PETALING JAYA: Malaysia’s impending move to rationalise the price subsidy for RON95 petrol could dampen car sales but the impact is likely to be temporary as vehicle ownership remains a necessity, particularly outside urban areas, economists say.
The government has been working towards a targeted fuel subsidy system as part of efforts to reduce fiscal strain and ensure subsidies benefit lower-income groups.
Currently, RON95 petrol is still subsidised while the diesel subsidy has been partially removed, but under the new framework, only eligible groups (primarily lower-income households) will continue to receive benefits.
With fuel making up a sizeable portion of household budgets, economists believe that changes to subsidy policies could influence consumer sentiment and car-buying decisions.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said while initial reactions may include a slowdown in purchases, Malaysians are likely to adapt over time, with some shifting towards fuel-efficient and hybrid vehicles.
“Higher fuel prices would incentivise buyers to consider electric vehicles, especially as they gain popularity now,” he told SunBiz.
Afzanizam noted that petrol accounts for 5.5% of the Consumer Price Index, compared to just 0.2% for diesel, indicating that fuel costs weigh significantly on household budgets. “Given this, any changes in fuel subsidies could influence consumer sentiment and spending patterns.”
While there may be some short-term impact, Afzanizam said, demand for personal vehicles will persist, as car ownership remains essential to many Malaysians.
Malaysia’s automotive industry has seen record-breaking sales, with total industry volume (TIV) hitting an all-time high of 816,747 units in 2023.
However, analysts forecast a decline in 2025, as CIMB Securities predicts a 7% drop in TIV and the Malaysian Automotive Association projects a milder 4.5% decrease.
Afzanizam noted that even at the projected 780,000 units, sales would still be well above the pre-pandemic average of 612,116 units between 2010 and 2019. “This suggests that the market is not shrinking dramatically but rather normalising after an exceptional post-pandemic surge,” he explained.
MAA president Mohd Shamsor Mohd Zain also downplayed concerns about a sharp decline in vehicle sales, saying that the subsidy removal is unlikely to cause major disruptions.
“Diesel-powered vehicles make up only about 4% of total industry volume so the impact will be limited. The market also offers diverse powertrain options, including hybrids and EVs, which provide consumers with alternatives,” he said.
Beyond subsidies, other economic factors could also influence car-buying patterns.
“While Bank Negara Malaysia is expected to maintain its Overnight Policy Rate, some buyers may adopt a ‘wait-and-see’ approach before making purchasing decisions,” Afzanizam said, noting that interest rates, inflation, and global economic trends, too, will play a role.
Putra Business School MBA programme director Professor Dr Ahmed Razman Abdul Latiff believes that the impact of subsidy cuts will vary by vehicle type.
“Since 85% of RON95 users will continue receiving subsidies, the majority of drivers may not feel a major burden. Instead, EVs could see increased demand due to road tax exemptions next year,” he said.
Razman pointed out that the upcoming open market value excise duty revision in 2025 may drive a surge in purchases this year, especially for completely knocked down models expected to become more expensive next year.
He said vehicle financing and loan approvals are unlikely to be significantly affected by the subsidy restructuring. “Broader economic factors like inflation and GDP growth will have a greater influence on overall demand,” he noted.
Analysts agreed that Malaysia’s automotive sector is sensitive to shifts in fuel prices, as they affect both consumer preferences and vehicle ownership costs.
However, with fuel-efficient cars and EVs gaining traction, industry players are closely watching how policy changes, tax incentives, and consumer behaviour might reshape Malaysia’s car market in the coming years.
Despite the anticipated correction in sales figures, Afzanizam remains optimistic that demand for cars will persist, albeit with some shifts in consumer preferences. “The Malaysian market is resilient. While there may be some adjustment in demand, the overall appetite for personal vehicles is unlikely to fade,” he said.
