The automotive industry is set to cruise ahead into 2011 despite challenging times, after recording a stellar volume this year.

But industry experts remain cautious that 2011 will not be another bumper year.

At the Kuala Lumpur International Motor Show 2010, it was smiles all around as the industry was delighted by a record total industry volume (TIV) growth of 13.8 per cent for the 11 months period to November, bolstered by positive consumer sentiment and better economic landscape.

An analyst from a local stockbroking house expected TIV for 2010 to finish an average 9.7 per cent growth, year-on-year, driven by new model launches.

Costs were well contained due to economies of scale as margins widened owing to the strengthening ringgit despite a mild increase in steel prices, the analyst said.

Moving forward into 2011, the industry is set to strengthen gradually but at a modest pace, in line with regional and global auto demand recovery, in view of several rounds of interest rate hike and higher petrol prices.

OSK Research expected TIV of new motor vehicles to grow five per cent in tandem with the Gross Domestic Product (GDP) growth, which was projected at 5.8 per cent.

The replacement cycle for new vehicle purchases typically lasts three to four years, which would reflect the positive year-on-year growth in TIV before a decline kicks in.

In a research note, OSK said the model pipeline slated for launch could boost demand particularly for Perodua Myvi and Proton Persona replacement.

It forsees limited risk of any further upside in hire-purchase rates, which was already high, given the government's effort to push loans growth due to the deceleration in economic growth.

Another analyst said although industry players, such as UMW, introduced a hybrid line-up in their stable after the 100 per cent exemption on excise duty and efforts to promote hybrid cars, there is unlikely to be a big shift toward this direction.

Proton is slated to launch its hybrid version of the Exora as early as 2012 but some remain skeptical of the time-line for mass production.

Auto parts firms are expected to see respectable earnings growth benefitting from the upcoming Myvi replacement and the setting up of a regional manufacturing base by Volkswagen and Peugeot, the analyst added.

Elsewhere, Proton will be watched closely with efforts to lift its sports car unit, Lotus Group, which will invest a substantial sum for its involvement in Formula 1 as title sponsor and part owner of Lotus Renault GP team.

Meanwhile, the Lotus Racing Formula One team, owned by Airasia''s Datuk Seri Tony Fernandes has initiated legal proceedings against Proton over the use of the name Lotus.

In January, the British High Court will hear and decide as who has the right to use the name Lotus in the next season of F1.
Then, there is the status of relationship between Proton and Perodua.

The industry is awaiting the decision by the authorities after a study on whether to merge both entities or to have them cooperate through other arrangements.

On the other hand, MIDF Research was not so positive and projected TIV to see a slight dip in sales of -1.6 per cent, year on year, as car sales momentum stabilised in the second-half of the year, suggesting a flattish growth prospect that could stretch into 2011.

Research Senior Vice President and Head of Research Department Zulkifli Hamzah said the industry was not expected to remain vibrant as the market was heading into a consolidation phase with TIV estimated to be flattish at best.

He said interest rate remains friendly but he did not discount the possibility of interest rate hikes in the second-half that could be a major dampener to sales.

Interest rate movements and stringent bank approval criterion will impact low-mid income bracket consumers of the national car companies which make up about 70 per cent of total vehicle sales in Malaysia.

Zulkifli said the fact that banks were offering higher interest rates for national car models was testament of the inherent default risk in this particular segment.

A dip in the sale of national car models will have a significant bearing on the industry TIV, he said.

MIDF does not expect another bumper year in 2011 as the replacement cycle, commonly defined as five years, is ending.
The previous high was in 2005 and what happened this year is a cyclical repeat of the peak.

Throughout the year, DRB-Hicom and Naza managed to lure European partners like Volkswagen and Peugeot, respectively, into committing more investments here from 2011 onwards as part of efforts to make Asean an export hub.

Tan Chong is keen to expand its commercial vehicle market to Indochina and the Brunei, Indonesia, Malaysia and Philippines-East Asia Growth Area. -- BERNAMA