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No end in sight for plunging car sales

BANGKOK/JAKARTA/KUALA LUMPUR -- New car sales in Southeast Asia's three largest markets are sinking like stones. And economic conditions in key markets offer no reason to expect change anytime soon.     

Price hikes are hurting car sales in Indonesia. A Toyota showroom in Jakarta.

     April was another dismal month for the region's three major auto markets -- Indonesia, Thailand and Malaysia -- where sales plunged by 24% to 180,000 vehicles. It was first time in some three years and five months that the figure had fallen below 200,000. The overall outlook for the region's once healthy car markets remains bleak as there appears to be little hope that the factors behind the decline will disappear in the near future.

     Depressing vehicle sales in the region are an array of factors, including a weakening currency, a new goods and services tax and political instability. Many consumers in these Southeast Asian markets are either unwilling or unable to pay for new vehicles. 

Currency free fall

A price hike amid sluggish sales is certain to drive away customers, quipped a sales representative at an Indonesian Toyota dealership, summing up the gloomy situation in the country's auto market, the region's largest.

     The price of Toyota's popular Avanza minivan has risen 8.3 million rupiah ($622), or some 4%, at this dealership from January. The increase is equivalent to two months' average wages for university graduates just entering the workforce in the country.

     With rising prices dampening sales, Sudirman Maman Rusdi, president of the Association of Indonesian Automotive Industries, revised down the association's sales forecast for 2015 to 1 million to 1.1 million vehicles, down from 1.2 million. Sudirman is also president of Astra Daihatsu Motor, the Japanese carmaker's local unit.

     The figure would be the lowest since 2012, when 1.11 million units were sold.

     New car sales in Indonesia set a new record for four consecutive years through 2013. But sales began to falter in mid-2013 as the country's currency started to weaken.  The rupiah fell nearly 40% against the dollar, driving up interest rates as well as prices for imported parts and production costs. Surging costs forced carmakers to raise prices. 

     Depressed sales are also causing sensitivity among carmakers over inventory risks. A total of 19,000 cars remained unsold during the first four months of this year, said a top executive at a major Japanese automaker.

     Alarmed by the deteriorating market conditions, Toyota has decided to centralize its inventory management in the country at Toyota Astra Motor, its joint sales company. The car giant had been entrusting the task to its five leading dealers in the country. The move is aimed at avoiding inventory buildup by obtaining more detailed information about sales trends.

Reluctant lenders 

Malaysia is also having its own problems moving new vehicles.

     Sales in Malaysia crashed in April, plummeting 23% from a year earlier to 45,187 units. It was a drastic downturn from a 14% rise in March.

     The reason is clear -- the introduction of a 6% goods and services tax on April 1. Car sales surged before the imposition of the new tax and then, predictably, plunged afterward.

     Perodua, the country's leading automaker in which Daihatsu has a stake, suffered a 22% sales drop compared to the previous month.

     Since the Malaysian government scrapped a levy on cars when it introduced the goods and services tax, the prices of vehicles have not risen significantly.

     But the new tax has curbed the overall appetite for consumption in households across the nation.

     Tightening credit conditions are also putting the squeeze on sales. Wary of a possible major economic slowdown, banks are now cautious about lending to middle-class first-time car buyers.

     Banks have tightened their lending standards, said a Perodua dealership sales representative in Kuala Lumpur. Banks now demand a guarantor even for car loans around 50,000 ringgit ($13,300), he said.

Before and after the coup

Thailand is also having problems. Sales of new cars nosedived 26% to 54,058 units in the country, where the economy has been weakened by last year's coup. Since then, the military junta has failed to get the economy back on track.     

     The sales figure was the lowest since the end of 2011, when the Thai economy was pummeled by epic floods.

     New car sales in the country have posted falls for 24 straight months. This April was even more disastrous. Sales in the month were 26% lower than the figure for April 2014, when the number plunged 33% from the previous year because of unstable politics before the military took power.

     "The market is still far from hitting bottom," said an executive at a major Japanese carmaker.

     Since the beginning of this year, a series of bad economic news, such as a fall in exports and a decline in the income of farmers, has further damaged business and consumer confidence.

     The combination of weakening consumer confidence and a credit squeeze in Thailand has many parallels with the situation in Malaysia.

     One in every three Thai consumers wishing to buy a car with a loan fails to pass the credit examinations of financial institutions, according to Japanese carmaker officials.

     Not all Southeast Asian markets are in trouble. Total new car sales in the six main markets in the region -- the top three plus the Philippines, Vietnam and Singapore -- fell 17% to 226,797 vehicles despite the strength of the second-tier markets.

     Sales in the Philippine market rose 16%, making rises for two years and eight months in a row. Sales in Vietnam surged 60%, and those in Singapore soared 115%. But brisk sales in these countries were not enough to compensate for slides in the three leading markets.

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