KUALA LUMPUR: The Economic Recovery Plan's incentives for the automotive sector will lower prices of new vehicles by three to eight per cent, said analysts.
The goodies, in the form of sales tax reductions, have also prompted some analysts to revise upward their industry sales forecast.
The government on Friday waived 100 per cent sales tax on completely-knocked down (CKD) vehicles, and reduced the same tax on completely built up (CBU) vehicles by 50 per cent.
The incentives are effective from the middle of June till December this year.
Presently, both CBU and CKD vehicles are tagged with a 10 per cent sales tax.
Analysts said prices of entry-level locally-assembled passenger vehicles, particularly Proton and Perodua, are poised to be more attractive for buyers.
AmInvestment Bank Bhd said the national makes will continue to lead the way this year due to attractive pricings in their line-ups and value propositions with their product fleet being locally assembled.
Its analyst Jeremie Yap Jake Hui expects an extra 60,000 units in total industry volume (TIV) to 580,000 units for 2020, thanks to the incentives.
The additional units imply about 12 per cent more than its previous estimate of 520,000 units, 4.0 per cent less compared to 2019's TIV of 604,000 units, Yap wrote in a report.
AmInvestment has upgraded the auto sector to "overweight" from "neutral".
"We believe this (announcement) is a shot to the arm to local vehicle sales, similar to the three-month tax holiday during June to August in 2018," he said.
Yap recalled that the Goods and Services Tax tax holiday in 2018 had resulted in a six per cent cut in vehicle prices across the board, significantly spurring demand for new cars with the total sales surging 42 per cent quarter-on-quarter to 198,500 units for the June-August quarter.
"Taking our cue from this and also having considered the softer economic condition at present compared to 2018, we forecast incremental sales of 10,000 per month over the next six months," he said.
AmInvest estimates that the sales tax exemption will result in a reduction up to eight per cent of CKD car prices, while the 50 per cent reduction will reduce CBU car prices by three to four per cent.
Kenanga Research analyst Wan Mustaqim Wan Ab Aziz said concurred that the temporary sales tax exemptions would boost vehicles sales.
"However, we still retain our expectation of 420,000 units for this year as we expect consumer to still be cautious on the high-value items and stringent loan approval from bank," he told the New Straits Times.
Wan Mustaqim said more businesses had been affected during the Movement Control Order period, which began on March 18, and hence banks would likely be cautious on giving out loans.