KUALA LUMPUR: After knuckling under a barrage of change in 2006, the Malaysian automotive industry is set for better times this year, said Frost & Sullivan, which is projecting a 3.8% expansion.

Vehicle sales may touch 506,200 units this year, its partner and head of automotive and transportation practice Kavan Mukhtyar said at a briefing yesterday.

While December car sales are not yet known, Frost & Sullivan has estimated total industry volume at 487,500 units for 2006, a 11.5% decline from 2005’s figure.

For this year, passenger car sales are expected to grow by 5% year-on-year to 383,350 units while 4x4 vehicle sales are likely to increase by 7% to 34,580 units. Sales of commercial vehicles, however, are forecast to decline by 2% to 88,270 units due to higher oil prices and lower agricultural growth. However, this may be partly mitigated by an increased demand for vehicles needed in Ninth Malaysia Plan projects.

Mukhtyar said the industry as a whole was poised for a welcome turnaround but recovery would likely only be in the second half of the year, with new car model launches boosting sales, consumer sentiment improving and an increase in the approval of loans.

On new models, he said national carmaker Proton was expected to introduce sedan variants while Perodua might update its Kelisa and Kancil models.

Other new models include the Mazda 3 series, Hyundai Sonata CVVT-1, Honda CR-V 2.4, Suzuki SX4 and a Subaru Legacy GT.

Mukhtyar said South Korean and Japanese cars were expected to eat into the market share. This is especially for the mid-market segment, given their selling propositions of reliability and value.

He said consumer sentiment was also likely to improve after buyers adjusted to new market conditions of lower used car prices and high fuel prices.

This year, there may also see a lower loan rejection rate for vehicles, as financial institutions are expected to show a higher risk appetite with respect to first time buyers. Malaysian banks had, since July, imposed tighter credit rules for car buyers, and all loan applications are subject to the Central Credit Reference Information System.

Mukhtyar said there was growth potential for alternative fuel vehicles although he did not expect it to greatly impact the industry.

In line with the global trend, car prices were expected to come down and with the higher cost of fuel, there was a clear shift towards lower maintenance, fuel-efficient vehicles, he added that the trend would be stronger in developing countries where purchasing power and per capita income was considerably lower.