KUALA LUMPUR: The fuel subsidy rationalisation which involves targeted subsidies, may affect sales of both new vehicles, especially diesel-powered pick-up trucks, industry analysts said.
They believe while it will be business as usual for the affordable segment, the fuel subsidy rationalisation will likely hurt the demand for mid-market models.
They also believe the subsidy rationalisation can shift the preference of car buyers.
With the recent announcement of the targeted diesel subsidies, car owners will have to pay more than RM3.00 a litre. In other words, they will have to pay over RM1.00 more than the subsidised price which is currently at RM2.15.
Industry analyst Hezeri Samsuri believes such a significant increase is bound to impact the purchasing patterns of car buyers, particularly those considering diesel vehicles.
Hezeri said the immediate effect is expected to be a slight dip in the sales of private diesel vehicles, especially pickup trucks. However, given the indispensable nature of these vehicles for certain types of work, the impact may be mitigated.
"Pickup trucks are a necessity for many industries, and with 99.9 per cent of trucks on the market being diesel variants, consumers may have no choice but to continue purchasing them despite the higher fuel costs.
"I believe those who want a pickup truck for recreational purposes will start thinking about other options, such as hybrid or efficient petrol-engined sports utility vehicles (SUV)," he told Business Times.
Hezeri said sales of diesel multi-purpose vehicles (MPV) and SUVs will also be affected, but currently, there are only a few diesel options in that market namely from Hyundai, Kia and Mazda.
"Still, if you want a big and heavy vehicle like a pickup truck or a large MPV/SUV, diesel still offers the best fuel economy versus internal combustion engines (ICE), except for hybrids.
"The prices of used diesel vehicles are also expected to see a dip because demand will be slower. This presents an opportunity for those who still want to buy a diesel vehicle, as they can expect bigger discounts from car companies and lower prices for used diesel vehicles," he added.
Last month, the Finance Ministry announced a diesel subsidy aid programme involving a monthly allocation of RM200 for eligible individuals as well as agriculture and commodity smallholders.
The Finance Ministry said owners of private diesel vehicles for individuals, small farmers and commodity smallholders from the B40 and M40 groups in the peninsula are eligible to apply for government cash contributions through the Madani Subsidy Assistance Programme or Budi Madani.
The eligibility criteria for the Budi Madani programme require applicants to be Malaysian citizens and own a private diesel vehicle registered with the Road Transport Department.
The vehicle also must have valid road tax, and the annual income of the individual or their spouse must be RM100,000 or below.
However, luxury vehicles under 10 years old are excluded from eligibility.
Early bird applications will be expected to receive their first cash assistance by mid-June 2024 if they register before June 3.
New vehicle sales in Malaysia, also known as total industry volume (TIV), came in at 57,991 units in April, down 18 per cent month-on-month due to a shorter working month on the back of Hari Raya Aidilfitri.
However, year-on-year (YoY), the TIV still grew 21 per cent, reflecting the resilience of the local automotive industry especially for Perodua, Honda and electric vehicles (EVs).
With the first four-month TIV making up 37 per cent of its full-year projection of 710,000 units (down 11 per cent YoY), Kenanga Research considers the number meeting its expectation.
The firm's full-year projection is a tad lower than the 740,000 units projected by Malaysia Automotive Association.
"We believe it will be business as usual for the affordable segment as its target customers, i.e. the B40 group, will be spared the impact of the impending fuel subsidy rationalisation and also could potentially benefit from the introduction of the progressive wage model," said Kenanga Research's Wan Mustaqim Wan Ab Aziz.
"However, the same cannot be said for the mid-market segment as its target customers, i.e. the M40 group may hold back from buying a new car (or even down trade to a smaller car to cut their fuel bills) upon the introduction of fuel subsidy rationalisation," he added.
Analysts at CIMB Securities expect a softer TIV in the second half of 2024 due to the planned fuel subsidies rationalisation.
However, they expect the introduction of the Employees Provident Fund's Account 3 and civil servants' salary hikes, coupled with an accommodative interest rates environment, to support new vehicle sales.
"We project 2024 TIV to fall 9.0 per cent YoY due to the resumption of sales tax, higher fuel costs in the second half and rising competition from the premium segment following the influx of new EV models.
"This will be partly offset by new launches, especially in the EV segment, and an accommodative interest rate environment to sustain TIV sales in 2024."
In the meantime, they expect the national brands to fare relatively better, with a 4.4 per cent decline compared to a wider 16 per cent YoY drop for the non-national segments due to the affordable offerings and broader market presence.
"Our 2024 TIV forecast of 727,000 will still be marginally higher than 2022 levels of 721,000. Moreover, our 2024 forecast is on the upper end of the street's estimates, which ranges between 625,000 and 720,000 units," CIMB Securities noted.