SST cut extension - dealers need to lose money in 2021 before they can profit

Depending on who you ask, yesterday’s sudden announcement by the Ministry of Finance (MoF) to extend SST exemption/discount for locally-assembled (CKD)/imported (CBU) cars may or may not be a good thing.

“It’s a mixed bag. I am not sure what to feel about it. It’s a good move by the government, but why the reversal, after confirming it won’t be extended? I don’t think we can meet our targets for this month anymore, buyers will have second thoughts now and delay their purchase. It’s only 2 more days left before December ends,” said a very established dealer for a mainstream brand.

“We have been appealing for an extension for so long. They said no, we appealed, again they said no, so we moved on and executed the next best plan. Now they make a U-turn like this, how are we supposed to respond?,” said another executive at a local manufacturer.

“We have already prepared price lists for 2021 cars, with the understanding that the government will resume SST after 31-December 2021. But with this U-turn, the price lists will have to be recalled, and we have only 2 more working days before January 2021.

“We can’t simply re-use the same price list as the ones issued before June 2020 (before SST exemption/discount was announced). It needs to be approved by the government once more, as some of our previously approved prices have expired,” explained another executive.

The SST exemption/discount provided under the Penjana economic stimulus package was very successful in spurring demand for new cars but the spike in demand necessitated manufacturers and dealers secure enough supply of stocks – not easy given the supply chain disruption caused by Covid-19.

Operating under the knowledge that the tax holiday will end on 31-December 2020, with a one month grace period to register these 2020 cars by 31-January 2021, many manufacturers have maximized their output to deliver as many cars as possible by 31-December 2020, declaring these to Customs as year 2020 excise tax cars.

The U-turn has relieved the pressure these deliver these cars fast but it has also created another problem.

Manufacturers who have worked very hard to produce as many cars as possible are now faced with the problem of selling these 2020 cars fast enough.

“We are a small player and we don’t have that many cars to sell anyway but there are many companies who were pushing hard to excise as many cars for 2020 as they can to reduce the waiting period, these companies will now have a problem,” said another dealer principal.

Cars depreciate the longer they sit on the dealers lot and the extension will mean that many buyers will decide to delay their purchase, preferring to buy a 2021 manufacturing year model.

2020 was a bad year but for many in the car industry, 2021 is not off to a good start either.