What BMW and Perodua sales data says about the economy

A file photo of Malaysia assembled BMW 320d Gran Turismo, June 2014 — BMW pic
A file photo of Malaysia assembled BMW 320d Gran Turismo, June 2014 — BMW pic

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KUALA LUMPUR, Jan 21 — Earlier this month, BMW Malaysia announced that it sold a total of 10,906 units of BMW, MINI and BMW Motorrad vehicles in 2016 and recorded the group’s best-ever growth in the country.

At the same time, Perodua, the number one national car maker in terms of sales volume, delivered up to 207,000 of its cars up to November 2016, just over 3,000 fewer than 2015 that was its highest.

Its chief executive, Datuk Aminar Rashid Salleh, has also conceded that Perodua is unlikely to meet its target of 202,000 units for 2017 and that it would struggle with an industry-wide slowdown.

What can the sales data of two car makers that compete for two opposing ends of the market — BMW in the luxury segment and Perodua for the medium to entry-level — say about the state of our economy?

As recently as two years ago, economists Lee Hwok Aun and Muhammed Abdul Khalid, in a working paper intended to address some of the shortcomings in the official inequality index (official statistics suggest income disparity in the country was smaller), found that car sales data to be useful “supplementary” indicator of income inequality.

They proposed that sales volume of cars at both the higher and bottom end could provide crucial insight into the spending pattern of the top and bottom income earners in two ways:

First, higher sales volume in luxury cars amid a slowdown in the auto industry — and particularly sluggish sales for the most affordable cars — could suggest that the financial position of the affluent is not affected by the overall slump, indicating higher concentration of wealth at the top.

Lee, former economics professor at Universiti Malaya and now a Senior Fellow, Institute of Southeast Asian Studies, in an email interview with Malay Mail Online said that such data, though not entirely conclusive, could give the public a glimpse of wealth or income distribution among the different social classes.

“Faster growing sales for high end cars alongside slower growth of cheaper brands and models will be consistent with and suggestive of rising inequality — though not conclusive if the 2016 sales growth for Perodua, Proton, Naza, etc. If slower than for BMW and Mercedes, the case that car sales on the whole reflect rising inequality will be supported,” Lee wrote.

Secondly, higher ownership of luxury cars could also suggest a growing number of wealthier households or individuals, while higher sales volume of the cheapest car available meant that the pool of bottom income earners have grown.

Lee noted that the same theory was applied for their research on income inequality that strongly suggested the number of middle class Malaysians were shrinking.

“We computed the share of cars by price range within total sales. So the share of high end rose, indicating concentration at the top. The share of of low end also rose, indicating a larger proportion of car buyers opting for cheaper cars. Correspondingly, the share of the ‘middle’ shrank,” he told Malay Mail Online.

Deeper pockets

The latest sales data from BMW Malaysia and Perodua could consequently be partial indication of a serious underlying problem that may point to a widening gap in income distribution among Malaysians.

The timing of BMW Malaysia’s announcement of its record sales performance could also reinforce such perception.

Retail sales in general have slowed for the past two years, including automotive sales that recorded a 13 per cent decline year on year in total units delivered up to November 2016, according to the Malaysian Automotive Association (MAA).

The MAA tracks passenger car sales records of all major brands, from compact cars, sedans to luxury vehicles, including exclusive models by carmakers such as Mercedes Benz, BMW and Porsche.

CIMB Bank in its automotive sector note published on January 15 this year said total industry volume fell 12.5 per cent year on year to 515,000 units due to weaker consumer sentiment and tightening credit from financial institutions.

The total hire-purchase loans approval lost 3.5 per centage points year-on-year to 52.9 per cent while the total loans applied amount also dropped 9.4 per cent or RM7.7 billion in 2016.

Yet interestingly, the overall slowdown in the auto retail sector excludes the two most popular luxury car makers in the country — BMW and Mercedes-Benz.

While BMW Malaysia posted its highest ever sales growth last year, its rival Mercedes posted record sales for the second straight year in 2016. A total of 9,047 Mercedes vehicles reported to have left its showrooms in the first nine months of 2016, marking a 10 per cent growth compared to the same period last year, according to Malaysia’s leading automotive online magazine Paultan.org.

In 2015, when the local economy appeared to be slowing, Mercedes sold a total of 10,845 vehicles, a record increase of 56 per cent from 6,932 units in 2014.

Today, the cheapest BMW car, the hatchback 1 Series, costs close to RM180,000. Its average sedan, the popular 3 Series ranges from RM205,800 to RM308,800. For Mercedes, the popular C-Class price ranges from RM230,000 to RM290,000.

Based on the sales data, slower economic growth was not affecting all segments of the country equally. While those in the lower income brackets are complaining of rising costs, their more well-off counterparts have been splurging.

“What it indicates is that while the low and middle income earners are experiencing fiscal constraints, it is business as usual for the higher income group,” Muhammed told Malay Mail Online in a phone interview.

Global trend

Putrajaya has so far shrugged off the idea. According to official statistics, the country’s Gini coefficient series shows a downward trend in household income inequality from 2004 to 2012, after which it falls off drastically — the Gini coefficient was 0.46 in 2004 and only dropped by 0.3 per centage point after eight years. But in 2014, it dropped to 0.40.

The Gini coefficient, a figure between 0 and 1, is a widely used, simple and effective measure of inequality. The higher the Gini, the more unequal the distribution. The drop in the official Gini coefficient chart meant the income gap between the different social classes in Malaysia are closing in.

But independent economists felt otherwise. Lee and Muhammed in a research paper entitled “Is inequality in Malaysia really going down? A puzzle explored” said many indicators corroborate public perception that income disparity is widening.

Indicators like the growth in EPF savings, property accumulation, unit trust shares and luxury car sales all suggested that there are growing concentration of wealth among the country’s wealthiest.

By scrutinising EPF savings according to the different income brackets, the duo found that earnings inequality grew between 2004 and 2014, and that the share of the top 10 per cent and top one per cent “slightly but distinctly increased over the entire period”.

“The steep disparity is also demonstrated in that the top 1 per cent of largest accounts hold 15 per cent of total EPF savings, about double that of the bottom 50 per cent, whose share of EPF savings is only about 8 per cent. Therefore, in private sector wages, we find evidence of increasing concentration at the top,” the paper read.

In the public employment sector, the two economists found that the wage share of those in the top management have increased and the disparity vis-a-vis the bottom 20 per cent of the staff had also grown. The finding also corresponds with data on EPF accounts distribution, further supporting the finding that there was a higher concentration of earnings at the top.

Adding to that, the duo noted the sales of vehicles priced RM80,000 and above (in 2005 prices) rose exponentially from 12.6 per cent in 2001 to 18.1 per cent in 2006 and 19.7 per cent in 2011. Vehicles priced RM100,000 also increased overall, from 11.1 per cent in 2001 to 13.8 per cent in 2011. They stated further that reports of rapid growth in luxury brands and compact cars corroborate the findings.

Economists and rights activists worldwide have repeatedly warned about the growing global income disparity and the dangerous increase in the concentration of wealth among a tiny pool of elites, saying the phenomenon reflected a skewed economic system that has helped fuel the growth of right-wing populist movements.

Oxfam, a global anti-poverty group with more than a million members, in a report published Monday local time report said the world’s eight richest billionaires alone, led by Microsoft founder Bill Gates, are worth US$426 billion (RM1.97 trillion), equivalent to the wealth of 3.6 billion people.

Here in Malaysia, Kuala Lumpur is home to the highest number of millionaires (denominated in US dollars) surpassing all other cities of the world, according to a 2014 report by international wealth research group WealthInsight, another indicator that suggests an increasing gap between the richest and the rest of the population.

WealthInsight predicted that Malaysia’s number of millionaires will jump from over 26,000 last year to 30,054 in just four years, with total Malaysian wealth also projected to increase from US$151 billion (RM527 billion) to US$206 billion (RM719 billion) in the same period.

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