KUALA LUMPUR: Malaysia's new vehicle sales are expected to contract in 2023 as high base effects kick in due to the strong demand for new vehicles in 2022, said Fitch Solutions.
Higher borrowing costs, rising vehicle prices due to the sales tax reintroduction and a slowing economy will all contribute to lower sales figures in 2023.
Fitch Solutions revised its 2022 sales forecast higher due to higher-than-expected sales figures over the first 10 months period driven by a sales tax exemption, an expanding economy and looser movement restrictions.
"In 2023, we believe that new vehicle demand will slow considerably as sales that were brought forward to take advantage of the sales tax exemption that expired on June 30 2022.
"While the sales tax exemption on vehicle sales has lapsed, the Ministry of Finance has issued a grace period for vehicles that ordered before the end of June 2022 but could not be delivered to clients due to the ongoing global chip shortage," it added.
Buyers have up until March 31 2023 to register their vehicles with the Road Transport Department (JPJ) to get the exemption.
In June 2022, there was an alleged 264,000 units backlog across the industry awaiting completion once chips are shipped so that automakers can fulfil the orders.
Fitch Solutions said this meant that demand would deteriorate in the months after the end of the sales tax exemption grace period.
Sales have remained robust as orders continue to be trickled in as monthly sales figures in August, September and October 2022 have exceeded 60,000 units per month, which is significantly above the 2019 monthly average of 50,000 units delivered.
"We expect this momentum to carry into the first quarter of 2023 (Q1). However, sales will rapidly deteriorate from Q223 and onwards.
"We, therefore, expect sales for 2023 to contract by 9.3 per cent to reach around 624,000 units which remains significantly above 2019 levels of 604,000 units."
Fitch Solutions believes passenger vehicle (PV) demand will feel the brunt of the reintroduction of the sales tax.
It expects the segment to register a 9.3 per cent decline in 2023 which follows an expected 35 per cent increase in new PV sales in 2022.
The firm said in the long term, Malaysia's highly indebted consumer - which is due to consolidate over the coming years - would limit growth potential going forward, unless vehicle leasing or alternative vehicle ownership models gained traction in the market.
"The World Bank has stated that Malaysia is set to achieve high-income status (countries that have a gross national income higher than US$12,696 or more as per the World Bank's definition) between 2024-2028, which offers some upside risk to our forecast.
"Accordingly, we forecast Malaysia's vehicle sales market will reach 719,000 units by 2031 as vehicle ownership levels swell beyond current levels."
Malaysian vehicle sales growth, Fitch Solutions added, would therefore achieve a 4.0 per cent annual average growth rate in within its 2022-2031 forecast period.
Source: https://www.nst.com.my/business/2022/11/856210/sales-tax-reintroduction-spells-contraction-malaysian-vehicle-sales-fitch