KUALA LUMPUR (May 26): Fitch Solutions Country Risk and Industry Research said Malaysian vehicle sales will slow for the remainder of 2022 as the ongoing global semiconductor shortage limits the ability of automakers to ramp up production to meet robust demand.

In a report on Wednesday (May 25), the firm said the resumption of the sales and service tax (SST) after June 2022 will lead to higher vehicle prices and provide downside risks to strong demand buoyed by the easing of movement restrictions, a recovering labour market and improving economic activity.

It said robust economic growth driven by expanding private consumption levels that are recovering from the Covid-19 pandemic will remain a key factor in sustained demand for new vehicles.

Citing the Malaysian Automotive Association (MAA), Fitch Solutions said total vehicle sales expanded by 8% year-on-year (y-o-y) for January to April 2022.

However, it said that in April 2022, sales experienced a decline of 3.6% y-o-y as vehicle sales momentum lost steam.

“Indeed, Malaysia’s two largest automakers, Perodua and Proton, have stated that they battle to ship vehicles to consumers amid a supply chain crunch related to the chip shortage.

“Proton sales declined by 32.2% y-o-y in April 2022, while Perodua fared better with a 4.1% decline over the same period,” it said.

Fitch Solutions noted that demand for vehicles remains high but the low inventory of new vehicles from the two largest automakers by volume will continue to limit total sales.

“We anticipate the Malaysian automotive industry to remain in a challenging environment for the remainder of 2022.

“Lockdowns in mainland China due to the ongoing Covid-19 pandemic and the associated potential supply chain disruptions for various vehicle components (which include semiconductor devices) will continue to pose challenges for Malaysian automakers.

“Adding further downside risks to our vehicle sales outlook is the SST exemption [period] due to expire after June 2022,” it said.

Fitch Solutions said the resumption of the SST on vehicles will result in some level of demand destruction as higher vehicle prices squeeze some willing buyers out of the car market.

“For that reason, we have made a downward revision of Malaysia’s total vehicle sales.

“We now expect sales to rise by 7.9% compared with our previous forecast of a 12% increase.

“Total sales will thus reach 549,227 units, which are still below pre-pandemic levels of 604,287 units posted in 2019,” it said.