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Car industry won’t hit saturation point [11-01-2011]  
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This is due to regular new car models and stable economy

PETALING JAYA: There are concerns that the local automotive industry, which has been on a rapid up and up in terms of total industry volume (TIV), may hit a saturation point in time to come.

Industry players and observers are forecasting that for the first time ever, Malaysia's TIV will breach the 600,000-mark in 2011. But can such a growth sustain in the long term, if at all in the medium term?

A saturation in the Malaysian automotive industry would mean that local car companies, especially the national makes, will need to look elsewhere to enjoy continued sales growth.

Proton Holdings Bhd and Perusahaan Otomobil Kedua Sdn Bhd (Perodua) are already looking to expand their presence overseas.

An analyst says the implementation of a vehicle end-of-life policy, higher exports and the lowering of car prices will help the industry avoid a saturation point.

Recently, it was reported that Proton was looking to enter the Indian market while Perodua was aiming to penetrate Thailand and South Africa.

However, with new (and exciting) vehicle models being introduced into the Malaysian market on a regular basis, coupled with a stable economy and positive consumer sentiment, stable growth can be achieved and saturation avoided, according to analysts.

An analyst from a local bank-backed brokerage believes that the Malaysian automotive industry is not at a saturated point yet.

“We're good at least over the next five years. Of course, this is based on current trends and conditions although, going forward, we may potentially see a change in the industry landscape, be it positive or negative,” he said.

Positive issues would include the implementation of a vehicle end-of- life policy, higher export contribution that would ultimately improve economies of scale and the lowering of car prices, he added.

Frost & Sullivan partner and automotive and transportation practice head for Asia-Pacific Kavan Mukhtyar said the local automotive industry still had plenty of room for growth.

He said economies with a young population would generally provide an impetus for growth for the automotive segment.

“The industry has headroom for growth, due to the demographic structure of the country. About 40% of the population is below 20 years of age,” he said at the company's annual automotive outlook last week.

Kavan does not think that TIV of 600,000 units “will be the ceiling” in terms of growth.

“I think growth in 2012 will be more moderate and than improve again in 2013 and 2014,” he said, adding that Malaysia still had a good growth trajectory for at least the next five to seven years.

“It depends on whether the country can continue to attract foreign direct investment (FDIs) and there is sustainable economic growth.”

Kavan added that any protective policies in the local automotive industry should be removed on a gradual basis so that the industry could adapt to any of the changes.

An analyst from a local bank-backed brokerage said continuous liberalisation within the local automotive industry would attract more foreign participation in the country and, ultimately, FDIs.

“As more players come in and set up base here, they can manufacture their latest models locally and sell it at a cheaper rate. Cases in point are Naza and DRB-HICOM that will be producing Peugeot and Volkswagen models respectively,” he said.

“Models that are cheaper will spur sales and this can help prolong saturation.”

He also said collaborative efforts between local and foreign entities would help create new job opportunities and spur consumer spending.

Another analyst said there was a close co-relation between gross domestic product (GDP) growth and TIV. OSK Investment Research in a recent report put it (the connection between GDP and TIV) at 90%.

“As long as there is good GDP growth annually, TIV should see an increase as well,” she said.

On another note, Kavan expects sales for hybrid cars to really pick up in 2012. “We foresee more growth in 2012, especially with the launch of Proton's own hybrid vehicle which is expected later this year,” he said.

“Right now, many customers are still skeptical and waiting to see what the benefits of hybrids are. As more people buy these cars, undertanding and appreciation of its benefits will also increase.”

He added, however, that the demand for hybrids would depend on whether the Government's exemption on excise duties for such vehicles was extended further. For now, the exemption is until end-2011.

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