Japan trade groups: Up to RM 10 bil lost in June 2021 for Malaysia’s auto industry

Malaysia’s automotive industry has lost some RM 5 billion to RM 10 billion in June 2021 alone, estimates the Japan Chamber of Trade and Industry for Malaysia (JACTIM) and the Japan External Trade Organization (JETRO).

Both Japanese trade organizations had recently submitted a letter dated 6-July to Prime Minister Muhyiddin, urging him to quickly address the slump in economic activities and reduce daily Covid-19 positive cases.

Specific to the automotive industry, JACTIM and JETRO said:

“Since 1-June, the automotive industry as well as the steel & iron industry have been operating at just 10% workforce for more than a month now. These companies have commented that their maximum inventory support would only go up to 1.5 months. In fact, the automotive industry has lost some RM 5 – 10 billion in profits in the past month alone, and this is a huge damage to the Malaysian economy as well, and we are concerned that any further disruption would badly affect the market in the long term.

“In addition, the iron and steel industry are an important supplier to the E&E industry for their processed parts, etc., with the shortages in the current supply for this industry, this would in turn would further disrupt the supply chain.

“Therefore, we would like to urge the government to allow the automotive industry (both production and parts) and steel & iron industry to resume operations even during Phase 1.”

The trade organizations also explained that manufacturing plants cannot be stopped and restarted on a whim.

“Once an operation is halted, it requires a long period of time to restart these production lines, and in some cases the production might not be able to resume at all,” said JACTIM and JETRO.

The group also calls for the Selangor state government to speed up and prioritize vaccinations for companies based in Selangor.

JACTIM, through the JACTIM Foundation, has also donated 50 specialized cooling boxes and 10 deep freezers to support Malaysia’s vaccination programs.

In the current phase 1 of the National Recovery Plan, only 12 manufacturing sectors are allowed to operate, with 60 percent employee capacity. The 12 allowable manufacturing sectors are:

1. Aerospace (components and maintenance, repair and overhaul - MRO)

2. Food and beverage

3. Packaging and printing materials only related to food and health goods

4. Personal care items and detergents

5. Health care and medical products

6. Personal safety items, personal protective equipment (PPE) including rubber gloves and fire safety equipment

7. Components for medical devices

8. Electrical and Electronics (global economic chain importance)

9. Oil and Gas including petrochemicals and petrochemical products

10. Machinery and equipment related only to health and food

11. Textiles for PPE production only

12. Production, refining, storage, supply and distribution of fuels and lubricants

But aren’t factories responsible for many Covid-19 clusters?

Unlike office work, it is quite impossible to run a manufacturing operation with total adherence to social distancing. A plant is not designed to operate this way.

As of June 14, there were 95,156 positive cases originating from factory clusters. That’s a lot.

However, the Federation of Malaysian Manufacturers (FMM) say this is just 14.36% of the total clusters. (662,457 cumulative positive cases reported on June 14, 2021, 147,040 were from workplaces clusters, of which 95,156 were from manufacturing).

In a press statement made last month, on 27-June, FMM said:

“Consequently, many customers of the affected industries cancelled their orders and diverted the contracts to other regions. Besides losing their customers permanently, many exporting manufacturers also faced mounting legal consequences as many of their customers have also had their production stopped as a result of the delay in deliveries.

“FMM has received feedback that some of the existing multinational companies could be making unfavourable decisions on relocating their operations out of Malaysia given that the global economy is picking up but their Malaysian operations are unable to support the increasing demand as part of their supply chain. It is therefore crucial that the Government re-evaluate the sectors that are allowed to operate with due consideration given to the export-based sectors that have been sustaining our economy through their revenue earnings to the nation, source of employment to the locals as well as substantial source of direct investments.”

While there have been Covid-19 clusters at car / automotive parts plants (including one cluster 'Beg Berkunci' in Hulu Selangor), the numbers are a lot smaller compared to say, rubber gloves manufacturers.

The reality is that companies shutting down and people not being able to put food on their table kills just as much as Covid-19, but slower.

Also read: SAs need food banks, many car dealerships to close down after August

The fast spreading of the Delta variant of Covid-19 in South East Asia has made our region the new epicentre of Covid-19, eclipsing India.