Thursday, 17 September 2015

Is now the best time to consider buying a car?

IT was recently announced that Malaysia has maintained a steady growth rate in the second quarter of this year, with gross domestic product (GDP) at 4.9 per cent.
Although there was slight reduction in the second quarter GDP figure as compared with the first quarter (5.6 per cent), economists are confident that the nation may attain a GDP of between four and six per cent this year.
It is comforting to note that despite the current global economic turmoil and the ringgit’s devaluation, the nation’s GDP remains positive.
In contrast, when compared with the 1998 currency crisis, where Malaysia’s economy was badly affected, GDP growth slipped from 7.7 per cent in 1997 to -6.7 per cent in 1998.
The ringgit weakened from RM2.50 against the US Dollar to a lowest value of RM4.88 on January 7 1998.
Similarly, the 2008 financial crisis caused by the collapse in export demand to the US, has slowed down Malaysia’s GDP from 4.6 per cent in 2008 to -1.7 per cent in 2009, but the local economy recovered before long to post a GDP of 7.2 per cent in 2010.
Despite the uptick in the GDP figure noted earlier, the administration is not resting on its laurels in the face of the current global economic downturn and the depreciation of the local currency.
The recent formation of the National Export Council (NEC) is one proactive initiatives to help steer the nation towards better economic performance under current global and domestic economic conditions.
The automotive sector is one of several economic sectors to be promoted under the NEC.
The platform is expected to assist in the enhancement of automotive related activities in export requirements such as testing, market access and business matching among industry players.
The National Automotive Policy, NAP 2014, has prescribed various assistance for automotive vendors in strengthening their production activities and to exploit export potentials for their output.
It is during these trying times that is best for the vendor community to take a step back to re-evaluate their respective business plan and to reinvigorate their plans towards export diversification.
Focus on enhancing the vendors’ competitiveness remains the prime objective of the NAP and it is best with the current slowdown that industry players are to focus on extending more activities towards competitive enhancement within their respective organisation.
Competitive enhancement is a continuous effort and is generally "easier" to achieve during difficult times as people are more focussed on their job performances.
They are more dedicated towards their work responsibilities so as to remain relevant to the company given the economic slowdown and hence possible job redundancies.
Psychological factors are at play in the sales and purchase of vehicles between consumers and automotive manufacturers during this trying time.
On one hand, consumers tend to be pessimistic towards vehicle purchase for fear that the economic uncertainty may affect their purchasing power and house hold expenditure.
On the other hand, vehicle manufactures are responding to this consumer sentiment with highly geared vehicle sales promotions and plentiful of interesting gadgetry and discounted offers.
This is the best time either for the first-time car buyers or replacement car purchasers to consider the benefit the promotions have to offer.
Higher safety standards, good comfort and many security features are the forefront of those offers which can be excellent bargains.

Thursday, 10 September 2015

Global currency devaluation in transitional stage?

The current global economic turbulence is attributed to two primary causes, namely China's surprise devaluation of Yuan and the possible interest rate hike by the United States Faderal Reserve soon.
China had been the consumer market for many emerging economies, and Malaysia included. The nation current economic and industrial activities have slowed down affecting commodities export of the smaller economies round the globe.
On the other hand the desire to implement interest rate rise by the US, as its economy has significant recovered and has hence strengthening of the Dollar, has led to devaluation of many currencies round the world.
These respective occurrences by the two world large economies; one is trying to balance its economy while the other trying to normalise its fiscal policy have created a significant uncertainty in the global economy.
Although the phenomenon is transitional the situation has rendered difficulty for most governments to manage their respective economies.
The declining oil prices have exerted pressure on Malaysia’s economy, which indirectly contributed to the depreciation of the ringgit.
Analysis shows that the Ringgit has the highest correlation with oil as compared to major Asian currencies.
In addition heavy attrition of equity and bond markets, due to investors’ interest in the promising US expanding market and interest rate rise, continue to further down weigh the Ringgit.Other factors such as; drop in commodity prices, slowerTRADES among emerging economies, outflow of foreign funds, selling of foreign currencies by emerging economies, increasing in household debts and market sentiment are amongst factors that contributed to the devaluation of the Ringgit.
Other factors such as a drop in commodity prices, slower trade among emerging economies, outflow of foreign funds, selling of foreign currencies by emerging economies, increasing household debt and market sentiment are aming factors that had contributed to the devaluation of the ringgit.
Meanwhile, economists are of the opinion that the repeat of the Asian financial crisis of the 1997 is not likely due to the experiences gained by most of the Asian governments.
Most of the Asian nations are now having largerFOREIGN EXCHANGE reserve, practicing floating-rate regime and financial system that are better managed and more robust.
The financial meltdown, akin to 2008 episode too is not likely due to the fact that global banking system nowadays is much healthier that was prior to 2008.
Economists are also of the opinion that there is clearly a severe misalignment in the value of the ringgit, in term of its fair value or in economic term the “fundamental equilibriumEXCHANGE RATE”.
The Ringgit, which is being backed by strong underlying domestic macroeconomic fundamental, is expected to revert to its equilibrium fair value of between RM3.50 to RM3.70 to a US Dollar in the medium term as the market pressure began to subside.
The local automotive industry may draw some benefit by the recent depreciation of Japanese Yen counter balancing the Ringgit depreciation.
Japan has been undergoing slow growth constraint by its high public debt. The Yen, which have been weak for nearly six years against the US Dollar, is expected to further devalue as the US increase its interest rate soon.
The Yen devaluation could bring benefit for some local vehicle distributors and assemblers with lower cost of imported parts and components from Japan.
However for those automakers with most of its parts and components outsourced outside Japan or dominated in US Dollar little benefit is foreseen from the Yen depreciation.
Therefore there is a need for local automotive players to evaluate the impact of currency devaluation of both the Ringgit and the Yen with respect to their parts and components supply for greater benefit of the local automotive industry, while the value of ringgit remain transitionally low.

Thursday, 3 September 2015

Automotive players should strive to be independent

Traditionally Original Equipment Manufacturers (OEMs) were dominant over the entire automotive value creation, including development and production of parts and components, system and modules integration, vehicles assembly, sale and marketing.
Generally suppliers were dependent on the OEMs only to be involved in the hierarchical tier system relationships, manufacturing parts and components and to a certain extent modules and systems assembly, whilst the OEMs assumed the whole vehicle integration responsibilities and the final assembly.
In recent years the mods operand of automotive manufacturing has changed. OEMs main activities are now centered on vehicle conceptual design and assembly, branding and downstream activities, while engineering design and development, parts and components production and assembling of modules and systems are outsourced to automotive suppliers and service providers.
The suppliers’ value creations within the automotive manufacturing ecosystem have since increased substantially and consequently the so-called tier zero (0) suppliers or “little OEMs” have now emerged in the automotive supply chain.
The new manufacturing scenario has somewhat freed the automotive supplier from totally dependent on the OEMs to becoming free enterprises able to innovate their products to the full extent of their abilities in support of the OEMs parts and components, modules and systems requirements.
However, this new approach requires tighter cooperation between OEMs and suppliers requiring higher levels of process integration, from product design and engineering to supply chain and quality management on the part of the suppliers.
The above evolution of the automotive industry within the local vicinity will depend largely on the development of the local automotive parts manufacturing sector. The OEMs outsourcing trends will be influenced by the availability of local suppliers of competitive-cost but high quality parts, which are also able to take responsibility for product R&D, design and development, tool-making, manufacturing and testing.
The onset of the regional integration of the ASEAN Economic Community (AEC) will open up larger automotive market opportunity for most OEMs in the region and as such demand for parts and components, modules and systems from the supply chain.
Therefore, the upgrading of the local automotive parts and components industry by focusing on capabilities and identifying future strategic development path is crucial for Malaysia to participate in the regional and global automotive growth.
Generally many of the local automotive parts manufacturers are not linked to OEMs from equity stand point but remain dependent on, and to a certain extend dictated by, the OEMs for their businesses. The keiretsu mentality of the local suppliers is minimal, which is an advantage, and as such developing some of the local vendors to tier zero (0) status may not be impossible.
However, on the part of the local suppliers strategic planning in setting the right direction towards becoming a regional independent parts and components manufacturer and module integrator must proceed. Capability along the supply chain in areas of R&D, design and development, tool design and making, manufacturing processes enhancements and testing must be inculcated and expanded.
Local vendors must continuously perform bench-marking exercises to provide better products to customers.
The way forward is that the industry players must be able to accommodate global platform in their manufacturing capabilities and are able to develop strategic regional plan and direction and execute them effectively to face the challenges ahead.
The inspiration is for the local vendors to be able to attain the status of indigenous “little OEMs”, in parallel to that of Proton and Perodua, capable of supplying parts, components, module and integrated system independently within the automotive supply chain.