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KUALA LUMPUR, Jan 21 — The automotive industry’s total industry volume (TIV) is expected to grow by 4.5 per cent at 561,066 units, higher than the earlier estimate of 3.7 per cent, according to OSK Research.

The growth projection is supported by the high correlation of 96 per cent to gross domestic product (GDP) growth, the research firm said, adding that its house forecast is 4.0 per cent.

“The strong correlation of TIV to GDP growth is demonstrated in the 2.0 per cent decline in 2009 against our GDP forecast of a 2.0 per cent contraction in GDP. A simple linear regression based on a 4.0 per cent GDP growth suggests that vehicles sales forecast could breach 574,683 units,” OSK Research said in a report today.

“Although consumer sentiment was somewhat subdued in third quarter last year, an upward momentum in the consumer sentiment index for both the fourth quarter of 2009 and first quarter of 2010 is highly possible, going by the historical average momentum over the its respective quarter throughout the recent years and the fact it is also coming from a low base in early 2009,” it said.

OSK Research said an increase in employment opportunities with new people entering the workforce will boost demand for TIV growth for 2010.

“This is due to the high percentage of the young population, where those within the age of 20 to 29 make up as much as 17.2 per cent of the total Malaysian population. It is likely that as much as half of this age group have yet to enter the workforce,” it said.

OSK Research said that total loans growth is expected to further broaden by 8.5 per cent in 2010.

“As this is a function of GDP, ultimately the expanding loans base would tilt towards a more flexible lending policy on the part of banks,” it said.

“This also comes in light of a healthy non-performing loan ratio in the overall banking sector despite the tough environment in 2009.”

Nevertheless, there are risks of a shortfall such a drastic hike in petrol prices and subsidy removals, according to OSK Research.

“Risks of a removal in petrol subsidies and higher oil prices could potentially create a knee-jerk impact on TIV sales, notably on vehicles with a higher engine capacity,” it said.

“As 60 per cent of the total volume comprises vehicles with engine capacity of less than 1500cc, it is safe to say that demand would not negatively impact TIV sales over the longer run.”

The other downside risk is that the likely increase in the hire purchase (HP) rates are unlikely this year after the last round of increase for non-national makes back in May last year when rates imposed by banks rose by an average of 100 basis point, OSK Research said.

“In a worst case scenario, although the possibility is highly unlikely, a sudden 100 basis point increase in HP rates across the broad could see a knee-jerk reaction where volume could possibly decline by as much as 7,000 units a month, close to 19 per cent of the average monthly volume over the past two years,” it said.

“Likewise, should a 100 basis point increase reflect solely on the HP rates of national marques such as Proton and Perodua, the extent of a knee-jerk drop could be as much as 3,000 units, equivalent to 10 per cent of the average monthly volume since 2008.”

OSK Research said the impact on national cars would be rather less though compared to the non-national, as over 60 per cent of the total TIV represents the volume from both Proton and Perodua.

As 2010 will be the year that a slew of subsidies will be removed along with the introduction of the Goods and Services Tax, “we do not see the likelihood of an increase in HP in the near term”, it said.

“It is worth mentioning that auto players backed by their own HP financing arms, namely non-national automakers such as Toyota, Nissan, including luxury auto players BMW, were able to offer lower interest rates at 1.99 per cent given their ability to absorb their own costs compared to national automakers, which are highly dependent on the availability of loans from banks which typically charge higher HP rates,” it added. — Bernama