Why are so many used car dealers in Klang Valley closing down?

If you had a choice, would you buy a spankin’ new car or a second hand one? Obviously most of us would rather have a brand new set of wheels, right? But because of budget, many of us would realistically consider buying used cars instead. Now, imagine if people stopped selling used cars altogether and your only options are to buy a new car… or take public transport… HOW?!?

That could become a problem in the Klang Valley at the moment. The Malay Mail reported that many used car dealers in the Klang Valley are really seeing the end of the road for their businesses and if things get worse, they might close shop.

“The first half of last year was good as I averaged about 8 units a month. From July until December, I averaged 4 units a month.

This year, I managed to sell 3 cars a month, but the second half will be a struggle.” – Jimmy Wong, 50, used car dealer at a showroom in Jalan Klang Lama, Malay Mail

Buuuut WHY are used car dealers losing business? Here are 3 reasons why.

There are several factors, according to used car dealers and the Federation of Motor and Credit Company Association of Malaysia, Kuala Lumpur and Selangor (FMC). Here are 3:

1. Very susah for people to get bank loans now

Firstly, people are spending more on other daily necessities instead of buying cars, and the younger generation are not earning enough to afford even a used car. FMC President Datuk Tony Khor points to the recent tightening of loan approvals by banks. Earlier in May, it was reported that banks became more strict in their loans to curb rising household debts – which currently stands at RM1.03 tri (which incidentally is caused by people borrowing money to buy cars and property).

This meant many customers’ loans get rejected even when dealers helped them apply for it. “The tightened regulations also means customers have to make higher downpayments. As a result, dealers have to provide additional discounts,” adds Datuk Tony, so it affects their profits too.

*P/S: FMC represents some 5,000 used car dealers nationwide, who have a collective inventory of some 120,000 vehicles for sale.



2. Car value drops reeeally fast! Cos of that, dealers lose money

Aside from that, when a dealer buys a car, its value has dropped:

“Even if the seller made the 10% downpayment and was punctual in monthly instalment payments for over 3 years out of a 9-year repayment period, the outstanding settlement to the bank would still be higher than the market value of the vehicle itself.” – Datuk Tony, Malay Mail

Plus there are online sites (like our sister company Carsome) make things so convenient now, people can browse so many options really, really fast!

3. People prefer to buy new cars coz their prices have dropped

Although car sales have dropped in general, the people who do want to buy and can get their loans approved seem to prefer NEW cars. Even though used cars are typically 30% cheaper than new ones in this country, it appears that new car dealers’ aggressive marketing, is working!

After seeing a dip in their sales, new car dealers got kan cheong, so they stepped up their game by giving good discounts. Unfortunately, one market affects the other, so when new car dealers drop their prices, used car dealers also have to do the same in order to stay competitive. As a result, used car dealers hardly make a profit at all to keep their business going.

So, how are used car dealers supposed to make money liddat? :-/

Well, used car dealers are trying THIS strategy to stay in business…

It’s called the ‘136 strategy’.

To keep their stock moving, dealers have to sell their cars within a month of getting them, even if the profit margin is small, reported The Sun Daily. If the dealer only manages to get rid of them between 3 and 6 months, he usually would not make any money. But he still has to sell them even if he suffers a small loss. By the 6th month, the dealer MUST off-load the vehicles BY ALL means to cut his losses. This is also to reduce the stockpile.

When times are bad, used car dealers gotta bring out the big guns! In spite of the aggressive promoting by the new car market, some car dealers have managed to stay afloat so far thanks to this 136 strategy, but barely.

“I hope to venture into another market. Over the last year, I have suffered losses amounting to RM40,000. If the decline continues, I will be out of this business for good.” – Michael Wong, 40, owner of a used car dealership in Damansara, Malay Mail

However, it’s not enough! Based on Frost & Sullivan’s findings, Malaysia’s used car market will see a drop in trend until 2020. Can used car dealers tahan until then? Or will they all have to close shop? Is there something else that can be done…?

Maybe the National Automotive Policy could save the used car industry?

Used car dealers are hoping the National Automotive Policy (NAP) will solve their problems.

NAP was introduced in March 2006 by the Ministry of International Trade and Industry (Miti), to transform Malaysia’s automotive industry to make it world class (this is the short explanation, but for more info, click here). In 2014, the NAP was reviewed and one of the things changed is for new cars to reduce in prices by 20%-30% over 5 years, so people lagi dowan to buy used cars. Reducing car prices was actually one of BN’s 2013 elections janji.

Anyway, they did tepati this janji and over the years, car prices have been reduced in stages – among them are Honda Jazz (reduced 17%), Nissan Sentra (13%), Proton Saga (12%) and Perodua Alza (12%) as some examples. Technically, you could say the NAP has been the cause of the whole problem for used car dealers. (Coz remember we said that when new car prices drop, used car prices also have to drop to stay competitive…)

This gradual reduction of car prices in stages is reflected in the sales of used car – Chin Tong Ming, 58, a dealer at PJ Old Town, explained that in 2013, he made a profit of RM2,000-RM5,000 each car. But the year after that, he could only earn RM1,000-RM2,000.

“Luckily it will spread over 5 years, so at least the impact is not so bad. But we have to be very careful with our inventory, and we have to encourage our members to try not to hold on to their inventory too long.” – Datuk Tony, Malay Mail

However, FMC believes that dealers should ride over this storm than fight it! Datuk Tony said, it is unclear how the policy could help the used car industry currently. He urged the gomen to consider what plan they have for used cars. He also asked the gomen to include FMC when they reviewed the NAP. “Let us participate more (in the process), we will be happy to share and give some input for them to consider.” BUTTT, they believe the move will ultimately lead to a larger market for vehicles in general.

WOW, if only other industries could be as macro-minded as these guys!! Ultimately, doing what’s good for the country, is not always plain-sailing… sometimes, we’re all expected to make sacrifices, whether small or big. Yeah, we understand it’s not easy to ask people to make sacrifices, especially in bad economic and political and 1MDB  times. It’s mafan, it’s troublesome, and people are just worried about how they’re gonna put nasi on the table. But being macro-minded is a sign of a mature society and citizens.

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