"Uncertainties", a Bit Too Many

I

For some unclear reasons, one irresponsible person has posted one (out of hundreds) slide showing the Perodua's car OTR price simulation with and without SST. Nothing extraordinary about the slide except that it carried Perodua logo. The simulation shows that the SST will make the OTR price higher compared to with GST. It went viral and within less than 2 days, the posting was shared by more than 900.

What was leaked, seems as Perodua has officially declared a price increase when SST is to be reintroduced from 1^st September onwards, triggering members of the Media to start asking for comments and authorities were asking for the “basis”. The truth is, IT WAS NOT.

I take full responsibility and ownership of the slide. It was one of the many simulations that we have been working on to chart our business direction moving forward. There is nothing wrong about that. But, to assume that this is our final declaration on our pricing strategy during SST re-introduction, is totally wrong and misleading. Perodua is still waiting for official details from the government and will only make the official announcement at an appropriate timing. It is more than just about the SST. It is about company’s strategy enduring the market challenges ahead.

II

So happened, on the same day, there were many news reports about how the OEMs is reacting to the re-introduction of SST. The Malaysian Automotive Association (MAA) during its Press Conference shared that “there are concerns over a price hike due to SST implementation” and lowering its projection for auto sales to 585,000 units from 590,000 units this year. Proton, in a separate statement also expect prices of its cars “may go up with SST’s return”. Bernaz Auto Bhd, which is the distributor for Mazda in Malaysia went even further by declaring that they "will absorb SST if cars booked before September 1 but delivered after that".

Everybody are talking about possible OTR price increase as a result of SST. In the absent of any announcement on the new formula or structure on how the SST will be implemented, the OEMs can only simulate based on past structure of SST, and that is how (perceive) the price will be effected. Higher OTR price!!!

III

Then, there was this news too; the 2^nd National Car??

For me, I am sure government will do their best in taking care the interest of the people. It is not easy to balance between ensuring income for government and not burdening the people at large, but there are ways, for sure. However, amid the confusion, the earlier this being clarify is the better. Too much of uncertainties is not healthy.

Total Industry Volume

The declaration of Tax Holiday by the new government through the implementation of Zero Rated GST for 3 months starting 1^st June until 31^st August 2018, helps to improve the Malaysia automotive market to some degree. With RM0 GST for every purchase made during this period, the OTR price is lower by 6 percent. Something like this has never  happened in the past as sales of car (or purchase of car) has always been taxable. Prior to GST, car prices inclusive of 10 percent Sales Tax under the SST regime.

Judging from the sales result in June 2018, the market seemed recovered somewhat, annualizing the TIV possibly to 585,000 units from earlier projection of only 570,000 units, against the original target of 590,000 units. The TIV for the month of June is expected to rise over 63,000 units; the first for this year. This is 47.6 percent or 20,267 units higher than a month before and 12.8 percent or 12,979 units better than the same period last year. The YTD registration also increased by 4,011 units to 288,462 units compared to the same period last year.

We are now in the second month of the Tax Holiday. The biggest question is, can the OEMs sustain the June’s favorable result this July? As all brands are enjoying strong bookings, “stock is King”. Does the market have sufficient inventories to fulfill the demand? If the answer is YES, then the TIV for July is likely to stay strong as in June and will further strengthen the annualized TIV, perhaps to as high as 590,000 units. But again, do OEMs really have enough stocks or not?

Both Toyota and Honda did strongly in June. There were reports saying that Honda exhausted their stocks just before the end of month and Toyota probably drained their stocks after recording a record high registration. Based on what have been reported earlier, Proton is probably the only brand that still holding higher stocks despite registering 50 percent higher than normal last month.

Surely, all OEMs will try to do their best to increase their supply. Early birds will gain the most in realizing the booking into registration.

Perodua, after a superb performance of almost 22,000 units in May and with a scheduled 10 days of plant shutdown in June, suffered an acute inventory shortfall and only manage to register 19,611 units in June. Now that production is back to normal, Perodua is likely to rebounce strongly in July.

It will be interesting to see Malaysia automotive market to be strong again, even if it is only for short period during this Tax Holiday. It is still a most needed breather for all in the industry.

For me, am hoping that these 3 months will give enough buffer to cover the possible shortfall from September onwards as market is expected to freeze in the “digestion mood” due to possible increase in OTR price as a result of the re-introduction of SST.

June 2018 - The New Beginning

True to the earlier expectation, June, which marked the beginning of the 3 months long Tax Holiday ended with higher performance by almost all brands in the market. The Zero Rated GST declared by the new government starting 1st June has created a rush to purchase a new car as a result of lower OTR price.

The Malaysia automotive market, which have been very soft since 4th quarter last year rebound in June. Big improvement in fact. For the first time in 2018, the TIV is expected to surpass 60,000 units in June. Unofficially (ahead of MAA's Official report), the estimation for June will be around 63,000 units.

After so long, Toyota is expected to return to number 2 position with a registration of 11,500 units. Honda closed just 100 units behind at number 3, whilst Proton's registration is also expected to increase above 6,000 units in June. Almost all brands are expected to record growth month on month in June versus May 2018.

Stock is the rule of the game during this Tax holiday period. Those with sufficient inventories will have the added advantage as all brands were overwhelmed with incoming booking. As  viral in the social media, some of Honda outlets posted that they have ran out of stocks just before the end of June. Some of the brands also continued to run their Raya campaign, which make the offer more attractive in addition to RM0 GST. 

The Tax Holiday provides the best option for customers and it is also the best time for OEMs to push for volume. The frenzy, hopefully will continue until end August when the Tax Holidays ends. 

Perodua, on the other hand, despite continued to be at number one position with 19,611 units, recorded a decline from May 2018, when it registered almost 22,000 units. Due to higher sales by other brands, the market share for Perodua is expected to be around 31.0 percent, much lower from 51.1 percent in May 2018.

With better stocks position and significantly high booking received so far, Perodua is looking forward for a much better registration in July.

For me, just want to advise all to take advantage of this unprecedented Tax Holiday period. Do not wait until last minute as OEMs might not have sufficient stocks to deliver by 31st August 2018. Also, do not do transaction with middle-men or brokers. Pay a visit to the authorised outlet and get the latest information officially and directly from the authorised personnel. You don't want to miss this opportunity just out of ignorance.