The tepid auto sales in May does not come as a surprise given the wait and see stance adopted by potential car buyers ahead of the general elections. We believe policy continuity and stability will minimise industry upheaval as car prices are gradually reduced. Auto sales are expected to normalise in the months ahead, helped by low interest rates and an attractive new model pipeline. BUY Tan Chong and DRB-HICOM.  

- Wait and see. According to data from the Malaysian Automotive Association (MAA), total industry volume (TIV) for May reached just 49,634 units, slumping 14.9% y-o-y and 5.4% m-o-m. However, cumulative TIV remained in positive territory with YTD sales of 259,787 growing 6.2% y-o-y. The tepid May sales data should not surprise the market given the wait-and-see stance adopted by consumer in the run-up to the general elections. The election manifestoes of both coalitions had expressed intentions to lower car prices. The cumulative YTD gain is attributable to the low base arising from supply constraints and implementation of stricter 2012 financing guidelines.

- National cars lead market lower. A closer analysis of the May sales data reveal that Honda, Toyota and Nissan performed fairly well. While car sales were generally softer throughout the broader market, the bulk of the m-o-m decline can be attributed to weaker sales at both Proton and Perodua. While Perodua is eking out some market share gains, Proton has slipped below 21% share. One interpretation of the sales pattern is that potential national car buyers are waiting to see the quantum of price reductions for non-national vehicles.

- Big Three non-nationals holding steady. Toyota, Nissan and Honda sales were quite steady in May contrasting with the weak market undertone. This is likely due to the strong model range all three marques offer. Significant new model launches scheduled in 2H13 will continue to cement their dominance in the non-national segment

- Outlook. The MAA’s forecast for Jun sales to be slightly higher m-o-m due to upcoming festive promotions. The Government’s plan to gradually bring down prices over a five-year timeframe is expected to maintain stability in the market. Discounts offered to date involve an effective price reduction from an improvement in vehicle specification, warranty terms and servicing package at no extra cost. The “price reductions” have tended not to involve an outright reduction in vehicle list price that has positive implications for used vehicle residuals. Our base case expectation is for sales to gradually normalise and move higher in 2H13 as consumer expectations for significant reductions in car prices gradually moderate. 

Source: RHB