This article first appeared in The Edge Financial Daily on January 24, 2018

PETALING JAYA: The continued enforcement of strict lending guidelines, including for hire purchase loans by financial institutions, will remain a major challenge for the automotive industry this year, says the Malaysian Automotive Association (MAA).

As a result, local players Perusahaan Otomobil Kedua Sdn Bhd (Perodua) and Proton Holdings Bhd, which cater for the mass market, will be the most affected.

“The continued high rejection rate for loan approvals will still be among the most difficult challenges not just for consumers but car companies,” MAA president Datuk Aishah Ahmad told a media briefing. “Excluding luxury vehicle sellers, as their markets have the money to easily buy their products, it’s the local players which will be affected the most.”

Aishah pointed out two prevailing issues which could reinforce more stringent lending practices, namely the implementation of the Malaysian Financial Reporting Standards 9 (MFRS 9) since Jan 1, 2018, as well as the high household debt levels.

For 2017, the total industry volume (TIV) fell short of expectations, at 576,635 units against MAA’s target of 590,000, as inflationary pressures continued impacting consumer sentiment.

Last year’s total vehicle sales represented a marginal decline of 0.6% from the 580,085 units recorded in 2016. MAA’s sales data also showed 2017 marked the second consecutive year of TIV contraction.

Of the full-year sales figure, 514,679 units or 89% were passenger vehicles, while the remaining 61,956 units or 11% were commercial vehicles.

“Despite our country’s economic recovery and the aggressive promotional campaigns undertaken by MAA members, sales remained essentially flat in 2017. This can be attributed to the inflationary pressures affecting consumers’ disposable income, which consequently resulted in cautious consumer spending,” Aishah said.

“Further, excessive offers began much earlier during the year. Discounts were not given constantly or throughout the year. Also, as sentiment was still low and [the]loan rejection rate was high, several companies were not able to register as many vehicles as they had expected as ‘sold’,” she explained.

In terms of production, total vehicles manufactured in 2017 were 499,639 units, which was an 8.4% decline from the 545,253 units produced in 2016. MAA blamed the drop on the prompt adjustments in production undertaken by manufacturers in managing their inventory levels, particularly towards the year end.

Looking ahead, MAA is keeping its sales forecast under the 600,000 level, taking into account the economic and environmental factors which are expected to affect the cost of living and doing business.

It has set a target of 590,000 units to be sold in 2018, which is 2.3% higher than last year’s TIV.

Several factors which could affect the motoring industry’s performance this year also include the expected rise in the cost of doing business following the implementation of the Employment Insurance Scheme, the increasing popularity of ride-hailing services and potential hikes in the overnight policy rate, said MAA.