`Buyers likely to go for cheaper, smaller cars'

Publication: NST

Date of publication: Jan 7, 2014

Section heading: Business Times

Page number: 004

KUALA LUMPUR : CHEAPER and smaller cars will be the order of the day as the government cuts subsidies and implements the goods and services tax (GST), a research firm said.

Hong Leong Investment Bhd (HLIB) Research Division said consumers will likely trade down to cheaper and smaller vehicles following the GST implementation and subsidy cuts.

The "down trading", the firm noted, will benefit national car brands Proton and Perodua, which dominate the small car segment.

HLIB Research, however, said if affordably priced, the public will still opt to buy cars, regardless of their size, due to the poor public transport infrastructure.

On the issue of end of life vehicle (ELV) policy, HLIB Research said the government is unlikely to implement it in the upcoming National Automotive Policy. Instead, compulsory annual car checks for old cars to determine their road-worthiness can be introduced.

The revised NAP, the firm said, will focus on restructuring the whole automotive ecosystem, supporting the efficient energy vehicle policy (EEV), to position Malaysia as the regional EEV manufacturing hub.

The government is likely to give various incentives and support to existing and new original equipment manufacturers that bring EEV technology into the country.

HLIB Research noted that while the potential exports to regional markets is seen as a plus point, stiff competition among the manufacturers will affect margins, especially foreign marques that import raw materials in the US dollar.

The firm maintains its "overweight" outlook on the automotive sector with Proton owner DRB-HICOM Bhd (target price RM3.38) and MBM Resources Bhd (target price RM4.52) being its top picks.