COVID-19 and the Movement Control Order (MCO) have affected the automotive industry in Malaysia. Car sales and prices are expected to change and now car loan rates have gone even lower. Is it the best time for you to get a new car in the new normal? Read this article to find out.
Malaysia’s automotive industry took a significant hit when the Movement Control Order (MCO) and Conditional Movement Control Order (CMCO) were implemented to control the spread of the COVID-19 virus, as the majority of businesses were forced to shut down including operations of vehicle plants, car showrooms and service centres.
The severe impact is evident by the 25% drop in the total industry volume (TIV) from 143,064 units last year to 106,248 units this year, according to MyPF.
Overall, the hit on the automotive industry will be significantly felt by the country’s economy, as Malaysia’s automotive industry contributed around 4.3% to Malaysia’s gross domestic product (GDP) in 2019, according to the Ministry of International Trade and Industry (MITI).
COVID-19 effects on car sales - Malaysia’s auto sales dropped by 99% during MCO
April 2020 data from the MAA as seen on PaulTan.org. (Image source: Paul Tan)
The bleak outlook was resonated by the Malaysian Automotive Association (MAA), who lowered their 2020 sales target from 607,000 units to only 400,000 units in the wake of COVID-19.
The sales volume for the month of April - when the country was at the peak of COVID-19 - was one of the worse performing months recorded, as only 141 vehicles were sold, a 99.37% decline from the 22,478 units sold in March this year. This drop, MAA cites, was due to all automotive operations ceasing until May 12 as the automotive sector was not ranked under essential sectors.
May 2020 data from the MAA showed some improvement compared to the previous month. (Image source: Screengrab from MAA)
Though it improved by a mile, sales volume in May 2020 was still lower - 62% lower (22,960 units) than the corresponding month in 2019 (60,760 units).
The poor market performance could be attributed to people’s ongoing fear to leave their houses, on top of consumers' continuous cautious sentiment, according to MAA. The association predicts higher traffic to showrooms after the announcement of the sales tax exemption as part of the PENJANA initiative by the government (we analyze more on that further below).
From the manufacturer perspective, the impact of the pandemic has been costly, as lockdown measures have disrupted global supply chains. This is especially true for automotive firms that import parts and components from affected countries, experiencing delays in either production or delivery of parts and components.
On the consumer's end, there are serious concerns if the automotive industry could ever recover as the new normal poses serious questions over the eligibility of owning cars.
Global professional services firm, Marsh, states in their report that manufacturers may have to consider the impact of the virus on consumer behavior, as based on anecdotal indications, some consumers may question their continued need to invest in cars. “We may thus see an accelerated shift to mobility services, such as on-demand, subscription, rental, and less direct ownership,” states the report.
To counter similar fears, Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad told The Star CarSifu that a proposal had been submitted to the government regarding the automotive industry, as part of their own contributions to help jump-start measures for the automotive industry.
“Among the measures proposed are easier hire purchase approvals, and lower taxes or duties for at least until the end of this year. We have also requested for the calculation of the open market value (OMV) of a vehicle to be reverted to the previous formula, so that the duties imposed for locally assembled cars do not increase,” she told CarSifu.
Now with the larger picture in mind, it’s clear that the automotive industry will require some time to fully recover, but what does the past few decline in sales mean for every day consumers like you and I? Would it lead to a more favourable market for buyers?
First things first, it’s crucial to remember that due to the economy’s progressive recovery, there may be uncertainties in both the national and global economies. In turn, this may alienate consumers from investing in big ticket items like automobiles.
Meanwhile, Malaysians may also opt to save their money and prioritize elsewhere as other issues arise like rising unemployment, pay cuts and high cost of living. Without a steady income, slow economic growth and fear of financial security, buyers may not be as tempted.
To get a clearer picture of the situation, CompareHero.my spoke to an expert and a car seeker to examine whether purchasing a new car amid COVID-19 is the right decision.
How has COVID-19 and MCO impacted car prices? A financial advisor weighs in
Dr. Desmond Chong said financial and non-financial checklists will help you navigate the car buying process. (Image source: Dr. Desmond Chong)
It may sound counterintuitive but the NST reported that Sime Darby Motors Sdn Bhd (SDM) has seen a "boom" in demand for its vehicles, possibly due to the government's Pelan Jana Semula Ekonomi (PENJANA) stimulus package, a RM35 billion initiative that includes sales tax reduction on passenger cars.
The positive market response to its recent sales campaign, NST reports is an indication that consumers would still view personal vehicles as an important investment for their safety and in maintaining social distancing, according to SDM managing director (retail and distribution) Jeffrey Gan. SDM did not disclose any sales figure.
"With the added tax exemptions as incentive, we are seeing signs of recovery as foot traffic and orders across all our brands are returning to pre-lockdown levels," Gan said in a statement today.
But does a relatively bull market translate to it being the right time to buy a car? AKPK financial education trainer and Deputy President of Malaysian Financial Planning Councils Dr Desmond Chong Kok Fei, believes so. He told CompareHero.my that lower interest rates are one of the factors that could make purchasing cars at this juncture an attractive option for Malaysians.
“On top of that other ongoing offers by car manufacturers or dealerships may make it more attractive too. That is another reason why it’s a good time to buy a car if you’re sure about buying a car,” he added.
However, besides the government tax exemptions, Chong said other price reductions vary and are highly dependent on supply and demand as well as the manufacturer’s product offerings.
The first time buyer threading new automotive waters
Jagmaya Gill, 28, a doctor who has been working for three years is currently looking for her second car. She started her car searching process in the past six months after realizing she needed an upgrade and safer option from her first, hand-me-down car from her parents. “I’ve been using a second hand car for the past six years with less safety features such as airbag and abs systems etc. - I worry about safety.”
Realizing the significance of purchasing a car, Jagmaya has been taking a longer time - or one year to be precise - to compare and contrast the products offerings in the market. “I have commitment issues (laughs)! I have to think real clearly before committing to a new loan. It’s not like any ordinary purchase, it’s a huge commitment, which I shouldn’t take lightly,” she said.
Fortunately for her, COVID-19 has not impacted her car searching process. If anything, it’s made the search better - the pandemic and MCO has resulted in various discounts and promotions.
Though these promotions are intended to encourage more buyers to stimulate the economy - Jagmaya said she’s wary of any superficial offers that may pop up at this time due to the possible higher demand. “It may be tempting to get a bigger and more luxurious car because of the enticing offers, but I need to remind myself that it’s the opposite of what I’m looking for - a more affordable car.”
Though there are many variables to consider when it comes to purchasing a car, the ultimate factor for her is the price. “I don’t want to commit to high monthly repayment schemes. I need an affordable, suitable car for town driving. More importantly, it needs to be a safe car. Also looking for a compact car since I'm not great at parking in tiny crowded spots at my workplace,” she said. “For a car loan and insurance, the commitment duration is important for me.”
The PENJANA stimulus package tax exemption
To revitalize the economy, the government has introduced the PENJANA initiative. (Image source: MOF)
The PENJANA initiative includes a complete waive of the 10% sales tax imposed on complete knock down (CKD) passenger vehicles, aka locally assembled cars. On the other hand, sales tax on completely built-up (CBU) passenger vehicles, aka imported cars, will be halved to 5%. This sales tax reduction on passenger cars started on 15 June until 31 December 2020. For more information visit here.
Following this announcement, many vehicle brands released new prices of their products to reflect the tax exemption initiative. Scroll further down to see some screenshots of what we could find online. Just remember that these prices may shift over time or vary for people in different states. On top of that, there may be other promotions not advertised by dealerships.
For a comprehensive list of sales and promotions by automobile companies, we highly recommend you check out this list of ads on Paul Tan. It's super helpful if you need a head start, especially if you don’t work with a car agent.
Into Japanese cars? Check out this list by Honda. (Image source: BigRoad)
Perhaps you are into the new Proton X70. (Image source: BigRoad)
Another local alternative is Perodua. (Image source: Lester Chan)
Toyota may entice you too. (Image source: Louis Tan)
If you are into Mazda cars, tee up with Bermaz Auto Berhad, the main and authorized distributor of Mazda vehicles & spare parts based in Malaysia. (Image source: BigRoad)
Getting a car in today’s market could be tempting. But there are a few factors to consider before you proceed.
Read this checklist before buying a car - here’s what you need to know
Though there are tax incentives and many promotions to entice and encourage Malaysians to purchase cars in the current market, there are a few rules that you should tick from your checklist before deciding to buy a car.
“Before anything else, the decision on whether or not you should buy a car goes back to your need vs wants,” said Chong. “For many, a car is a need - essentially without it I won’t be able to travel to work for example. It could be a want if you have other alternatives, like public transport or carpooling but you’re reluctant to because of convenience.”
For those who are categorized under needs and have the financial muscle, Chong said now is definitely a good time to purchase a car, especially with all the aid and promotions available.
He also shared that another group of buyers who should take advantage of the current market are those who have fully paid off their car loans and are looking for a new car to replace their old vehicle. “If you’re in that category and you realize your maintenance fees are constantly hiking, then now is a good time for you as well.”
Chong advises all car buyers to come up with a simple financial checklist that covers the risks and gains before deciding to purchase a car:
1. Employment. Are you still employed?
2. If so, are you at risk of being unemployed? What’s your level of job security?
3. Is your job at risk in the coming months?
Stop right here. If you answered with a yes for all three questions, Chong said now may not be a suitable time for you to purchase a car as losing a job will severely affect your repayment capacity and having secure cash flow is an essential requirement before buying a car.
If you answered no to all the above, then you may proceed to the next few questions.
4. Do you have enough savings for your down payment?
5. How much is your debt service ratio?
What is a debt service ratio? It’s simply a calculation used by banks to check whether you can repay the loan.
In this scenario, after considering all your different loans and commitments (housing loan, personal loan, insurance etc.) and it amounts to 50% of your total income, then you may be at risk of overspending, said Chong.
Chong also advises buyers to have a non-financial checklist to ease the decision-making process.
- Are there alternative transportations that you can consider? Such as taking the bus or train? Perhaps you have a friend you could carpool with?
If the answer is yes, Chong advises potential buyers to give themselves at least a month to test the waters to see if it’s feasible in the long term.
- Is parking readily available where you live and work?
- Not sure? Find out. “People often forget other miscellaneous costs associated with cars like toll and parking,” Chong said. “Those are important too - don’t leave them out.”
- Find out what is the current rate of the borrowing costs. “Certain cars like BMW and Mercedes, will give subsidized rates,” Chong said. “It should be part of your research process.”
- Which should you get - Islamic loan or conventional loan? The varying factors include interest rates, risk sharing and your own values. For a more in-depth understanding between the two, check out this piece we wrote earlier, to help you decide.
- Do you still have an existing loan?
If you said yes to the final non-financial point, then you may want to consider these next few pointers too. Coming up with another separate checklist may help interested buyers with existing cars when disposing their cars.
- What is the market value of your existing car?
- What is the redemption amount if you still have a loan?
- Selling off your current car - do you have potential buyers on hand? Car dealers are available to help you with that.
- Transferring car ownership to car dealers or buyers.
“We’ve had issues in the past where dealers don’t transfer the names and there’s an unsettled loan - so that’s a double impact on their finances,” Chong said. “This could be a case of sambung bayar aka continued payment.” Based on research, we found out this scheme to be highly discouraged in Malaysia!
Car may or may not be a good investment for you. It goes back to your own objective and goals.
Remember - cars are not investments, but liabilities
It may be tempting to get your hands on the latest car model, but unlike property, a car is not an investment. Though it is an asset, it depreciates overtime, making it less valuable to your wealth growth.
“It’s a simple concept, the reason why cars are depreciating assets is because if you have a newer one, why would you want to use an old one? Their values don’t grow over time,” Chong said, explaining why cars have depreciating values. Additionally, cars can be produced on a mass scale, unlike property that are limited and restricted due to the scarcity of land.
Similar to your cellphones and computers, a car loses value the moment it gets out of the showroom and is driven off the lot, and it will continuously lose more value as time goes on. It makes sense why some of the richest don’t use expensive cars, for instance, American billionaire Warren Buffet reportedly bought a Cadillac XTS in 2014, a car with a retail price of around $45,000 (RM191,970) as an upgrade from his previous car: a 2006 Cadillac DTS.
But antique cars do have resale value due to its “sentimental value,” according to Chong. Some cars that were bought for a couple hundreds or thousands could sky up to RM20,000, he said.
So, should you get a car in today’s COVID-19 world? Totally! But only if you fulfill most of the requirements laid out in the checklist - to be safe.
Buying a car is probably the second biggest investment that you’ll make in life after getting a property. Therefore, it’s critical that you take your time and really think through the different factors that will impact your finance and purchase.