Investment Highlights

We embarked on a tour of car showrooms throughout town over the weekend, and along the way, we caught up with a friend deeply entrenched in the world of auto financing and another in the used car trade. Here are a few reflections amidst the banter amongst old friends.
 

• The auto market is on a steady pulse
  
  The health of car sales remains robust year-to-date. While it may not rival the record-breaking heights of 2023 – a year we all acknowledge as an outlier – it is good enough to keep the folks in the car showrooms in a state of relaxed confidence. Applications for car loans and their subsequent approvals maintain a healthy pace.
  
  The spotlight shines brightly on Perodua, especially its popular Myvi model. Demand for these vehicles is very strong, with backlog that stretches back to the previous year. The rush to purchase is fuelled by necessity and lingering fears of potential further increases in the overnight policy rate (OPR), which would elevate the cost of car ownership.
  
  Perodua and Proton cars stand as the stalwarts of the lower to middle-income demographic. For this segment of society, these vehicles are not just discretionary items but rather consumer staples. What matters most to them are the monthly instalments. Approximately 80% of Perodua and Proton buyers opt for a 9-year loan term, and many would stretch even further if allowed to. The balance of their financial equilibrium pivots on the prevailing interest rates.
  
  The common folk are closely monitoring the OPR, as their economic well-being beats in sync with it. It is a factor that the current government cannot afford to overlook. Bank Negara will has maintained its OPR rate unchanged at 3.00% since May last year.

• Used car market seeing healthy volumes, but at lower selling prices
  
  My friend in the used car market is not complaining either. There were surplus car stocks last year as consumers preferred to buy new cars. However, towards the middle of 2023, some car manufacturers faced supply chain snafus, resulting in a lower number of cars produced. This has led to spill over demand into the used car segment. Sales are strong, but mostly for the affordable car segment, particularly the Japanese and domestic makes.
  
  There is a growing trend where big displacement engine cars are being avoided. Owners are trying to unload them, but there are very few takers. The impending fuel subsidy rationalisation is stated as a possible reason, as it will be cost exorbitant to quench the insatiable thirst of these big petrol guzzlers.

• BEVs are the hottest thing on the showroom floor
  
  In nearly every showroom I ventured into, I could not help but notice that people spent the majority of their time ogling and admiring BEVs. Some people were deeply engrossed in contemplation while perusing the brochures, likely crunching numbers on fuel savings versus electricity costs.
  
  It is undeniable that BEVs are the "in" thing now, particularly among the T-10 society. They are seen more as toy cars rather than workhorses, something to covet and enjoy for those occasional weekend sprints. Of all the EVs that were snapped up, customers opted for 5-year loan duration, and some customers simply paid cash outright, which is the hallmark of the T-1 elites.
  
  I was told that customers enter the showroom with a firm resolve to make a purchase. They will attempt to haggle or finagle their way into discounts. For the salesman, it is like selling candy to a baby. This is understandable given the copious number of fine-looking BEV models on display. Furthermore, generous tax exemptions (excise duty, sales tax road tax) make an absolute bargain for high society to purchase a BEV.

• Certain high value cars are not doing well
  
  Cars that are favoured by what I affectionately refer to as the "3Ts" (towkay, tycoon and taiko) find themselves in a state of disarray. Currently, there is a dearth of sales in what used to be a market where cars were sold out even before reaching showroom floors.
  
  Reasons for this predicament include dwindling business fortunes, necessitating frugality and a desire to fly under the radar as LHDN (tax authority) intensifies its efforts to audit companies. This is a niche market with low volumes, but the profit margin and absolute profit are not small peanuts. 

Source: AmInvest Research - 8 Mar 2024