The Malaysian Automotive Association (MAA) held its annual market review yesterday, revealing the official sales figures posted by its members in 2017 while sharing the club’s outlook for this year. The total industry volume (TIV) for 2017 was 576,635 units, 0.6% lower than the 580,085 units achieved in 2016.

“The local automotive market had remained subdued much of last year. Despite our country’s economic recovery and the aggressive promotional campaigns undertaken by MAA members, sales remained essentially flat in 2017. This can be attributed to inflationary pressures affecting consumers’ disposable income which consequently resulted in cautious spending,” MAA president Datuk Aishah Ahmad said.

It’s not all bad news however. Other than the fact that the decline was just marginal, the overall 2017 TIV was essentially dragged down by commercial vehicle sales. CV sales declined from 65,491 units in 2016 to 61,956 units last year, a drop of 5.4%. Passenger vehicles registrations remained flat, going up by 85 units (0.02%) to 514,679 units. Therefore, it can be said that the overall TIV decline was caused by the drop in CV sales.

2017 passenger vehicle sales remained flat; poor CV sales is the cause of TIV drop

Commercial vehicles include panel vans, pick-up trucks, trucks, prime movers and buses. Pick-up trucks, which are also used in non-commercial applications, is the biggest CV sub-segment with 66.7% of the pie – sales here dropped 7.6% from 44,695 units in 2016 to 41,316 units last year. Slow pick-up sales, along with a 9.4% decline in smaller trucks, contributed to the CV sales decline.

Passenger vehicles are divided into a few sub-segments – passenger cars (sedans and hatchbacks), MPVs, 4WD/SUVs and window vans. Passenger cars declined by 12,323 units (-3.2%) and SUVs went down by 3,670 units (-5.7%), but the slack was picked up by the MPV segment, which recorded a huge 30.4% jump in sales from 56,733 units to 73,968 units.

A check with Honda Malaysia confirmed that its BR-V is officially classified as an MPV, despite the SUV-inspired looks. The BR-V, Honda’s first foray into the budget seven-seater market, was launched in January 2017, giving it a full year of sales. The company shifted over 17,500 units of the BR-V (figure derived from 16% of Honda’s 2017 sales), which is slightly more than the overall MPV segment’s jump in sales (17,235 units).

Honda sold over 17,500 units of the BR-V in 2017, while MPV segment sales jumped 17,235 units

Speaking of Honda, the brand consolidated its position as the top non-national brand in Malaysia and number two overall, only behind perennial market leader Perodua. It sold 109,511 units in 2017, which is both an all-time record for the brand and the first time its sales breached the 100,000 mark. One in five new vehicles Malaysians purchased last year was a Honda, which speaks volumes of the brand’s staggering growth over the past few years.

Production of new vehicles recorded a decline of 45,614 units (-8.4%) to 499,639 units from 545,253 units in 2016. The reason the production volume drop is much steeper than the 0.6% TIV decline is because car manufacturers were quick to make adjustments in production to avoid an overstock position heading into 2018.

Last year was the second consecutive year that TIV has contracted, after six consecutive years of growth up to 2015. But this is not something that the MAA did not expect – while it forecasted a slightly higher 590,000-unit TIV for 2017 a year ago, the automotive club said then that the year would be as challenging as 2016.

Pick-up truck sales declined 7.6% in 2017

MAA is once again forecasting the 590k mark for this year, expecting a small 2.3% growth from last year’s actual TIV. The club arrived at the figure based on combination of macro and local factors. In the global scheme of things, the world’s economy is expected to continue chugging along at a steady clip – the International Monetary Fund projects global growth to increase from 3.6% in 2017 to 3.7% in 2018.

Closer to home, Malaysia’s economy is forecasted to expand between 5% to 5.5% in 2018. That’s pretty healthy, and will be driven mainly by domestic demand and exports. The local economy will also be boosted by the implementation of large infrastructure projects such as the LRT3, MRT2 (Sungai Buloh-Serdang-Putrajaya), East Coast Rail Link and the Tun Razak Exchange.

Of course, there will be challenges, and the expected rise in cost of doing business is one. A combination of the implementation of the Employment Insurance Scheme (EIS), shift of foreign worker levy burden to employers (Employer Mandatory Commitment) and the review of the minimum wage could impact the margins of companies, and the auto sector is not immune to it.

Perodua will be looking forward to the new Myvi’s first full year of sales

For the man on the street, rising cost of living will be his concern. While slightly off the peak, our country’s (still very) high household debt levels (84.6%) will combine with rising costs to restrain consumer spending, especially on big ticket items such as a new car, which is second only to a property purchase in value.

High debt levels won’t do loan approval rates any good, and this is a challenge that Perodua has raised often over the years. On that front, things won’t improve (from the carmakers’ point of view) very soon, as banks are expected to, at the very least, continue being stringent with loan approvals.

One factor is the implementation of the Malaysian Financial Reporting Standards 9 (MFRS 9) starting this year. MFRS 9 requires banks to change the way they make provisions for loan losses. Banks will have to make provisions for future losses once there are warning signs of default, as opposed to the previous practice of only writing it off once the loan is classified as non-performing. It is said that this might cut into the lenders’ margins and make loans pricier/harder to obtain for borrowers with weaker credit profiles.

Mercedes-Benz and BMW both achieved all-time sales records in Malaysia last year

The business community has been expecting Bank Negara to raise the Overnight Policy Rate (OPR) for some time now. The central bank’s monetary policy committee meets this week and if the outcome is status quo, a 25 basis-point hike will come sooner rather than later. The OPR has been unchanged at 3% since July 2016, and a hike would mean higher interest rates for loans.

Also, the government is set to unveil a revised National Automotive Policy (NAP) in the middle of this year. The current NAP was announced in 2014, and the main focus then was on Energy Efficient Vehicles (EEVs). The upcoming blueprint will focus on connectivity, mobility, next-generation vehicles, big data and lifestyle. All very current and very broad terms, so we’ll have to wait for the full reveal.

Subdued it may be, but for certain sectors within the auto market, times have never been better. Premium brands Mercedes-Benz and BMW both achieved all-time sales records in 2017, mirroring the brands’ record sales year globally. For the affluent, there’s no bad time to buy a nice new ride, and there’s also no reason why this premium trend won’t continue in 2018.

Proton’s first SUV, based on the Geely Boyue, is set to surface in Q4 2018

In the mass market, Perodua is looking forward to the new Myvi’s first full year of sales, and has set a 2% higher sales target of 209,000 units for 2018. The market leader has previously hinted at a new SUV model – will a crossover arrive late in the year to supercharge the TIV? Speaking of new SUVs, Proton is set to introduce its first ever SUV in Q4 this year. The CR-V-sized model will be based on the Geely Boyue, a good looking car from Proton’s new foreign partner.

Honda has yet to announce its 2018 sales target, but we won’t bet against the on-form brand with the “challenging spirit” raising the bar yet again. Toyota has a couple of premium Japanese CBU imports lined up, along with the C-HR. The latter has captured the imagination of many, but is priced higher than similarly sized rivals – it remains to be seen if the flamboyantly-designed C-HR will give overall figures a big boost like how the HR-V did for Honda in 2015.

What’s for sure is that 2018 will be another exciting year for new products as carmakers battle it out for our hire purchase loans.