Vehicle sales in the ASEAN's six main markets declined by 21.6% in the first half of 2009 to 844,548 units, with all markets reporting volume declines, writes Tony Pugliese. The region's economies have come under pressure from a sharp drop in export demand - particularly from markets in the West, tighter lending, rising unemployment and weaker domestic confidence.

The heavily export-dependent economies of Singapore, Thailand and Malaysia saw the most severe economic contractions, although economic growth fell sharply also in the more domestic-oriented markets such as Indonesia and Vietnam.

Central banks across the region cut interest rates and governments made available additional funds to invest in infrastructure projects to help support domestic consumption. But consumers turned increasingly cautious in response to the rising economic uncertainty, while banks tightened lending and failed to pass on most of the rate cuts.

The Philippines vehicle market has held up remarkably well - with a volume decline of just 2.8%. While first-half GDP growth is expected to have fallen to below 1%, due mostly to weak exports, continued high levels of remittances from its overseas workers have helped support the domestic small business sector.

Malaysia was the largest vehicle market in the ASEAN in the first half of the year, thanks to its out-performance compared with Indonesia and Thailand. The sharpest drop in sales was reported by Vietnam - over 30%.


Malaysia

The Malaysian vehicle market declined by 10.0% year-on-year in the second quarter to 132,411 units compared with a 9.2% decline in the first quarter. First-half sales fell by 9.7% to 251,092 units, with passenger car sales declining by 10.2% to 228,200 units and commercial vehicle sales 3.5% lower at 22,892 units.

The country's GDP contracted by 6.2% in the first quarter, due mainly to a sharp drop in exports. The second quarter GDP contraction is also expected to have been substantial and the government now expects the economy to shrink by 4-5% in the full year, with exports down by over 20%. Others forecasters expect the contraction to be slightly milder, at between 2-4 %.

The domestic economy is fairing better, although it also suffers from low sentiment and tight lending. Interest rates have been lowered from 3.5% in November to 2% and the government has also allocated MYR 67 billion to stimulate domestic consumption. Most of this is expected to be spent over the next 12 months.

The Malaysian Automotive Association expects second half sales to be largely similar to the first half, with full-year sales coming in at around 500,000 units.  National cars are expected to continue to outperform, helped by the higher hire-purchase rates applied to non-national cars and the launch of key models such as the Proton Exora MPV and the expansion of the Perodua Viva range.


Thailand

The rate of decline in the Thai vehicle market slowed in the second quarter, to -22.6% year-on-year compared with -33% in the first quarter. In the first half of the year, vehicle sales were down 28% at 231,428 units. The economy continued to struggle with weak domestic consumption, lower tourist arrivals, a decline in export demand and falling FDI.

Political instability has eased in recent months thanks in part to tougher action taken by the government. This has helped improve domestic sentiment, but the underlying problems remain unresolved and confidence remains fragile. Unemployment also has continued to rise as companies struggled with falling revenues.

The Thai economy is expected to shrink by around 3-4% this year, although the sharpest falls are expected to have taken place already after first-quarter GDP shrank by 7.1%. Smaller contractions are expected to follow and positive growth is expected to resume in the final quarter of the year as the government stimulus programme takes effect and exports stabilise. The overnight lending rate remains low, at 1.25%. The pace of recovery is expected to be slow over the next two years, however.

Sales of commercial vehicles have been particularly weak this year, with low farm prices, tight lending conditions and overall lower revenues forcing businesses to reduce expenditure. The all-important pickup segment shrank by 36% to 112,869 units in the first half, to account for less than half total vehicle sales compared with a long term average of 60-65%. Passenger car sales fell 13.1% to 96,056 units in the same period.

Toyota sold 95,334 vehicles in the first-half, for a 41.2% market share, followed by Isuzu with 48,858 units (21.1% market share) and Honda 39,967 units (17.3%).


Indonesia

The Indonesian vehicle market deteriorated further in the second quarter, with sales declining by 29.3% year-on-year to 110,319 units, compared with a drop of close to 26% in the first quarter. First half sales fell by 27.7% to 210,579 units, compared with 321,475 units a year earlier.

GDP growth is estimated to have slowed to below 4% year-on-year in the April-June quarter from 4.4% in the previous quarter, with weak exports and tight lending generating most of the drag. This compares with a GDP growth rate of 6.2% in 2008.

When compared with other major ASEAN markets, the Indonesian economy has been surprisingly resilient this year. It is less dependent on exports than Singapore, Malaysia and Thailand, and the run-up to the July presidential election has no doubt underpinned consumer sentiment.

The Bank of Indonesia has reduced interest rates to 6.75%, from 9.25% at the end of last year, and further cuts may follow in the second half if economic growth slows further. One of the main problems affecting vehicle sales this year has been tight credit markets, with lenders becoming increasingly cautious.

The government hopes full-year GDP growth will reach 4.3%, with second half GDP growth at 4.6% - helped by improving export markets, higher stimulus spending and slightly looser credit markets.

After peaking at 607,000 units last year, the vehicle market is seen as saturated at present - especially at the current rate of economic growth. The industry association Gaikindo expects full-year sales to be in the region of 405,000 units.

Tony Pugliese

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