May 2018 - Gomoku

Traditionally, May has always been a good month for car sales. On  the average, the TIV will grow around 16 percent from April. Similarly, high hope was put by many OEMs for this year’s May, as it supposed to mark the beginning of festive sales, with Raya, Gawai and Kaamatan are all around the corner. Unfortunately, it was not the case this year as TIV for the month of May failed to even break 43,000 units.

May came and went with multiple challenges that really tested the automotive sales in Malaysia. The 14^th General Election was held on 9^th May, which divert the attention and focus of the public towards the election. The pre-announced holiday on the 9^th in conjunction with the polling day, and followed with 2 days unplanned holiday on the 10^th and 11^th, which followed by weekend directly reduced the number of working and business day by 5 days.

The early announcement of “Zero Rated GST” effective 1^st June 2018 on 17^th of May totally collapsed the market as almost everybody holding the purchase to enjoy zero GST 14 days later. Despite some OEMs scrambled to announce the counter-measure, the market has lost many days and was not able to recover until the end.

Those unexpected conditions contributed to a lower TIV for the month of May, which ended up with only 42,320 units (pending official figure from MAA), 4,769 units short from April and 8,280 units lower compared to the same period in 2017, Hopefully with tax holiday ongoing and raya mood is getting stronger, things will change for the better in June.

On the contrary, Perodua recorded the highest May sales this year, 3^rd highest since inception with 21,980 units registered. With lower TIV, this gave Perodua a whopping 51.9 percent share in the month of May, the highest ever. The move to offer GST rebate finally worked to bring back customers.

It was not an easy task though. Up to 17^th May, Perodua only managed to register 4,700 units with only 110 units registered over a span of 5 days from 9^th to 15^th May. On 18^th May, Perodua reverted its May Sales Campaign and superseded it with the GST rebate. A painful decision but something that has to be done nonetheless.

As they say it, GOMOKU, with 5 months in a row above 40 percent share.

For me, again, I must say, Peroduans have done well even in difficult situation. All, the front-liners, the support groups and the backroom guys emerged as the true winner. You are all the “unsung heroes”. And to Malaysians, I will never exhaust of saying THANK YOU for your endless support to Perodua

Tax Holiday

SST will be introduced in September, announced YAB Prime Minister during post second cabinet meeting on 30^th May 2018. Well, that answered one question, namely on when will the holiday end? How much?  This is the other part of the equation that is still pending.

Today marks the beginning of a 3 months break on tax, where we will see the car prices to be reduced by 6 percent. In-terms of Ringgit Malaysia, the higher the OTR price is, the bigger the reduction amount will be. For example, Porsche Panamera Turbo previously priced at RM1,550,000, now retailed at RM1,462,244 or RM87,736 cheaper. Examples on medium range of cars are Hyundai Elantra 2.0 Executive, which previously sold with 6 percent GST at RM 116,388 is now priced at only RM109,888.  Toyota Altis 1.8G is now retailed at RM113,526 or RM6,744 cheaper. Honda City 1.5V is now RM5,033 cheaper than before.

On a more affordable segment, the reduction amount is smaller. For example, Honda Jazz 1.5S is now priced at RM68,422, a RM4,088 cheaper than the OTR price with 6 percent GST. The Proton Saga 1.3 CVT is now at RM39,480.43 compared to RM44,072.25 before. Toyota Avanza 1.5G A/T is RM4,467 cheaper at RM74,733.

Assuming the SST is at 10 percent, then the OTR price will increase again, not to the level of the OTR  price with GST, but much higher. For example, when the GST was introduced in April 2015, prices of Subaru models were reduced by almost RM12,000 and Nissan cars were down by RM2,700.  The introduction of SST will likely hike the prices to the same level of those before April 2015 again.

In whatever cases, the car prices in Malaysia will be at their lowest level from June to end August 2018. This is purely based on declared OTR. But of course, OEMs may introduce their own Sales Campaign such as discount or rebate to subsidize the increase or as part of their normal way to support sales, which will be the net price to be paid by customers, that may differ from the declared prices. If assuming again, the support is higher than the hike as a result of SST re-introduction, the final price to be paid by customers may be even cheaper. Who knows.

During this Tax Holiday period, OEMs with sufficient stocks will benefit the most as it is expected that there will be an influx of purchase from the public. The sales must be done and completed within these 3 months’ period.

The surge is also expected to bring up the TIV again. The first 5 months of 2018 has not been favourable and far from meeting the 2018's projection volume of 690,000 units. As we speak, the TIV up to end of May was forecasted to be around 224,726 units, or 4 percent lower compared to the same period last year.

Prices for Perodua range of products are also lowered accordingly.

For me, this is a one time opportunity we should not be missing. Malaysians wished for reform and GST abolishment is one of the changes being echoed. The rare Tax Holiday is for real now. Enjoy it while it last.

GST Part II

Despite the announcement by both, the Prime Minister Tun Mahathir and newly appointed Finance Minster YB Lim Guan Eng that the GST will be replaced back with SST, there is still no conclusive timing when it will happen. No doubt, the uncertainty over the introduction of SST will continue to haunt the OEMs for now.

The question on how the SST will be implemented and how it will effect the pricing of cars remains unanswered. Surely, manufacturers will work on their own campaign strategy  moving forward. For now, the vacuum created by the move to zero rate the GST will certainly act as the much needed booster to improve the automotive market condition.

The "Tax Holiday" effective from 1st June until the unspecific date will make the car prices lower by 6 percent. This is for sure. Demand for cars is expected to grow drastically (relative to the last few months), especially during 1st half of June in conjunction with Raya sales buying pattern. Hopefully, the RM0 GST  will continue  to push for higher sales after Raya and continue in July sales as well. Typically, July (specifically post Raya) is a very quiet month due to high public spending in preparation for Hari Raya celebration before that.

Another interesting announcement made by the new government is on PTPTN. It was said that now  PTPTN borrowers earning less than RM4,000 a month can differ the payment until certain period and released from any restriction. Meaning, they now can apply for the Hire Purchase facility to buy car and will be treated without prejudice of PTPTN status. This is a very positive move to enable for the return of more  First Time Buyers (FTB) into the market. In the past  few years, PTPTN defaulters were blacklisted in many things, including (as a result of the Prudent Lending Guidelines imposed by BNM) from getting the Hire Purchase loan to buy cars. Now (according to the news), they can.

The combination of the three factors, the "Tax Holiday", "PTPTN" and the "Raya Buying Mood" will definitely make June an exciting month for the automotive industry.

Meantime, many OEMs have comes forward to announce the rebate on GST prior to 1st June. This was done to protect the market from further drop in May. Customers now have the option to enjoy lower prices earlier than the Zero Rated GST implementation. But why must they buy now as it is only a week to go before 1st June?

The answers are:

1. Under the rebate scheme, the HP is still approved with GST amount. The GST still need to be paid to the  government. The manufacturers will rebate the amount to the buyer.
2. The rebate amount can be used to cover for the downpayment for car or ease the loan re-payment for few first months, or keep it in the pocket (for Raya spending perhaps?).
3. It is in-fact a huge discount like never before
4. All the above will no longer apply from 1st June onwards as there is no GST anymore. It is a direct price down.

For me, the option is yours. Either way, you get to buy car at lower price now, one is with opportunity to recover some cash from the spending and the other one is you will spend a bit less.

GST oh GST

Last week, as Pakatan Harapan took over Putrajaya after winning the GE14, Malaysians started to “wait and see” on how and when they are going to make good of their promises in the election manisfesto. One of it is to abolish the GST.

The business at most car showrooms almost stalled as customers are expecting OTR to be reduced as a result of the abolishment of GST. In anticipating the GST to be replaced with the previous SST, most OEMs issued statements potraying the the OTR will increase.  Current GST is at 6 percent while the old SST was 10 percent.

The announcements were made to encourage customers to return and to resume their purchase and forget about “wait and see” attitude.

On 17^th May, the Ministry of Finance (MOF) issued an official statement saying that the GST will be zero rated from 1^st June 2018. This is indeed a good news, both for sellers and buyers. All the earlier statements by OEMs are now obsoletes as government is silent about the SST. The OTR will definitely be cheaper in the absent of the 6 percent GST. But, the not so good about the announcement was, the effective date of the zero rated GST will be on 1^st June, and the statement was made on 17^th May. That is another 13 days to go. What will happen to May’s business result then?

On the following day, MOF issued another statement that the GST will definitely be replaced with SST, but short of saying when and how much. OEMs are in panic state on how to manage business in May. Proton was quick to announce that they will offer rebate on  GST amount with service voucher for purchases made from 18^th up to end of May (later this was amended to include option for total cash rebate as well). Other OEMs started to publish new prices from June onwards (without GST).

Perodua too, has issued a statement about the impact on OTR with the reinstatement of SST earlier on. This, was later superseded with a new announcement of Instant GST Rebate less than 24 hours after the first statement. The new offer will see Perodua subsidizing the GST amount (on average, about RM2500 per car) to all registration done from 18th up to 31^st May 2018. This is a very costly exercise to Perodua but just like other OEMs, it has to be done in order to spur the business back in May. Otherwise, many of Perodua dealers will suffer from stalled business, lots of accounts will be aging and stocks will be piling up to wait for the return of customers from 1^st June onward. These 2 weeks gap, if not properly handled, can lead to much bigger problem to the eco-system later.

As we speak, customers don’t have to wait until June to buy Perodua cars, as they will enjoy the same benefit and no need to worry about the 6 percent GST. But, even if they cannot take delivery this month, they still have June to enjoy (or until the reinstatement of SST, which have yet to be announced by the government).

For me, this is the moment that we have been waiting for. It is the rare Tax Holiday. Zero tax. The car prices are at its lowest level (to some brands who are offering the GST rebate now) and will continue to be at that level until the SST is reintroduced later.