Should You Buy A Car In A Recession? Here Are Tips To Help You Decide On The Right Car

The economic situation in our country has a lot of us talking about what will happen – is a recession coming to Malaysia, or is it already here? Either way, many of us are feeling the pinch with rising costs of living and goods shortages, among other things.

While a recession often means that we have to tie our purse strings and focus on our needs instead of wants, you might still find yourself needing to spend on big-ticket items such as a car. So let’s look at what a recession means for us and how to buy a car in Malaysia during a recession.

Will we have a recession on our hands?

First, let’s get this out of the way – predicting a country’s economic growth requires experts to analyze various factors including our GDP (gross domestic product) growth, interest rates, the housing market, and also international factors that affect trade. And even then, accurately predicting it in advance is still challenging. That’s why the forecast of when a recession will hit ranges widely among economists.

When we talk about a recession in Malaysia, many experts agree that we’re unlikely to enter a real recession. This is due to the fact that Malaysia’s GDP growth is significantly contributed by the services and manufacturing sectors which are both more domestically oriented.

The services sector constitutes the bulk of our economy and can buffer against turbulence in the global markets. Manufacturing, on the other hand, contributed to 24.3 percent of the GDP in 2020 making it a sector that’s vital as a buffer and in helping the economy recover.

While the forecasts of if and when a recession will happen are mixed, many agree that we’ll see an economic slowdown due to global geopolitical affairs (in Ukraine, just to name one), supply chain and labor issues, and a general global economic slowdown. What this all means is that Malaysia is more likely to experience slower economic growth or a mild recession, though it always pays to be prepared.

What happens during a recession?

A recession is defined as a period of economic decline during which trade and industrial activity are reduced. Though it’s generally identified by a fall in GDP in two successive quarters, the length of the downturn can vary and also extend beyond two quarters.

So what happens if a recession hits Malaysia? Here’s what you can expect.

• Increased unemployment: The unemployment rate tends to increase as companies cut back on hiring to reduce expenses. Companies may also limit working hours and OT (over time) hours.

• Higher inflation: Increasing inflation often leads to a recession, and when that happens, you may find household items like groceries and clothes to be more expensive than before. However, a severe recession can lead to deflation and an eventual decrease in prices.

• Reduced consumer spending: With increased inflation, people will have less money for discretionary spending. This leads to reduced spending, especially on retail items like clothes and big-ticket items like cars and electronics.

• Reduced production: Along with inflation, the rising cost of raw materials usually causes businesses to reduce the production of goods. This can lead to lower exports and a further decrease in economic activity.

So, should you buy a car in a recession?

The simple answer is you should only spend what you can afford. Buying a car is a major financial commitment and whether you buy it in cash or with a loan, you should ensure that you have sufficient disposable income and savings to lean on in case the worst happens. After all, you wouldn’t want to default on a car loan you can’t afford and have the car repossessed.

If you don’t need a new car right now or if you don’t have enough disposable income and savings, it’s best to put off buying a car until the economy recovers. Consider taking public transport, carpooling, or borrowing a car if you need to commute, at least until the economy picks up.

However, if you really require a car, choose one that you can comfortably afford. If you’re wondering how to buy a car in case a recession hits Malaysia, here are some tips you can follow.

• Choose an affordable car with a low monthly payment and maintenance cost such as a Perodua Axia. If you require something more than a budget, compact car, consider pre-owned cars of the model that you’re eyeing to get more savings on the car’s price. Reputable platforms such as CARSOME have affordable pre-owned cars that are professionally inspected and refurbished to ensure their quality and safety.
• The ideal car should also be economical to run, with good fuel economy. Compact cars such as the Perodua Bezza, Proton Saga, and midsized cars like the Toyota Vios, and Honda City are very practical while also being economical.
• If you’re buying a car in cash, make sure that you have at least a six month’s worth of expenses in an emergency fund saved up. Don’t dip your hands into this fund to buy a car as it’s only meant to help you when times get tough.
• If you’re taking a loan on the car, make sure that the monthly payment doesn’t exceed 25 percent of your income. That being said, if you’re purchasing it during a recession, consider getting a cheaper car that’s easier to finance so you can save more for a rainy day.
• Look out for deals and rebates from automakers or dealerships. Most sellers often have special deals that coincide with festival seasons offering discounts and gifts such as free accessories. CARSOME also has monthly deals that offer excellent savings, so be sure to check them out.