Car makers offer Raya sweeteners post-GST to boost fallen sales

 

But is this the way forward?

Prior to 1 April, when the Goods & Service Tax took effect in Malaysia, denizens found themselves in a flurry of confusion as to what goods would go up in price and what would be exempted. Amidst this state of uncertainty, consumers went on a full-out consumption binge, picking up big ticket items - such as cars - as a precautionary step for long-term savings, although we’re sure that they also picked up unnecessary purchases along the way, in the fever of the moment.

Even though the new consumption tax of 6% superseded a higher sales & service tax of 10% for cars, bringing about a general reduction in retail prices, vehicles sales plummeted by nearly 33% in April, the decline made more pronounced by the nationwide buying spree the month before, which paradoxically also helped some automakers achieve high numbers during the first quarter of 2015. 

Hardest hit were the two domestic car companies. Proton’s April sales dropped by 53% from the month prior and its January to April sales experienced a 24% year-on-year decline. Perodua’s April sales fell by 22% compared to March, but its January to April sales went up by 22% year-on-year, boosted by the new Axia model launched last September.

The top foreign car makers, Toyota and Honda, also saw sales fall by 1,155 and 3,019 units respectively - a 16% and 32% decline – from the month prior. Toyota’s year-on-year sales for the first four months of 2015 shrunk by 33% while Honda’s increased by 27%, in no small part due to the newly launched 2015 Honda HR-V which accumulated more than 7,000 bookings within a month from its February launch.

Now, after the GST has been in effect for more than two months, consumers remain cautious about spending; an AC Nielsen study found that Malaysians perceive that the country is currently in recession, and only a third of those surveyed said they would be making major purchases anytime soon, the majority preferring to keep their savings for later use. But with the Raya holidays just around the corner, automakers are taking advantage of the festivities to offer deals and sweeteners to entice consumers to loosen up, specifically their purse strings.

DRB-Hicom, the Malaysian conglomerate which vast portfolio of car marques includes Proton, Audi, Volkswagen, Jeep, Mitsubishi, Tata, Suzuki and Lotus, is hosting a nationwide auto sale from 6 to 14 June, promising the lowest prices in the market for its car models, as well as financing options, trade-in offers, lucky draws and other prizes. It is pushing VW’s cars, with zero-downpayment and zero-interest for the Polo, Golf, Jetta, Passat and Tiguan models. On the budget end, Malaysians can get their Proton cars with a downpayment from as low as MYR1,000 and get a 7-year extended warranty with that. The Jeep brand, which returned to Malaysian shore just end of last year after a long absence, is offering rebates of up to MYR45,000 on any of its model plus a free iPhone 6 (does that smell like desperation?).

Perodua, however, is offering a meager rebate of MYR800 for the MyVi (when you are the best-selling car, you don’t need to dangle large carrots?), and none at all for the Axia; but it is offering the chance of winning a 10th anniversary edition of the MyVi with any purchase or service of its cars at a Perodua outlet.

Premium car brands have, in contrast, seen an improvement in April sales. BMW and Lexus saw a slight improvement in sales numbers, while Mercedes saw only a slight drop. Sale of MINI cars - which prices in Malaysia range from MYR177,000 - 334,000, thus considered a ‘luxury’ acquisition here – grew from 40 units in March to 63 units in April, partially due to the substantial rebate of MYR20,000 on certain models.

As we have espoused in our blog, the automotive market is changing and focus has to be shifted. With margins from car sales becoming narrower - what with all these rebates and price wars (like in China) - it is time to reexamine the automotive business. We have often said that the aftersales segment is becoming increasingly important, with one Frost & Sullivan report predicting that the product which will rake in the highest revenue is the seemingly insignificant but oh-so-important WIPER BLADE, which could be a US$243.5 million industry by 2018. (Read also: Aftermarket industry in ASEAN will experience high growth.)

The same F&S report also stated that engine lubricants and fuel additives will feature in the aftermarket segment. Since we’re more cautious about buying new cars and keeping our old ones for longer, we had better take better care of the latter; for instance, using the X-1R Engine Treatment to rejuvenate older engines while maintaining fuel efficiency of even old clunkers. (Read also: Everything you want to know about life, the universe and changing your oil.)

Excellent aftersales service creates loyal customers, while vehicle sales may not. And while car owners may choose to put off buying a new car until their existing vehicle reaches its end-of-life, they cannot put off maintenance and replacements of spoiled/old car parts for very long before the car protests and breaks down. So, while throwing in sweeteners and cutting profits margins make an effective temporary measure, industry players could stand to substantially increase sustainable revenue by improving their aftersales service and products instead.

image: MINI Malaysia FB