New vehicle sales in Malaysia fell 1.8% to 57,437 units in June, compared with 58,561 units a year earlier, according to the Malaysian Automotive Association (MAA). Cumulative H1 sales were 3.3% lower at 322,184 units, compared with 333,156 in the same period last year, with the association pointing to weakening domestic sentiment due to tougher lending conditions and rising inflation.
Passenger vehicle sales amounted to 286,533 units in the six-month period, while commercial vehicle sales reached 35,651 units. The association has lowered its full-year market forecast from 680,000 to 670,000 vehicles in view of the weaker second quarter sales, but this still looks optimistic as it requires an much improved second half performance.
Honda has overtaken Toyota to become the bestselling non-national automotive marquee in Malaysia, based on sales data in Q115. Honda sales jumped 41.7% y-o-y to 22,145 units in the first three months of this year - driven by the jump in sales of its sport utility vehicles (SUVs).
We expect Malaysian auto sales to experience modest growth in 2015 as a subdued economic growth outlook weighs on private consumption. After growing 1.6% in 2014 to 666,465 units, we forecast vehicle sales to rise by 1.9% in 2015 to 678,930 units . A uto production growth will outpace domestic sales growth over the 2015-2019 period as the energy efficient vehicle ( EEV ) policy allows the country to position itself as an alternative production hub to Thailand and Indonesia in the region.
Our Country Risk team expects economic headwinds to come to the fore in 2015 and forecasts real GDP to be 4.2%, which will be a major slowdown from the estimated 5.8% GDP growth in 2014. The implementation of a 6.0% goods and services tax in April 2015, combined with the reduction of fuel subsidies, will constrain domestic consumption as the prices of goods and fuel increase. Consequently, our CR team expects private consumption growth to slow to 3.0% in 2015, from 3.9% in 2014. Against this backdrop, we forecast passenger car sales to rise by a smaller clip of 1.8% in 2015 versus 2.0% in 2014.
While auto sales will struggle to gain traction in 2015 due to flagging economic growth, we believe a certain degree of market saturation is also responsible for anaemic growth over the past few years. Despite GDP growth averaging 5.3% over the 2011-2014 period, auto sales have only seen average growth of 2.5% in the same period, which is certainly a far cry from 12.5% and 12.7% growth by the industry in 2008 and 2010 respectively. With the country having about 40 vehicles for every 100 people, we believe this can be pinned down to a high vehicle density.
The saturated market is likely to weigh on the industry's future growth prospects and, as such, we have become less sanguine on vehicle sales growth over the coming years.
However, we remain more bullish on auto production and forecast output to grow at an annual average of 4.1% over the 2016-2019 period. The country's EEV scheme, which was introduced in January 2014, will assist the country's ambition to become an alternative auto export hub in South East Asia (SEA) and allow auto production growth to outpace domestic sales growth over this period.
While domestic production volumes may never reach those of Thailand and Indonesia, due to the sheer number of auto sector specific advantages these two countries possess, the EEV policy will be crucial in increasing domestic production as it does not have minimum investment or production criteria, unlike similar policies in other SEA countries.