Thursday, 21 January 2016

Driving through local and global economic bumps


Looking back, Malaysia automotive industry was not affected during the global economic downturn due to financial crisis in 2008-2009 as much as when compared to the East Asian financial crisis that occurred in 1997-1998.
This factor demonstrated that depending on the cause some sectors of a nation economy may endure economic downturns.
Domestic car sales figure for 2014 and 2015 were around 666,000 and 667,000 respectively.
The indicative of the fact that the local automotive market remain stable in 2015 despite unfavourable economic situation which started sometime late 2014.
However what in store for the year 2016 and the coming years is not that easy to predict as the global economy, affected by the US interest rate issue and China's declining GDP, seems willpersist. In addition 2016 would be a very challenging year for the country following the decline in the price of crude oil and the depreciating Ringgit.
Observations made during the last few economic downturns shows that fall in "Total Industry Volume (TIV)" in the vehicle market ranging from 10 per cent to 40 per cent, according to country and region, has proved detrimental to the automotive industry. Henceforth the appropriate strategy to ensure the sustainability of the local automotive industry during economic downturn is to maintain, or increase, its annual TIV figure.
While local car makers can contribute as best as possible by producing quality vehicles at affordable prices, on the other hand consumers should continue to support the locally produced vehicles with higher local contents.
Ability to sustain the TIV will secure local vendors with economic production volume to remain in operation supplying parts and components, and even substitute those imported parts saving Ringgit foreign exchange.
However, vendors must be efficient and competitive to ensure parts and components are manufactured at the lowest price possible and this can be achieve by strategizing new and lowering breakeven point of their respective operation.
Capacity utilisation needs to be stringently scrutinised and accordingly trimmed to reduce breakeven point.
Vendors at all levels, or tiers, should revisit their respective business plan and dynamically incorporating new market scenario in accordance with the economic situation. Quick reaction on any unfavourable event that may occur will secure the respective company's sustainability.
To help sustain the TIV figures during this economic downturn short term review on the taxation scheme by the authority is favourable directing towards ensuring more dynamic market condition and vehicles pricing with incentive to increase local content procurement.
Financial institutions have a major role to play by providing attractive rates for new car buyers with practical and reasonable loan terms and conditions during this trying time to assist in the TIV achievement by the automotive industry.
Promoting locally produced parts and components by repair and maintenance workshops are equally important to assist in increasing the production volume of local parts and component by the local vendors.
Imported parts may no longer be competitive with the current Ringgit depreciation, however customers preference are the determinant factor to ensure locally produced parts are installed in their vehicles without which the effort to increase locally produce volume may be futile.
The ability to maintain the employment of the current workforce will also help ensure that the automotive industry remain competitive in capturing future automotive businesses in the regions.
All these measures can help sustain the local automotive industry during periods of economic uncertainty.

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