By P. Gunasegaram
If Tiger is to grade the recently unveiled National Automotive Policy in one word, it will be an unequivocal “fail” with an “FF”. The incentives for energy efficient vehicles are but a sad, inadequate diversion to continue with protection of the national car projects and purveyors of approved permits.
In Malaysia, two things result in our car prices being higher, much much higher than those in most other countries around the world – higher taxes to protect an inefficient industry and approved permits (or APs) given to a privileged few for imports of completely built up cars.
Excise duties for cars in Malaysia range from 40% to 105% depending on amount of local content but for national cars which are badged Proton and Perodua for instance, there are no excise duties at all. The cost of an AP can be up to RM40,000, the price of a car in many countries.
If these two elements – excise duties and APs – are not present, then the price of cars can be reduced considerably. Just check the prices of cars here with those in countries such as the US or Australia and you will find them as much as 50% cheaper!
Even cars from other Asean countries are subject to the excise duties while the Malaysian Automotive Institute (the body which formulates the National Automotive Policy or NAP) proudly proclaims that the market has been liberalised.
That is not the case as explained here but suffice to say that you can call a tax by any name – import or excise – but if it taxes cars differentially based on where they are manufactured and by the amount of local content, it is discriminatory and may not even be allowed by international trading rules.
Basically what the government is trying to do is to subvert international agreements which it is a party to by disguising protective taxes as excise duties. In the process, it is continuing to protect the national cars and making the people of Malaysia suffer high prices for cars for the last almost thirty years.
As everyone knows by now, APs are dispensed to people of privilege through our established patronage system which benefits perhaps hundreds of bumiputera business persons close to the establishment. Billionaires have been born through the patronage system.
The minister of international trade and industry says that this is a problem area and one can see clearly why because Umno cronies have much to lose if the AP system is abandoned. Franchise (those linked to existing car franchises in Malaysia) APs are supposed to be there until until 2020 while non-franchise APs, supposed to be abolished by Dec 31 2015, have now been put “under review”. That means a difficult decision has been postponed as it is common in Malaysia.
If you remove both excise duties and APs immediately, car prices will come crashing down overnight – but that will have a wrenching effect on the industry. The best is to phase out the duties and APs, the duties over five years with an announced time table.
Other countries such as Australia have done it. There is no protection of the auto industry in Australia and car prices have indeed come down.
The reason the government is not doing this here is that the protection for the national cars will be removed as well as an easy way to make money for its cronies through the issue of APs.
The government’s dilemma however is that it made an election promise to bring down car prices by 20%-30% in five years. Clearly that will not happen without the removal of excise duties and APs. So the government comes up with something else – competitive forces will lower prices!!
Really? How, when it systematically kills competition by having differential duties and APs? There could however be the appearance of lower prices as this article points out by giving less care for less money. It’s pretty difficult to compare car prices across models.
Unless the excessive excise duties and APs are disbanded, we simply cannot expect prices of cars to come down because protection will be perpetuated. At least one of Barisan Nasional’s election promises will go unfulfilled.
That leaves the area of energy efficient vehicles (EEVs those cars which have low emission such as hybrids, electric cars, some diesels and even fuel efficient petrol vehicles etc). And suddenly you have the government proclaiming the country will become a hub for EEV assembly – assembly mind you, not manufacture, essentially screwdriver and wrench jobs.
There will be no excise duty for hybrid vehicles to be assembled here until Dec 31 2015 – the end of next year – and for electric vehicles until Dec 31, 2017.
“Beyond these dates, the exemptions will be determined based on the strategic value of these CKD assembly investments,” according to the NAP. Further, incentives can be “customised” for both foreign and domestic direct investments.
The weather is rather murky out there and the terrain rather uncertain, a bad time to be in cars. The NAP provides little details. For instance, what does “customisation” mean? We can’t customise our cars because there is no competition but we can customise our taxes and incentives. Shouldn’t these be clearly and unambiguously defined instead?
And how can assembly of cars be considered to be even strategic in this brave new world of competition and innovation, a world into which we as a country have to be dragged into kicking and screaming instead of embracing it and dealing with it once and for all?
In Germany, one key car manufacturer has no provisions for completely knocked down or CKD packs from which cars are assembled. Instead the cars are taken apart after they are completely built up and sent to archaic countries such as ours to be reassembled.
What a waste of time and effort when you consider that a BMW fully made in Germany and shipped out to Malaysia will cost less than a comparable locally assembled car with as much “local” parts as possible, excluding government taxes and disincentives such as APs.
There is only one way to rationalise the Malaysian car industry- remove differential duties, APs and allow full, open competition. Proton will become a regional manufacturer with tie-ups with world marques and Perodua will continue to do well with its tie-up with Daihatsu.
You see, it is entirely possible to save the local car industry and to develop it at the same time but this NAP certainly will not. The two reasons for this are very human – greed and obstinacy.
In the jungle we have no time for either – we stop eating when we are sated and we learn to adapt or perish. GRRRR!
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