Business

Wednesday July 20, 2011

Can the momentum for vehicle sales be sustained?

Behind the News by Eugene Mahalingam


TOTAL vehicle sales, which surpassed the 600,000-mark for the first time in 2010, was set to continue its momentum this year.

However, that got dashed by the tsunami that hit Japan in March and the implementation of the amended Hire Purchase Act 1967 (HPA) last month.

With swift, effective remedial measures undertaken by Japanese car manufacturers, the production woes are expected to normalise by next month.

The HPA amendments, meant to help protect the consumers and which took effect on June 15, have caused teething problems in the car-buying process and created delays for car companies to secure registrations. One of the amendments requires all used vehicles for sale to undergo Puspakom Sdn Bhd's 18-point inspection to ensure roadworthiness.

The amendments, among others, also required banks to obtain a court order before repossessing a vehicle and repossessors must be registered with the Domestic Trade, Cooperatives and Consumerism Ministry (MDTCC).

Another bone of contention was the 1% maximum booking fee (based on the total selling price) mandated by the amended Act, which requires car sellers to refund customers 90% of the booking fee if the deal were to fall through.

Unlike previously, car sellers or dealers cannot now accept booking fees before the car buyer is served with a Second Schedule notice.

The Second Schedule notice can only be completed and served, in practice, on the car buyer usually after the hire-purchase loan application is approved.

The remaining 9% down payment on the car can only be paid when the hire-purchase agreement has been prepared, with details such as the car's chassis number included.

This means the hire-purchase agreement can only be prepared after the actual car unit has been allocated to the dealership. Despite taking into effect just last month, some auto players claimed that sales were down by as much as 20% in June.

The delay in securing registrations is proving costly for car companies looking to meet their sales targets. Customers are getting frustrated as buying a car has become a lengthy affair.

The Malaysian Automotive Association (MAA) will be meeting the MDTCC this Friday to iron out issues concerning the amendments to the HPA.

According to MAA president Datuk Aishah Ahmad, the ministry “is willing to make amendments to some of the clauses of HPA to make it easier for registrations”.

Despite the the earthquake and HPA changes, total vehicle sales is still slated to hit an all-time high this year. The MAA has projected total industry volume (TIV) for 2011 to hit 608,000 units from 618,000 units initially.

Last week, research and consulting firm Frost & Sullivan forecast vehicle sales to reach 615,900 units from 623,000 units projected earlier. Both the projections are still higher than 2010's 605,156 units.

For the first six months of 2011, total vehicle sales slipped 1.3% to 297,203 units from 301,115 units in the previous corresponding period.

According to Aishah, vehicle sales took its biggest beating in the second quarter (April-to-June period) of the year, mainly due to the production disruptionas a result of the Japan earthquake.

With production expected to normalise by August, vehicle sales that could not be achieved initially can finally be realised as car companies would now be able to take delivery of stock that was not available initially. The MAA believes that the positive consumer sentiments owing to greater stability in the employment market and the introduction of new models may help to sustain buying interest in the second half of the year.

Some observers believe that breaching the 600,000-mark could be wishful thinking. With a six-month TIV at 297,203 units, even if similar level of sales is achieved in the second half, full-year sales would still be below 600,000 units.

Furthermore, the general trend is that vehicle sales are usually stronger in the first six months of the year and tend to slow down in the second half. Towards the later part of the year, many people tend to hold off their purchases until the following year to capitalise on better resale value.

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