This article first appeared in The Edge Malaysia Weekly on April 18, 2022 - April 24, 2022

AUTOMOTIVE companies in Malaysia usually take advantage of festive seasons to push their sales numbers up by holding promotions and giving rebates. However, this may not be the case for this year’s Hari Raya Aidilfitri season.

This is because the shortage of chips and parts that the industry has been facing for about a year has crimped the supply of cars, especially of foreign marques such as Honda, Toyota, Nissan, Ford, Kia, Hyundai, BMW and Mercedes-Benz, just to name a few.

“I hear most brands have to deal with a shortage of supply due to the shortage of chips, parts and so on. So I am not sure if this year’s Raya sales will be great or not compared with before the pandemic,” says Cletus Stephenson, an automotive retail consultant The Edge spoke to.

The geopolitical conflict in Ukraine has also caused a disruption in the supply of parts for some European brands, he says. Ukraine is an important hub for manufacturing systems connecting electronic components with hand-assembled components.

“Some European brands, for example, have suppliers in Russia, and when their headquarters or government decides not to work with Russia, they are scrambling to source for alternative suppliers, which cannot be done over a few months.

“So parts shortages are going to affect sales for the year,” says Stephenson.

Before the pandemic, automotive sales would usually receive a boost during the Hari Raya Aidilfitri season as many people would be looking to buy new cars while automotive companies would provide rebates and promotions to attract customers.

Automotive sales in May 2017 — being the full month before Aidilfitri that year — jumped 18.4% month on month (m-o-m) and 13.3% year on year to 50,600 units. The y-o-y growth was the strongest during that year.

However, in 2018, the Aidilfitri festive season was overshadowed by the 14th General Election, which led to consumers taking a wait-and-see approach, especially with the Pakatan Harapan (PH) government pledging to abolish the Goods and Services Tax then. As a result, automotive sales got a boost from the abolishment of the consumption tax rather than festive season promotions, as seen from the jump in sales during the months of June, July and August when the PH government declared a three-month tax holiday.

Then in 2019, again, there was a jump in sales in May, being the full month before the Aidilfitri celebration, which fell on June 5 that year. Automotive sales in May 2019 surged 21.6% m-o-m and 41.4% y-o-y to 60,780 units.

Of course, sales in April and May 2020 were disrupted by the Movement Control Order (MCO) and Conditional Movement Control Order (CMCO) in the early months of the Covid-19 pandemic. Sales growth in April and May 2021 meanwhile were much higher because of the low-base effect.

Therefore, it is clear that during the years when there was no disruption to the economy, automotive sales during the Aidilfitri festive season usually saw a pickup. However, this year, even as the country steps towards endemicity and most economic activities are allowed, automotive industry personnel are not sure whether there will be a boost in sales.

“Not sure, but indications are most potential customers had bought their cars ahead due to the sales tax exemption,” says Datuk Aishah Ahmad, president of the Malaysian Automotive Association (MAA) and head of corporate affairs at Sime Darby Motors as well as CEO of Sime Darby Auto Imports Sdn Bhd.

In its efforts to rejuvenate the economy, especially the automotive sector, the Malaysian government had — under the Penjana recovery plan — allowed for the full exemption of the Sales and Services Tax on completely knocked down (CKD) cars, and 50% exemption of SST on completely built-up (CBU) cars since June 2020.

The incentive has been extended until June 31, 2022, and the automotive industry has been lobbying the government to extend the exemption further. However, to date, there has been no indication on whether it will be extended.

Up to February this year, automotive sales volume was 10% higher than the corresponding period in 2021, with 94,252 units, according to data from MAA.

Despite expectations of flat sales for the automotive sector for this year’s Aidilfitri season, Stephenson believes that auto dealers will be able to keep their margins intact without sacrificing them to push sales higher.

“What I hear from most is that they didn’t have to throw prices because of the short supply of cars. Remember, brands used to pump out cars way above the actual demand. Dealers used to throw prices to chase sales orders.

“All that is gone and dealers are happy because they can retain margins. More importantly, car prices are going to go up because of the increase in raw material prices. That’s a factor to consider going forward,” says Stephenson, who has worked with BMW and Audi marques.

Nevertheless, Bermaz Auto Bhd CEO Datuk Francis Lee is confident that there will be a boost in sales during this year’s Aidilfitri season. He says that bookings have been very strong from last month, and that sales are picking up now.

“However, we have limited CBU cars from Japan due to the chip shortages. I believe bookings would still be strong until end-June when the Penjana scheme ends. I’m sure other car distributors are also facing some supply chain issues,” says Lee when contacted.

The shortage of chips and parts has affected Bermaz Auto’s revenue so far for the financial year ending April 30, 2022. During the nine-month period ended Jan 31, 2022, the company’s revenue came in 13.3% lower y-o-y at RM1.43 billion.

However, its profit after tax (PAT) of RM77.98 million during the period was 18.72% higher y-o-y than the RM65.69 million recorded in the previous corresponding period.

Cycle & Carriage Bintang Bhd also saw revenue slipping 5.2% to RM1.03 billion during the financial year ended Dec 31, 2021 (FY2021) from a year earlier. However, the group turned profitable during the year with a PAT of RM4.8 million compared with a loss of RM13 million previously.

Despite recording 4.8% lower sales in the first half ended Dec 31, 2021, Sime Darby Motors’ profit was intact at RM511 million, compared with its profit before interest and tax of RM505 million in the corresponding period.

DRB-Hicom Bhd could be the only major automotive distributor and dealer that registered a growth in revenue during its financial year ended Dec 31, 2021 (FY2021). During the year, its automotive division’s revenue increased 14.7% y-o-y to RM8.2 billion.

The division, which makes and distributes Proton cars, posted segmental profit of RM88 million in FY2021, which was also 27% higher than the RM69.3 million recorded in the previous corresponding period.  

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