Rising inflation, higher fuel prices, tighter loan approvals, slowing economic growth and cautious sentiment also caused sales to wilt in Southeast Asia's top passenger car market, the Malaysian Automotive Association (MAA) said.
The MAA revised its forecast for the year to 520,000 units, lower than the 551,042 units sold last year, reversing its own January forecast for growth of 2.5 percent.
"We were not sure of the actual scenario in January," Aishah Ahmad, the president of the association, told reporters.
"The industry is not strong right now, but the lower sales are not unique to Malaysia but to all countries in ASEAN, which, with the exception of Singapore, all recorded negative sales in the period."
The association said a total of 248,407 new vehicles was sold in the first six months of 2006, down 5 percent from the 261,111 sold a year earlier. Passenger car sales accounted for 184,725 units of the total, down from 199,554 a year ago.
Perodua, Malaysia's second, smaller national carmaker, outsold Proton for the first time since the bigger firm's inception, the MAA said, a trend that highlights a consumer shift towards smaller, more economical cars, and "possibly" Proton's poor brand perception, Aishah added.
Malaysia's car market is dominated by Proton and Perodua, part of auto group UMW Holdings Bhd, but they face a battle to maintain their market share amid an onslaught of competitively priced marques from Japanese and Korean car makers such as Honda, Toyota and Hyundai.
Proton, in particular, has been dogged by a host of problems, such as concerns over poor build quality, slow model rollout and its failure to find a foreign partner to help technology and vehicle development.
Proton's share of the Malaysian passenger car market fell to 33 percent in the six-month period to June, from 38 percent a year ago, the Association said.
Perodua gained from Proton's loss, boosting its share of the Malaysian passenger car market to 42 percent in the same period, a 35 percent increase from a year earlier, the MAA report showed.
Perodua, which makes cars with smaller, more economical engines, has benefited from record-high oil prices.
Malaysian car sales, which also suffered declines in 1986, 1992 and most recently in 1998, are expected to stabilize in the second half with sales to at least be maintained from a year ago in a best-case scenario, Aishah added.
"Things will stabilize by the beginning of the end of the year. After a certain time, consumers will begin to accept the reality that this is the price they will get. It won't drag on too long like this."
Used car sales directly affect new car purchases in Malaysia, because consumers need to sell before they can buy.