Yesterday’s sudden announcement by the Ministry of Finance (MoF) to extend sales tax (SST) exemption for new locally-assembled (CKD) cars, and SST discount for imported (CBU) new and reconditioned cars, to 30-June 2021 was quite unexpected.

The abrupt U-turn in decision came just six days after the Ministry’s earlier confirmation that the SST exemption/discount will end as planned on 31-December 2020, and that appeals by the Malaysia Automotive Association (MAA) to extend the exemption/discount to 30-June 2021 has been denied.

The announcement has elicited mixed feelings from manufacturers. On one hand, they welcome the extension. On the other hand, plans have to be changed (again).

Both Proton and Perodua for example, have been working for months to roll out their countermeasures to minimize impact of order cancellations once the original SST exemption ends.

Proton was supposed to announce a Customer Appreciation Plan while Perodua was working on a Terima Kasih Token, both are the companies’ own measures to absorb/minimize increase in prices post-SST resumption, which is now made redundant by MoF’s latest announcement.

The initial directive from the government is that to qualify for the SST exemption/discount, new cars will need to have their excise duty paid by 31-December 2020, and the owner will be given a one month grace period to register the car by 31-January 2021.

The extension means that Proton now has more breathing space, and the risk of high order cancellations after 30-December for the Proton X50 is now significantly reduced. Proton still has over 30,000 backlogged orders for the Proton X50.

However archrival Perodua could be facing some headwinds ahead. Perodua’s upcoming SUV, the yet-to-be-named, codenamed D55L compact SUV, will certainly be the most important launch of 2021.

The model is expected to be launched in March 2021, which means that Perodua will have just three months (maximum four months, assuming the same one month grace period for registration still applies) to fulfill whatever orders they have collected. After 30-June 2021, SST will be re-imposed and prices will certainly have to be raised.

When Perodua opens its order books for the Perodua D55L, you can be certain that it will be yet another over the top figure but most of these are just from buyers trying their luck in getting the car at a lower price.

When SST resumes, you can expect a very high number of dropouts.

The months after June will certainly see a drop in sales for all makes as demand normalizes The Penjana package is described as an economic stimulus package but we need to remember that the market can only support a finite level of demand.

When all else is equal, market demand is a zero sum game and any increase in sales will have to come from somewhere else. Economics is not magic and unless the economic pie is enlarged, one just doesn’t conjure up a buyer out of thin air.

In Malaysia’s case, what is happening is that the stimulus package is basically bringing forward demand from the future. When SST resumes, you can be certain that sales will take a hit and the market will need about 3 months to re-adjust itself.

In other words, Perodua will have just 3 months, or maximum 4, to meet most of its sales targets for the D55L for year 2021. That’s quite a challenge ahead.