• MARii

Innovative buyer incentives important in sustaining automotive sales

The Malaysia Automotive, Robotics and IoT Institute (MARii) has conducted a study on the impacts to the automotive sector due to the COVID-19 outbreak, and subsequent Movement Control Orders (MCOs) to curb the spread of the pandemic.

The closure of automotive manufacturers, suppliers, service centres and dealerships have resulted in a virtual halt to the auto sector, particularly in the manufacturing of vehicle and components. Based on a study conducted by MARii, the closures of factories and sales outlets during the MCO will result in an estimated 28 percent drop in Total Industry Volume (TIV) by the end of 2020, if no measures are taken to resuscitate consumer spending within the sector.

"In order to sustain the industry for the year ending 2020, MARii estimates that a TIV of at least 500,000 units is needed, in order to ensure that automotive businesses do not fall into crisis. The year 2020 is no longer a year of profit for the automotive sector, but rather a year of survival”, said MARii Chief Executive Officer, Dato’ Ts. Madani Sahari.

“While it is understandable that consumer sentiment remains cautious due to the current economic challenges, we must also understand that the economy’s sustainability is dependent on consumer spending.”, he added.

Temporary measures have shown an increase in vehicle purchases in the past, such as the previous tax holiday period which saw an increase in vehicle sales by 3.8% (year on year).

Dato’ Madani explained that innovative incentives can be introduced to lower buyers’ commitment to own a car, such as a temporary hiatus on down payments (100% loan on vehicle), reduced loan interest rates and joint-subsidies between carmakers and the government for road tax and insurance for a limited time period.

A combination of the above incentives will remove the burden to buy a car, but do not affect their purchasing power as there will be a negligible difference between the monthly repayment amount for car buyers, at any level or segment.

“For example, a car that costs RM60,000 will incur a 10% down payment (RM6,000) upon purchase and costs the owner RM644 in monthly repayments if interest is set at 3.2% as per the standard rate before the MCO. A 0% down payment, coupled with a reduced interest rate of 2.5% will cost RM680 monthly, a small difference on a monthly basis – but there is no upfront payment that may hinder a buyer from purchasing. The owner also now enjoys the low maintenance of using a new car, and the banking institutions still can ensure its financial services are utilised”, explained Dato’ Madani.

Other innovative mechanisms can also be introduced, such as “subscription-style ownership” – in which a car is leased based on certain conditions from the carmaker (the car is still owned and maintained by the OEM) for a period of time before ownership is transferred to the buyer.

For owners of very old vehicles, voluntary scrap incentives by the carmaker can also be made an option, where the main benefit is a newer, safer vehicle with the latest technology for the new car owner.

MARii believes that it is important to stimulate demand through the introduction of incentives to reduce consumer anxiety and address their concerns in purchasing vehicles, especially when they need to purchase new vehicles to continue on with their daily routines.

There are currently 27 OEMs operating in Malaysia, with 641 parts and components suppliers depending on continued economic activity along the automotive value chain. The automotive sector employs around 700,000 people, which make up a significant portion of the manufacturing sector in the country.

According to a survey by the Department of Statistics, 30% of the manufacturing sector’s workforce has been impacted by the COVID-19 economic slowdown, and are receiving half-pay, unpaid leave, or have lost their jobs.

*Feature image sourced from: feelgoodcars.com

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