TigerTalk  |  JANUARY 21, 2016 8:18AM

The case against open APs

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fiery tigertalk inside storyAnother year has gone by, and the International Trade and Industry Ministry has once again – this time indefinitely – postponed the abolishment of open approved permits beyond its scheduled deadline. Tiger wonders what’s up with the flip-flopping, and if the government has problems keeping promises.

Recall that in the run-up to the 13th general elections, the government in its election manifesto promised to revamp the National Automotive Policy (NAP) to gradually reduce car prices by between 20% and 30%, and to increase the competitiveness of our national cars.

But what has happened since? Not only have several automotive makers indicated upward adjustments in their car prices starting from this month, but national carmakers – Proton and Perodua – have continued to lose out in terms of combined market share to their non-national counterparts for the second year now.

Tiger has said it time and again that the reasons our car prices are much higher compared to that of most other countries around the world boil down to two factors: higher taxes to protect an inefficient industry, and approved permits (APs) given to a privileged few for imports of completely built-up cars.

Tiger shall not delve further into the former, which have been much elaborated in previous articles, but to zoom in on the latter.

For the uninitiated, AP is a mechanism to control imported cars gazetted under the Malaysian Customs Act 1967. There are two types of APs issued by the International Trade and Industry Ministry (Miti): franchise APs given out for free to franchise holders of car brands registered with Miti, and open APs that are sold to parallel importers at RM10,000 per piece to import cars of any brand to sell in Malaysia.

It is but an established fact known to many that the AP is a problem area. In 2005, the notorious “AP king” controversy blew up when a few well-connected individuals were found out to have monopolised the AP business.

A man walks past an Italian sports car in ShoreditchA list revealed by the government shows that these individuals collectively received 33,218 APs (about 50.1% of a total of 66,277) for 2004 and 28,283 APs (or 41% of 68,330) for 2005 alone. Based on an estimated street value of RM30,000 per AP, this translates to RM996 million in profit for 2004 and RM848 million for 2005, according to a news report by Focus Malaysia.

Recognising how APs have contributed to higher car prices, the National Automotive Policy 2009 set out to abolish the open AP system for imported used automobiles by Dec 31, 2015, and franchise APs were to be terminated by Dec 31, 2020.

(In fact, open APs were supposed to have been a thing of the past much earlier on in 2010 under the commitment given by NAP 2006, but its implementation was subsequently withdrawn and postponed.)

But recently on Dec 23, after several previous attempts at flip-flopping on the run-up to the scheduled deadline for the abolishment of open APs, Miti has finally decided that the open AP for imported cars will be here to stay.

Moreover, the ministry is mulling several improvements to be enforced come Jan 1, 2017, alluding that open APs may well never be a thing of the past, but to remain and haunt consumers and the automotive industry alike indefinitely.

It perplexes Tiger because abolishing open APs is probably the easiest way to come about tackling the issue of high car prices, a move that will pave the way for local manufacturers to increase investments to produce more affordable cars locally. It is also a tax neutral method that would not hurt the government’s coffers but even work to enhance its revenue collection.

Those who stand to lose the most with the abolishment of open APs will be the ones who are currently reaping humongous profits from it. While APs were first introduced to promote and provide opportunities for bumiputeras in the automotive sector, the “AP king” scandal has shown it is only but a handful of well-connected people who were enriched.

In this case, consumers are essentially paying higher prices to purchase their imported automobiles, while a well-connected few line their pockets in the name of protecting the national industry.

And whatever liberalisation that the NAP envisions for the local automotive scene may well end up in null for as long as the government is not getting at the bottom of the issue by backtracking its stance on abolishing open APs.

From an industry player point of view, the practice of APs also goes against the aspirations of the NAP for Malaysia to become a regional automotive hub by attracting more foreign automotive players to set up their manufacturing and assembly line locally.

Roland Folger

Roland Folger

Former Mercedes-Benz Malaysia chief executive officer Roland Folger is one strong detractor of the open AP system. He was previously quoted as saying in 2013 that parallel importers invest little to grow the local automotive industry, but instead ride on the strong brand built by the franchise holders, and yet are still given the lion’s share of APs.

In other words, open APs are a bane for completely knocked-down manufacturers which outsource their assembly line to Malaysia. It therefore makes Malaysia a bad investment case compared to neighbouring Thailand and Indonesia, which have been quick to eliminate excessive regulations to promote their automotive industries.

Moreover, Frost & Sullivan vice-president of mobility Vivek Vaidya has cited deferment of open APs terminations as among the key restraints for the pallid automotive sector this year. With total industry volume expected to record a decline in 2016, it seems like the NAP has just failed miserably in its objective to enhance the automotive industry ecosystem.

Even the Malaysian Automotive Institute has also clearly said it is in favour of terminating the open AP system, saying it does not contribute to the overall development of the automotive industry. So just why is the government still clinging on to it?

The year 2015 might have gone by in a glimpse, but some (nasty) things look like they are set to stay.




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