KUALA LUMPUR: A weakening ringgit may drive up foreign car prices in Malaysia due to costlier US dollar-denominated automotive component imports, according to the Malaysian Automotive Association (MAA).

As a result, car companies might hike prices to maintain their bottom lines, said MAA president Datuk Aishah Ahmad. She said car companies may not be able to maintain current motor vehicle prices indefinitely given the weakening ringgit.

“With the increase in the exchange rate [for the US dollar], car prices are going to go up [eventually]. We can hold back prices for a short time, but how long can car companies hold back prices?” she told MAA’s 2014 market review and 2015 outlook briefing yesterday.

Yesterday, the ringgit weakened to a fresh six-year low of 3.6277 against the greenback before easing up to 3.6215 at 1.04 pm.

The ringgit’s weakness comes with the spectre of slower Malaysian economic growth as lower crude oil prices hit government income and deficit levels.

The effects of a firmer US dollar after the International Monetary Fund upgraded its US economic growth forecast also weighed on the ringgit.

MAA has forecast new vehicle sales in the country this year to grow 2% to 680,000 units, despite the weakening ringgit, volatile economic conditions and a slowdown in consumer spending, said Aishah.

New vehicle sales last year was at 666,465 units, up 1.6% from a year earlier, but still below MAA’s revised 2014 forecast of 680,000 units.

Nevertheless, MAA, in its 2014 review report, noted that the 666,465 units sold were a new “all-time high record” achievement for the local automotive industry, surpassing the previous 2013 sales record of 655,793 units.

The breakdown of the figures shows that passenger vehicles grew 2% or 11,684 units to 588,341 units from 576,657 in 2013. Commercial vehicles, however, slipped 1.3% or 1,012 units to 78,124 units from 79,136 in 2013.

Passenger vehicles accounted for 88.3% of total industry units, up from 87.9% in 2013, while commercial vehicles comprised the remaining 11.7%, down from 12.1% in 2013.

MAA said the number of new vehicles sold thus far has been on an upward trend since 2012 when 627,753 units were sold.

“On the whole, the favourable performance of the automotive industry in 2014 could be attributed to our country’s continued economic growth, stable employment market and the aggressive promotional campaigns undertaken by MAA members,” it said.

However, it acknowledged that the growth rate in 2014 was much lower than the growth rates achieved during 2013 (4.5%) and 2012 (4.6%), despite considering the former a “good year” for the Malaysian automotive industry.

This year, Aishah believes motor vehicle sales would be supported by improved consumer confidence after the goods and services tax is implemented on April 1.

However, she did not say when MAA expects consumer spending to normalise once the consumption tax comes into force.

This article first appeared in The Edge Financial Daily, on January 22, 2015.