ANALYSIS, Jan 18 — The last six months of 2015 has seen the Malaysian ringgit drop against the key currencies that affect Malaysian prices, namely the US dollar, the British pound, the Euro and the Japanese yen.
Against this backdrop, the major car companies in Malaysia have already announced inevitable price increases for 2016, with the exception of Mercedes-Benz, which said it would maintain its prices, at least in the near future.
Toyota has announced price increases from 4 per cent to 16 per cent, while Honda Malaysia has increased prices between 2 to 3 per cent. Perodua has also announced that it will increase its prices if the Ringgit continues to slide further.
For the average Malaysian consumer, faced with having to pay higher prices for essentials and services, the monthly pay cheque actually has shrunk in terms of what one can buy. As a result, sacrifices have to be made somewhere in the individual or family spending patterns.
Consequently, there will be shifts in demand — basic necessities will take priority. Luxury goods and foods will take second stage, and this applies to cars as well.
The shift in spending will impact on certain segments of the automotive industry — certainly all segments will see some drop in sales volume, with the mid-range priced cars suffering the most. At the top of the heap, the super-luxury cars will see a drop in numbers for 2016.
Super cars and premium cars
The super wealthy are relatively well insulated against price hikes of up to 10 per cent for luxury vehicles — there will still be buyers, but margins across the board will be affected by the weak ringgit means that only the resilient business owners will still be buying. Super car sales may see a drop in numbers.
The premium cars will likely see a shift down to smaller and lower priced models — business people still will want the prestige of ownership, but may opt for less expensive models.
Due to the uncertainties related to the exchange rates, business owners will tend to be more prudent in car purchases, and this will also affect sales numbers in this category.
Mid-range premium cars
This range refers to the premium cars with retail prices of between RM300k to RM500k. We predict a drop in the sales numbers in this category — buyers are likely to migrate downwards, with some perhaps going to alternative and lower-priced models.
Marginal buyers may opt to shift from continental brands to Japanese or Korean makes, which offer relatively large cars for a lot less.
Continental makers who offer locally assembled models or introduce new and lower-priced models are likely to gain some market share.
Medium sized non-continental cars
This category refers to the Japanese and Korean D-segment cars. Where size matters, there will be a shift to cars of the same brand but to lower engine capacities because they cost less in the first place, and there may be some who way shift from Japanese to Korean brands — Korean brands generally offer more features for less money, and a bigger size for a lower price.
While there is downward migration from continental to non-continental, this segment will lose some of its buyers to the next lower segment on account of affordability and buyer prudence — the overall effect is the market size will remain approximately the same or vary slightly at most.
C-segment compact cars
We expect a major shift in the C-segment — The continental makes will see a shift as consumers now turn to Japanese or Korean makes. While this segment will see migration from Continental makes to non-continental makes, it will also lose some of its buyers who would migrate downwards to sub-compacts due to affordability reasons. This segment will remain the same or drop slightly.
Sub-compact cars — B-segment
This category makes up a huge chunk in the sales of automotive cars, and is likely to remain unchanged as it receives downward migration of buyers from the C-segment, but will again lose some buyers due to some of its buyers going for cheaper alternatives.
In this segment, the Korean makes and lower priced models like Proton are likely to benefit in 2016. Some buyers may move to the A-segment.
A-segment and K cars
This segment, made up of the Perodua Axia, the Myvi and the Proton Iriz, is probably going to be the most resilient category.
This segment traditionally gets the bulk of first time car buyers, and will maintain its numbers, at least.
In fact, it may even grow a little, as retirees from the baby boomer era increase and buy city runabouts, as new first time buyers get into the employment pool, and also enjoy some migration from the immediate upper levels.
Overall prediction for 2016
The automotive market is very volatile. While the top end buyers, of which there are relatively few, are quite consistent, the mid-range and the lower end of the market is quite sensitive.
Finance institutions also play a large part — affordability in the Malaysian context (at least for the majority), is about how much is the monthly instalment the buyer has to pay, in relation to his disposable income.
We Malaysians also appear to be quite immune to price hikes — as long as we can afford the monthly payments, it doesn’t matter how long we have to pay.
There are some under-currents insofar as loan approvals are concerned — it appears that in recent times, loan approvals are getting harder to come by, and financial institutions are asking for higher down-payments across the board (including home purchases). Car sales will depend heavily on the availability of hire-purchase loans, which can make the difference as to whether a signed sales order can be converted into a sale.
Car companies, at least for the first three months of 2016, will have left-over stocks from 2015 — expect offers from those car companies that could not meet their numbers in 2015 to offer substantial discounts in the first quarter of 2016, just as they have been doing for the past umpteen years. These offers are genuine, and can be in the form of a direct discount, or as a subsidy for interest on car loans, or even as waivers for down-payment.
For the car companies, it will be a challenge in 2016 — it will be a buyers’ market.