Thursday, May 30, 2013

Are there drop in car prices or not?

The promise (just mere promise so far that is) of reducing car price 20% to 30% is not going to help the industry at all. It is akin to your boss telling you, maybe I will give you a pay rise if you help to improve the sales of the company say by end of the year. It definitely is not going to help. The statement is rather open ended and we do not know what to expect, as a car buyer, investor and business owner.

What happens when we do not know what to expect...potential car buyers may delay their purchases - me included. Second hand car dealers will be more careful when building to their inventories. Investors will be careful as I do not see anything concrete that is to happen to the automotive industry. The car parts manufacturer will be very afraid. If this statement is not backed up, probably car sales will suffer the next few years.

Already, we are suffering due to this feet dragging on the automotive policies. I am yet to see Volkswagen being committed to the Malaysia market when comes to CKD (Completely Knock Down).

Investors are not giving a good valuation on car parts manufacturers. I was doing some numbers and the average PEs for the automotive parts manufacturers / suppliers are somewhere around 7x - 8x. Against Thailand, where it is around 15x, we know where we are. This is why, partly the reason APM (owned by Tan Chong), although doing pretty well, with good growth is not being valued highly - below 10x PE. I just am not able to know the strength of APM. If opened up to compete, I am not able to know where is will be able to stand. Let's not talk about Proton and Perodua as we probably would know what will happen.

Investors in the parts sector are not interested in the Malaysian market. This is because we are already lagging behind both in terms of know-how as well as competitiveness. We do not have the scale, that's what I know.

There are no interests in automotive companies except for one or two like UMW and Tan Chong.

This mere statement of, will reduce car prices but without concrete follow up plans is just to make matters worse.

Anyway, I am still hoping for the car prices to reduce as I see this is the highest ticket item I may spend for the rest of my life and it is already and going to be a huge impact to my expenditure.


Black Ink said...

I was wondering the same thing myself. If these "promises" were true, the market would have begun pricing this in months ago - do you believe this sort of thing could be kept secret?

Many people have vested interest, including key UMNO personnel, which is why I find these bold claims dubious at best.

On the debt issue you raised, its not car loans, but rather poor financial decision making with pay-day loans, credit cards and personal bank loans that are causing the most distress.

hoseadavids said...

This is merely lip service lah.

I wonder why Malaysians are even serious about this proposal.

If they reduce car price by 20 to 30% then who is going to buy Proton?

Who owns Proton?

Will the owner allow this to happen?

It all boils down to Proton lah whether you like it or not.

Think, think, think.

hoseadavids said...

Forte, Vios, City at around 80k with 30% reduction is 56k.

Who is going to buy Preve?

30% reduction in your dream lah.

hoseadavids said...

If the present government is serious about this they would have done so long time ago. They are still waiting.

Waiting for what you might ask.

Waiting for the day Proton to stand on its own feet.

Unfortunately the day never came and it seems like it never will.


Sunny said...

APM and Tan Chong have the same major shareholder.

APM is supplying parts to not only Proton and Perodua, but Nissan, Toyota, BMW, Audi, Daihatsu, Ford, Hino, Honda, Hyundai, Isuzu, Jeep, Kia, Mazda, Mercedes, Mitsubishi, Peugeot, Renault, Subaru, Volvo, and others. So I think there is some competency with APM.

Government uncertain policy is not good for EVERYONE.

APM current price is undemanding compare to its fundamentals, strength and size, track record of profitability and dividend. With limited down side, a few good news or optimistic outlook will send the price to levels high enough to make it a much less attractive investment opportunity.

I think that if you are willing to part with your money for a Proton or Perodua car, you actually do not need to hesitate to buy APM (I bought it below RM 5) because it worth a lot more than your car. I actually buy this to partially "offset" my expenses on car yet to buy.

felicity said...

Hi Sunny

APM looks attractive but there is one part which really makes me have some fear. One of its venture overseas - cannot remember whether it is Indonesia or Vietnam, sort of failed.

While APM is one of the largest in Malaysia, its size compared to others in the region (especially Thailand) is not comparative. Malaysian parts manufacturers are mainly tier 2 suppliers. There are many out there which are Tier 1 and their main target have been Thailand all these while.

Sadly, Malaysia is just being left out and if a clear automotive policy is not urgently created, we will be left out. From there, Malaysia as a base and the parts manufacturers will just be selling to Proton and Perodua (mainly).

Sunny said...

Failure is not to be feared the most. Never want or plan to expand to overseas should be feared the most.

I think it has the strong balance sheet and financial resources for evolutionary change or quick expansion. That means, it has the ability to change from mediocre to good and from good to great. Unlike many small or medium cap companies in Malaysia, they are earning just enough to survive, expansion would be simply too luxurious and risky to collapse even faster.

"APM has entered into a JV with Tachi-S (Thailand) Co Ltd to develop, manufacture and sell automotive seats for OEMs in Malaysia.

While APM already manufactures and supplies seats to OEMs in Malaysia, it is doing so as a Tier 2 supplier. By partnering with Tachi-S (which is a Tier 1 supplier), APM would have access to detailed design drawing and technical blueprints from Japan."

Refer to following link for further details:

Unlike Proton, APM has access to broader market in ASEAN and Europe through Nissan, Toyota, etc. Therefore, it is likely to benefit when Europe is recovering from their economy and from the raising demand of automobile in ASEAN countries.

Other than that, the huge cash pile that APM is sitting on it provide a very comfortable cushion for value investor.

felicity said...

Thanks Sunny