Post-SST: Car prices to increase more than before, higher than previous June 2020 price

• Steel prices have gone up by 30 percent
• Aluminum, semiconductor parts too
• Shipping cost at all-time high

In the coming weeks, new car buyers have to brace themselves for higher car prices as more car companies to announce their post-SST price list.

The current sales (SST) exemption / discount for locally-assembled (CKD) / imported (CBU) passenger cars respectively will expire by 30-June 2022.

Although manufacturers are lobbying for an extension, saying that the global shortage in semiconductor parts is stopping them from fulfilling all outstanding orders before 30-June 2022, few expect the cash-strapped government to oblige.

On its part, the government has already given a one-month grace period for dealers to register cars manufactured on or before June 2022, meaning that cars registered in July 2022 can continue to enjoy SST exempted / discount prices even though the latter has expired, but it’s applicable only to cars manufactured on / before 30-June 2022.

Recent price movements also suggest that the increase in post-SST prices will be higher than the original pre-SST exemption / discount price, which has been put on pause since 15-June 2020.

Take the imported (CBU) Toyota Corolla Altis 1.8E for example. Before 15-June 2020, it was sold at RM 128,888.

Distributor UMW Toyota Motor has since announced the new post-SST price – because orders made today won’t be fulfilled before SST exemption expires - to be at RM 130,888. That’s an increase of RM 2,000.

The higher range 1.8G variant also sees a similar increase, from RM 139,888 to RM 141,888.

It’s a similar situation with other Toyota models but we can’t make a direct comparison with those because these models have received a specs update mid-way.

The Toyota Vios, Yaris, Hilux, Fortuner, and Innova all received upgrades between end-2020 to 2021.

As for CKD cars, the Mitsubishi Xpander was launched during the SST exemption period at RM 91,369. However in May 2022, one month before the SST exemption expires, Mitsubishi Motors Malaysia raised the price to RM 92,350.

The company has since announced the new SST inclusive price, at RM 93,318.

What’s driving the increase in prices?

All over the world, from USA to Australia, car prices have been on the increase.

Earlier this month, Isuzu’s Australian sales arm Isuzu Ute Australia raised prices of the Thailand-made Isuzu D-Max by between AUD 1,000 and AUD 1,600 (~RM 3,190 to RM 5,100), citing “unprecedented market forces including but not limited to, higher production related costs and international and domestic transport costs” as the reasons for the increase.

Likewise for Mitsubishi Motors Australia, which raised prices of the all Mitsubishi Triton variants by AUD 500 to AUD 2,450 (~ RM 1,600 to RM 7,800).

Over in the open-market US, where dealers are free to mark up / discount prices based on supply vs demand, data gathered by market research houses J.D. Power and LMC Automotive say that transaction prices of new cars in February 2022 have gone up by 18.5 percent versus the same month 2021.

All over the world, prices of steel, aluminum, and semiconductor parts are seeing spike in prices. The situation is made worse by increase in shipping cost.

All these varied factors combine to create a perfect storm of higher car prices across the industry.

This is already happening months before the Ukraine-Russia conflict, although the war did make the already bad situation worse.

Prices of rare earth metal like palladium, which are used to make emissions-reducing catalytic converters in cars, are also at an all-time high.

Tyre prices are not spared either. Woe to you if you have to change your tyres now.

Why are raw material prices going up?

The factors driving the increase in prices of raw materials are varied.

Europe and China are facing high energy prices. As you already know by now, oil and gas prices are now at its highest in more than a decade.

Although there is a lot of talk about renewable energy, wind and solar power are not very reliable (output is dependent on weather) and even in China, the world’s largest manufacturer of solar panels, a bulk of its energy source still come from fossil fuels.

The need for local governments to keep to their pledge of capping CO2 emission also means that coal-fired power plants are being phased out, but the problem is that renewable energy sources are not coming online fast enough to fill the gap.

Also read: Battery shortage limiting solar and wind farms, China finds alternative in air power

Manufacturing of steel rolls and aluminum ingots are very energy intensive and when there is a shortage of power / spike in energy cost, prices will increase.

At the same time, industries are ramping up production to meet fast growing demand as economies around the world recover from Covid-19-related disruptions, all trying to catchup on lost time and are hungry for raw materials, thus putting severe pressure on the supply chain.

The increase in e-commerce also means that there is a shortage of ships, transportation trucks, and port capacity to meet demand.

Locally, Perodua has confirmed that prices of steel have increased by more than 20 percent last year and for 2022, a further 10 percent increase is forecasted – so the increase is more than 30 percent.

Also read: Despite over 20% increase in steel prices, there will be no price hike for Perodua cars in 2022

Steel is the most significant material cost in building a car.

If you are wondering if the increase in new car prices have made used cars more attractive, prices of used cars have already increased in tandem.