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PROTON EDAR DEALERS ASSOCIATION MALAYSIA
Press Release

“THE SECOND FINANCIAL STIMULUS DID NOT ADDRESS THE CURRENT PROBLEMS OF THE AUTOMOTIVE SECTOR”

MARCH 2009, KUALA LUMPUR. “PEDA is grateful the government recognized the importance of the automotive sector with the allocation of RM200m to the Automotive Development Fund. However, PEDA appeal for transparency and a fair distribution to the respective value chain in the network.” said Armin Baniaz Pahamin, Acting President Proton Edar Dealers Association Malaysia (PEDA).

1. Every stakeholder in the value chain from the manufacturer, distributor, vendor and the dealers made up the automotive eco system and are equally important. Any failure in the value chain will destroy the automotive eco-system.

2. .The RM200m allocation will support and strengthened the automotive eco system but it will not resolve the main issue facing the industry.

3. There are two major issues facing the automotive industry. The main issue is the Bank’s credit risk scoring system that is becoming more stringent for car buyer to obtain loan approval. Currently, car buyer rejection rate is still alarming at the highest 60% from total hire purchase loan submission.

4. The second major issue is the Low valuation of second hand car market. Second hand car valuation is significantly less than customer’s car existing balance loan amount especially if the car is still within the first 5 years of financing. During recession, majority cannot afford to service their monthly car loan installments and they cannot even sell their car (without having to pay the bank for the balance loan). This resulted in their cars being repossessed and they being declare a bankrupt. The low second hand car valuation also hinders customer from trading in their existing car. 90% of new car buyer will want to trade-in their existing car and 80% of customer cannot fetch a fair price to trade in their car, which then lead to various cancellations of new bookings.

5. Banks are profit making organization similar to other businesses. If they value car buyer at a higher risk now given the recession, they will continue to reject loan submission and this will further affect the automotive car sales.

6. PEDA proposed part of the budget allocated to be utilized for guaranteeing the banks on any increase in the aggregate NPL given the current economic condition. The government guarantee will ensure a less stringent and more flexible financing that can spur the overall automotive sales.

7. Government must establish a body that is independent from the bank to value the second hand car in Malaysia similar to other developed nation. The second car valuation should take into consideration the government policy in Bank’s margin and duration of finance, physical condition of the vehicles including any added accessories, accident history status, mileage of the vehicles, number of ownership, service and maintenance record and any history of criminal or fraud. There are various other factors that can be considered into the official valuation. The public will be less burden and the automotive sales will be in stronger with the inception of the independent body.

8. The RM5b Working Capital Guarantee Scheme should also be made available to Proton dealers whom are badly affected from the dropped in automotive sales. Most of Proton dealers shareholder equity are below RM5m

9. The tax refund for current year losses to be carried back to the immediate preceding year taxable profit will only provide some cushion to minority dealers. The majority dealers had already suffered losses since the previous years.

10. The auto scrapping policy for vehicles above 10 years old to be traded-in for the purchase of new Proton and Perodua cars may spur some interest but will not increase car sales significantly especially with the difficulty in getting customers loan approved.

11. Most 10 year old car owner will not trade in their vehicle for RM5,000 as they would have already fully paid the car loan. If they trade in the car to buy a new proton or a Perodua, they will end-up with an average monthly loan repayment of RM500 for 9 years, if they can get their loan approved. Given the current economic condition, it is doubtful the more than 10 years old car owners can afford the monthly loan repayment. However, the scrapping policy will be beneficial to the industry in the long run.

12. Unless the part of the 2nd financial stimulus is utilized to address the two main issues affecting the automotive industry namely the high loan rejection rate as well as the valuation of second hand car market, it is doubtful the second fiscal stimulus will spur the automotive sector.