The transport equipment industry, consisting of the manufacture and assembly of motor vehicles and component parts, was severely affected by the contraction in domestic demand since the last quarter of 1997. Output of the industry declined, sharply by 51.0% during the first seven months of 1998 (January-July 1997: +12.9%). The most affected sector was the manufacture and assembly of motor vehicles which declined by 60.1%, followed by the manufacture of motorcycles and scooters, (-41.1%%) and manufacture of motor vehicle parts and accessories, (-36.8%) against increases of 12.2%, 22.6%, and 8.8% recorded respectively during the corresponding period of 1997.
In terms of the number of units produced, output of commercial vehicles recorded the sharpest decline of 86.0% to 7,605 units during the first seven months of 1998 (January-July 1997: +47.2%). Output of passenger cars fell by 60.0% to 76,767 units (January-July 1997: +10.1%). The national car producers were also severely affected by the downturn in the industry. During the first seven months of 1998, output of PROTON cars contracted by 59.9% (January-July 1997: +34.1%) while production of PERODUA vehicles declined by 17.1% (January-July 1997: +53.8%). The motorcycle sector was also affected, with output decreasing by 38.3% to 156.353 units during the same period (January-July 1997: +36.5%). In consonance with the lower production of motor vehicles, output of automotive components and accessories has also decreased. For the first seven months of 1998, the value of automotive components produced was RM1.1 billion, significantly lower when compared with RM1.9 billion for the same period in 1997.
The erosion of financial wealth of consumers due to falling asset prices, stringent hire-purchase guidelines for passengers cars during the first seven months of 1998 and higher import duties on certain categories of vehicles were some of major factors that adversely affected demand and, therefore, production of the transport equipment industry. Sales of passenger cars as measured by new vehicle registration slumped by 62.5% to 63,772 units during the first seven months of 1998 (January-July 1997: +21.5%), while sales of motor cycles fell by 41.2% to 139,496 units (January-July 1997: +25.2%). Sales of commercial vehicles declined by 81.3% to 8,384 units (January-July 1997: +40.3%).
The contraction of domestic demand poses several problems to the industry. Boosted by strong demand of the last few years, the transport equipment industry expanded its production capacity rapidly to 600,000 units of passengers and commercial vehicles and 7000,000 units of motorcycles per year. With the sales orders down, the industry is now burdened with substantial excess capacity. On account of large stock overhang the unfavorable market prospects, nay of the companies involved have reduced number of shifts or work days while some have opted for staggered production or temporary shut down. The average capacity utilization was reduced to the level of about 30% as compared with about 75% in 1997. As a result, the industry encountered problems of high inventory, tight cash flow, under utilization of capacity, redundant facilities and excess work force. However, with the recent easing of the credit guidelines on hire purchase of cars and the reduction in interest rates, the industry has seen some recovery in sales lately. For instance, in August 1998, sales of passengers cars rose to 13,658 units, as compared with 12,167 units in July and 5,641 units in February 1998.