anxious
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see http://biz.thestar.com.my/news/story.asp?file=/2010/2/20/business/5708466&sec=business Cutting taxes and better fuel quality will improve luxury car sales in Malaysia.LUXURY automobiles – from the baseline segment that features the popular Mercedes C-Class and BMW 3-series to the super cars such as Ferrari and Porsche – is a small segment of the market but one that understandably evokes the greatest amount of passion.
Datuk Aishah Ahmad ... ‘Despite high duties and lower fuel quality, Malaysia still has the biggest luxury car sales in Asean.’ These machines of luxury are geared specifically for the high-end “self expression” segment. From their breath-taking first impression, awe-inspiring alloy wheels, classy leather-clad interior and top speed abilities, these vehicles make a statement on the status of their owner.The eye-popping price tag doesn’t just reflect its physical appeal though. The package includes comfort, safety and performance, along with all the latest gadgetry typical of luxury cars.Given its lofty pricing (made much more expensive by government taxes and duties rather than the actual cost of making the car), and the general populace’s earning capacity, the luxury car segment will always remain niche.In Malaysia, the annual sales data of luxury vehicles against total vehicle sales reflect exactly that. Last year, Mercedes-Benz Malaysia sold 3,977 passenger cars while BMW, trailing not too far behind, sold 3,564 units.These prestige auto makers make up less than 1% each of the total market share in the country. Total industry volume for 2009 was 536,905, of which passenger cars accounted for 486,342 units. Pricing is relativeCompared with the rest of Southeast Asia, luxury car sales in Malaysia is definitely no small potato.“Other than Singapore due to high COE (certificate of entitlement) costs and Cambodia which imposes higher duties, luxury car prices are higher in Malaysia compared with the other eight Asean countries,” says Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad. “Despite high duties and lower fuel quality, Malaysia still has the biggest luxury car sales in Asean. Reducing duties and implementing better fuel quality will improve luxury car sales in Malaysia,” she says.
Luxury cars as a grouping comprise of different layers but the entry-level segment tends to start from the D-segment. They also prominently feature in the E-segment (Lexus, BMW 5 Series, Mercedes E-Class) and F-segment (S-Class, BMW 7 Series, Audi A8).Cars are generally categorised by certain alphabets to indicate their size. The smallest segment is the microcar followed by the A-segment, or sub-compact. King of the roadFor the established luxury car makers, their volume stems from their entry-level models, or the compact executive car. In this category, the BMW 3 Series and the Mercedes C-Class rules the roost.The BMW 3 Series accounted for 2,025 units while the larger BMW 5 Series sold a total of 1,064 units. Both series’ accounted for more than 75% of the total cars BMW Group Malaysia sold in 2009. However, BMW managed to eke out a small increase from 2008 – no small feat considering the recession that swept the world and Malaysia.For Mercedes-Benz, it sold 1,788 units of the C-Class and 1,228 E-Class cars respectively in 2009. E-Class cars should see their sales rise in 2010 on the back of offers for the latest model but competition will come from the soon-to-be-launched BMW 5 Series.In 2009, Mercedes-Benz Malaysia sold 317 S-Class luxury limos, a dip from 2008’s total of 435.
Based on MAA’s statistics, an analyst estimates that the luxury car segment in the country is valued between RM3bil to RM3.2bil a year. Factor in the grey, or parallel importers, and that figure skyrockets to between RM4bil and RM5bil.“It’s also very defensive in nature,” says OSK Research auto analyst Ahmad Maghfur Usman. This has been demonstrated by the annual sales of the leading luxury makes in the country.Not all display the same characteristics; for some makes, sales tend to fluctuate up and down. Others are steadier. “The luxury car market serves a niche segment,” Ahmad adds. A tidy segmentFrost & Sullivan partner and automotive and transportation practice head for Asia Pacific Kavan Mukhtyar points out that the luxury car market in Malaysia accounts for less than 2% of total passenger vehicle volume in 2009.“Given the high import taxes, the number of consumers that can afford luxury vehicles has not grown substantially. If the prices remain high, it will continue to be a niche market,” he says.With a market volume of around 9,000 units annually, Mukhtyar points out that competition in the segment is quite intense.“Companies like Volkswagen and Lexus are focusing on this segment to increase their market share,” he says.Sales of luxury vehicles tend to be linked to features and new models and not so much economic factors.“In 2009, while the total industry volume declined, the luxury vehicle market went up by around 2.5%. In 2010, it is expected to be a year of moderate growth of around 5% to 7% for the luxury segment,” he says. Better sales in the segment can be expected from a rebound in economic growth and wealth. Driving salesA robust stock market and higher corporate profits will put more money in the pockets of people who acquire such luxury vehicles. Coupled with launches of new models in the segment, sales are expected to shift upwards.“The luxury car market will perform well this year as the economy has improved and companies are profitable with improved consumer confidence,” says Aishah.“Even with the financial crisis, luxury car sales had improved in 2009 compared with 2008. Those who can afford luxury cars are not affected as they have the means to buy such cars.”The segment’s appeal can also be much wider if punitive taxes on luxury cars are reduced.“To attract investment, volumes need to grow rapidly. This can be achieved if taxes are reduced,” says Mukhtyar.At present, luxury car makers get some tax reprieve if they locally assemble their cars. Mercedes-Benz and BMW are engaged in local assembly of not only their bread-and-butter segments but also their top of the line models.Lower taxes from local assembly have kept the selling price of such vehicles within reach of a larger portion of the population.“Lowering duties will improve luxury car sales. This was seen many years ago when duties dropped from 300% to 200%, a sales increase of 100% was registered,” said Datuk Mokhzani Mahathir, a shareholder of the Porsche franchise in Malaysia.As Mokhzani points out, the winner from a lowering of taxes and duties is not only the consumer, but the Government also.“The increased car sales means the Government collects more taxes and we don’t become dumping grounds for other countries’ old cars,” he says.Mukhtyar concurs, saying that if import duties are lowered, more investments will pour into the luxury segment. This will result in increased volume and competitive pricing.A reduction of import taxes and duties on luxury vehicles might face severe inertia considering it is a big source of revenue for the Government, which is dealing with lower oil revenue and slower economic activity in 2009. Cutting taxes?A roadblock to reducing vehicle duties and taxes is that the Government needs as much money as it can lay its hands on as its objective now is to cut deficit without severely limiting its spending efficiency.Nonetheless, the Government has been proactive by providing luxury car makers more leeway by removing the restriction on new manufacturing licenses for cars above 1,800cc.That was done last year when the International Trade and Industry Ministry revised the National Automotive Policy (NAP), where one of the objectives was to see an increase in investment in the automotive industry.“The NAP laid the overall framework for attracting investments in luxury vehicles. However, the luxury vehicle volume in the Malaysian market is quite limited and a lot more needs to be done to attract investments and encourage localisation,” Mukhtyar says.He thinks a targeted campaign, in partnership with the supplier industry, is needed to increase luxury vehicle production in Malaysia.Apart from taxes, another impediment to the luxury vehicle market is the country’s poor quality of fuel. Luxury car manufacturers have repeatedly mentioned that the low quality of fuel, especially diesel, is hampering the introduction and sale of the latest diesel-powered luxury vehicles which can give tremendous mileage on a litre of fuel.
