THE motor vehicle industry is seeing the light at the end of the tunnel. Many industry players and analysts foresee sales picking up in the second half of the year.

They cited improving consumer sentiment due to a better economic outlook, the implementation of the Ninth Malaysia Plan, launches of new car models, slight easing of hire-purchase financing, better inventory controls and a stabilisation of used car prices as catalysts to jump start the car market again.

In fact, the Malaysian Automotive Association (MAA) has forecast car sales to rise slightly this year to 500,000 units from the 490,768 units sold in 2006.

Optimism aside, it has to be noted that the vehicle market in Malaysia is at its saturation point, with vehicle ownership penetration rate among the highest in the world.

An analyst with a local stockbroking firm said: “How many cars can the market absorb, especially after record car sales in 2004 and 2005? Such momentum is not sustainable, so it was no surprise that sales fell.

"Moreover, it is still too early for the replacement cycle to take place for those who bought cars in 2004 and 2005, as the normal replacement cycle is four or five years," he said.

Auto players also will not have an easy time overcoming the issues dogging the industry for the past year. A major grouse is the increasing costs of owning a car – rising petrol prices and increasing toll rates, to name a few.

Car buyers were sent reeling as the price of petrol rose 30 sen per litre in the past year alone while toll rates jumped 30% to 70% for five Selangor highways this year.

Lower prices of new cars due to the reduction in import duty for vehicles from Asean countries and the lowering of excise duty for almost all types of vehicles under the National Automotive Policy (NAP) resulted in a plunge in used car prices.

This struck another blow to the industry as car owners, faced with low trade-in values, found it less affordable to buy a car.

Heavy discounts and promotions to boost sales and clear existing stocks by car companies made matters worse by driving margins and used car prices down further.

Expectations of a further reduction in new car prices have also resulted in car buyers holding back their purchases. The lower used car values made financial institutions (FIs) more cautious in hire-purchase financing as they now face the possibility of bigger losses on repossessed vehicles.

In addition, the borrower's option to trade in his vehicle becomes less viable as the outstanding balance for the loan is higher than the residual value of the vehicle. Effectively, this forced banks to focus on high net worth and quality customers.

The Federation of Motor and Credit Companies Association of Malaysia president Datuk Tony Khor said the country's used car industry had lost "hundreds of millions of ringgit" from falling used car prices and sales.

"We managed to clear some stocks last year but still have about 200,000 units in hand. “Sales have dropped to 30,000 to 40,000 units every month from the 50,000 to 60,000 during the good times," he said.

Khor is calling for the scrapping of old cars and export of used cars to spur car sales as well as special loans to used car dealers to enable them to continue with their business.

An industry observer feels that there should be a period of rationalisation and voluntary restraining policy for all distributors, assemblers, manufacturers and importers of passenger cars in order for the industry to recover.

"This should continue until the high inventory situation improves and heavy discounting of prices stop," he said.

There should also be a way to assist the used car market to dispose of their inventory so that new vehicle sales can continue with trade-in vehicles. The observer suggested that FIs support used car sales by providing financing at similar rates as that of new cars. “This will encourage and revive the used car market."

He believes the Government should also explore the implementation of a compulsory vehicle scrap policy and more stringent tariff barriers to reduce the influx of used vehicles and cheap inferior products into the country.

Edaran Tan Chong Motor Sdn Bhd executive director Datuk Dr Ang Bon Beng would like to see more supportive measures from the Government.

"This include stopping further importation of reconditioned used vehicles and a confirmation from the Government of no further changes in tax exemptions for the auto sector," he said.