In the context of the automotive industry, economic factors are also of particular importance. The world economy is growing rapidly especially in Asian region is leading in this regard. Therefore, the global economic situation has a major impact on the profitability of the automotive industry in various markets and also affects the employment condition of any country. A better economic situation means a higher level of employment, which in turn means higher customer purchasing power (Pratap, 2017). The higher the purchasing power of the people, the better the sales of the automotive industry.
The Malaysian economy is currently the 4th major economy in Southeast Asia and the 38th largest economy in the world. In 2017, Malaysia’s economy accelerated at a faster pace with the GDP grew 5.9% with a value of RM1173.6 billion at constant prices and RM1352.5 billion at the current price. The automotive industry contributed 4% or RM40 million to Malaysia’s GDP and employs more than 700,000 people across the nation’s ecosystem. Besides that, GDP per capita (PPP) of Malaysia stands at US$9813 and private consumption will drive economic growth, particularly in the short-term as the recent Goods and Services Tax (GST) rating is zero.
ITR is the annual interest rate charged by a creditor to a borrower in order for the borrower to get the loan. Band lending can affect car sales through various liquidity effects. If financial banks offer lowing lending rates, this will encourage current and future economic activity (Ong, 2013). (Shahabuddin, 2009) conducted a study to predict car sales and the result prove that ITR is negatively correlated with car sales. High band lending rates discourage investors and have a negative impact on their ability to make investment. The consumers loans are very sensitive to interest rates, which means that the lower the interest rate more will be the demand of vehicles through financing. This is because consumers will take instalment credit into their consideration when purchasing durable goods. However, Bank Negara Malaysia is constantly striving to improve the quality of loans, which would may make it difficult for low-income families, young buyers and SMEs to obtain loans, thus affecting the total industrial volume this year (Willy, 2018). As a result, the higher the ITR, the less intention for a consumer to buy a car because they pay more.
Gross Domestic Product (GDP) is defined as the total market value of all final products and services produced by a country in a given year, and GDP per capita is used to measure a country’s economic performance. According to, GDP per capita will be positively related to the competitiveness of the automotive industry through demand and supply channels (Hunya, 2000). The higher GDP per capita indicates increases economic growth and productivity, which increase demand for products.
Therefore, economic development and growth of country do affect the growth of motor vehicles through supply and demand. High economic performance has improved people’s living standards, thus creating more vehicle demand. In 2017, GDP per capita Malaysia was US$9,813, which was $439 higher than 2016 and was US$9,374. As a result, the higher the per capita GDP, the stronger the purchasing power of people stimulates consumer spending and promotes growth in various industries. Additionally, the automotive industry will be the first to benefit from the new Malaysian government’s plan to abolish the Goods and Services Tax (GST), which is expected to boost consumer’s willingness to buy (Ho, 2018). In other words, automotive industry is expected to achieve great sales during 0% GST period before Sales and Service Tax (SST) has official implement in this coming September of 2018.