The national car maker is also offering an interest rate of 1.99% for the Saga and Iriz, as well as 100% financing scheme for government employees.

South Korean car brand Kia, which is marketed by Naza Group in Malaysia, is providing three years of free maintenance and cash rebates of up to RM12,000.

Meanwhile, German marque Volkswagen is offering 12-month free instalments, with cash rebates of up to 10%, while French automakers Peugeot and Renault are luring buyers with five years of free service and warranty.

To put it simply, car companies are jumping on the bandwagon to offer attractive deals that usually come with worry-free protection, cash options and free instalment plans.

But against the backdrop of declining car sales, are these car companies “subsidising” the buyers to boost sales?

Berjaya Auto Bhd director Datuk Francis Lee Kok Chuan opines that car companies are slashing prices to get buyers as they are desperate to clear their inventory by the end of the year.

“Calling it ‘subsidising’ is perhaps not the right word, but it’s quite obvious that most car companies are giving up their profit margins to maintain their market share. I would say this is something that they have to do — they have no choice,” he tells The Edge over the phone.

However, Lee highlights that Berjaya Auto (fundamental: NA; valuation: NA), which assembles and distributes Mazda vehicles in Malaysia, is in a better position as the company has been keeping its inventory levels low.

“There is no need for us to slash prices. In fact, we are giving incentives to the dealers so that we can maintain our car prices. But for the other players, they need to get rid of their old cars as soon as possible before they become one-year-old cars,” he explains.

Kenanga Research auto analyst Desmond Chong acknowledges that A&P activities are usually aggressive towards the end of the year but car companies seem more aggressive this year.

He believes it is because they need to make up for the shortfall in car sales in the last few quarters due to the weak consumer sentiment, especially from April to June after the implementation of the Goods and Services Tax.

Chong, however, believes the impact of these promotional campaigns will be short-lived.

“Toyota and Honda have already announced that there will be car price hikes in 2016, so some consumers are probably making pre-emptive purchases ahead of that. But I think car sales moving forward will be weaker in view of the rising cost of living,” he tells The Edge.

Chong also says car salesmen are willing to sacrifice their allowance just to hit their targets. “If they can’t, some of them may be laid off. But if they can, they will get a bonus.”

Kenanga Research is maintaining its 2015 TIV forecast of 667,000 units, which implies sales of 60,500 units a month for October to December this year.

An auto analyst from a bank-backed research house warns that automakers need to be careful as slashing prices could eventually lead to lower profitability.

“Car companies, especially the big players, must be able to sell their cars because their production capacity cannot be scaled down. But the thing is, as consumer sentiment remains weak, not to mention the recent drastic hike in toll rates, some may defer their decision [to purchase a vehicle],” he says.

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