Be gone, AP system...

The Star, Focus

Sunday, May 01, 2011 8:29 AM

What it takes to move our auto industry forward

By Dr FONG CHAN ONN

The cost of cars is always a hot topic.

Last month, International Trade and Industry (MITI) Minister Datuk Seri Mustapa Mohamed again publicly reiterated that the number of Approved Permits (AP) for imported cars was still being kept at 10% of car sales, with 4% for franchise holders.

Why is the Government maintaining the AP system? Is there still a need to protect the industry players who have benefited so much over the last four decades?

The Prius hybrid. With surging oil prices, the trend worldwide now is rapid development and utilisation of advanced technology in electric, hybrid or alternative-fuel vehicles.

In the 1970s, the automotive industry was seen as the forerunner industry for countries attempting to industrialise.

The automobile contains hundreds of components and was considered the ideal industry to stimulate manufacturing activities based on the substitution of imported components (tyres, pistons, etc) with local parts.

Thus, it is no wonder that Malaysia, Indonesia, the Philippines and Thailand pushed to develop this sector after seeing the successes it enjoyed in Japan and Korea.

In 1983, Tun Dr Mahathir Mohamad, then Prime Minister, established Proton to build the national car in collaboration with Mitsubishi. The legendary Proton Saga rolled out in 1986 as the first model of our national car (NC).

In 1993, Perodua was established and, in collaboration with Daihatsu, launched the Perodua Kancil as the second NC serving the 1300cc car segment.

The main objective of the automotive vision was to spin off local (particularly bumiputra) suppliers, create job opportunities, upgrade the know-how of our workforce and, ultimately, to create a local identity for the Malaysian automobile sector.

Past challenges and aspirations

The main challenge for Malaysia’s car industry was market size. In the early 1980s, the Malaysian market for passenger vehicles was about 80,000 units per year – slightly less than the minimum efficient size for automobile manufacture of 100,000 units per year.

Unfortunately, the mid-1980s also saw the world going into a deep recession. And the Malaysian automobile market was further worsened by the fragmentation of a large number of auto models and assemblers.


The Government remedied the shortfalls by using licensing procedures together with high tariffs for non-national car (NNC) models.

This, of course, resulted in substantial price differences between Proton Saga and other NNC models, enabling the Saga to capture over 80% of the market share then.

The other car manufacturers (Tan Chong for Nissan and Oriental for Honda) were compensated with partnerships for the manufacture of Proton components and parts.

The Perodua Kancil, launched in 1994, also captured a large share of the 1300cc car market and quickly became part of the national automobile scene.

The main issue, ironically, was a severe constraint on choices for Malaysian car buyers. With high tariffs on NNC CKDs and imported components, consumers are penalised heavily if they choose to buy these (locally-assembled) NNC models, and with the AP system in place, prices for the imported models are even higher.

Several important points emerged from a comparison of car prices in the world (see relevant table).

The prices of NNC brands, naturally, are substantially higher than that of Proton or Perodua. For example, the Honda City (1500cc) priced at RM85,480 is 41% higher than Proton Gen2 (1600cc).

Prices of these NNC brands (such as Honda and Ford) are also substantially higher in Malaysia than the rest of the world, reflecting the adverse impact of our high duties on these cars in the local market.

Singapore is the exception here. Its car prices are far higher than other countries due to the cost of the “quota permit” being imposed on each car.

Another interesting point is that Proton and Perodua are being exported to other countries at prices even lower that the home market. For example, the Perodua Myvi is being marketed in Britain for RM36,792 compared with the home price of RM46,400. Whether this reflects export subsidy on the part of Proton and Perodua is an issue for us to reflect upon.

Why would Malaysian car buyers choose NNC brands despite their substantially higher prices? They will tell you that it is because of the advanced safety features not available in NC brands.

How APs came about and why

There is no written policy as such on the AP system, but it evolved in the 1970s initially to encourage bumiputra participation in the used car industry.

Contrary to what most people think, it was not introduced merely to protect Proton. Today, even the imports of hybrid or alternative-fuel cars require APs as there are no hybrid or alternative-fuel car manufacturers in Malaysia.

An AP is a licence issued to a vendor to sell foreign cars with no local content. There are two categories – Open APs and Franchise APs. The former allows the holder to import a car of any brand while the latter ties the holder to a particular brand.

There are currently 76 Open APs and 37 Franchise AP holders. The total number of APs issued was 51,559 in 2004, decreasing to 27,838 in 2007. But in 2008, it spiked to 40,886 before being reduced again to about 20,000 in 2009.

The AP System, with no transparent guidelines on the selection of holders (who, by definition, enjoy substantial monopolistic economic gains at the expense of consumers), has drawn a lot of criticism.

For example, several months ago Datuk Seri Nazir Razak (CEO of CIMB), in his luncheon address to the Chinese Economic Congress, reiterated that the AP system had been severely abused and should be abolished immediately.

Further, because of the anti-competitive nature of the AP System, it is deemed to be non-WTO (World Trade Organisation) compliant.

Hence it has also been severely criticised at many international trade forums. WTO has repeatedly urged the Government to abolish the system so that a more competitive and efficient automobile market can emerge in Malaysia.

It was under such a scenario that the Government pledged in 2006, under the National Automobile Policy (NAP), to phase out the AP system by Dec 31, 2010.

Unfortunately, subsequent intense lobbying by the AP holders resulted in a review of the NAP in 2009 by MITI (International Trade and Industry Ministry). Under the review, the Government extended the deadlines to 2015 for the Open APs and 2020 for the franchise APs. 

Cost to Malaysian consumers


Cars sales in Malaysia over the last five years have surged (see Table 2), increasing from 490,768 units in 2006 to 605,156 units in 2010. This surge has largely been facilitated by easy availability of credit at low interest rates, and a high level of subsidy on petrol prices.

The table on Malaysian Car Sales shows that Proton and Perodua are the main players, commanding about 55% of the market share. But it also shows that despite the big price differences between NC and NNC brands, NNC brands (especially Toyota and Honda) have still managed to acquire a substantial share (at 45%) of the market.



This is because Malaysian car buyers are generally prepared to pay the initial higher prices for the NNC brands because of their more advanced features, resulting in better reliability and lower maintenance costs compared with Proton or Perodua.

Further, because of the large subsidy on petrol prices, the cost of running a car in Malaysia is relatively affordable. As the table on car ownership shows, the price of one litre of RON95 is RM1.90 in Malaysia compared with RM3.05 in India and RM5.32 in Britain.

Assuming a five-year lifespan for a car, and an average consumption of 400 litres per month, the cost of owning and running a Ford Fiesta is RM23,098 per year compared with Proton Gen2’s RM21,218 per year. At this range of minimal cost differences, it is not surprising that NNC brands can still command a sizeable share of the local automobile market.

The table also shows that, on a global basis, the cost of owning and running a NNC (such as Honda or Ford) is about the same in Malaysia as in Thailand, China or India. For example, the cost of owning and running a Honda Civic for a year is RM32,116 in Malaysia compared with RM33,705 in India and RM30,224 in Thailand.

This is because the higher taxes levied on these brands in Malaysia have been offset by the greater subsidies Malaysian car users enjoy at the pumps.

Disconnect with world trends

The 10% ceiling on imported cars and the fact that Proton has refused, despite repeated probing by the Government, to conclude a strategic partnership with a world automobile company demonstrate just how disconnected our car industry is with the rest of the world.

Under a regime of prolonged high domestic protection, our national car manufacturers have neither the incentives nor the urgency to innovate and be front-runners in the automobile industry.

After over 25 years since its formation, Proton is still manufacturing conventional cars based largely on replication of other manufacturers’ models.

Even among conventional cars, its makes are not up to world benchmarks in terms of quality and safety. For example, not many people realise that the official Proton cars currently used by Cabinet Ministers are not even equipped with air bags. Merci­fully, these official cars at least have safety belts!

More importantly, with surging oil prices, the trend worldwide now is rapid development and utilisation of advanced technology in electric, hybrid or alternative-fuel vehicles.

In 2010, more than 40 million hybrid and alternative-fuel vehicles were sold worldwide.

Brazil is the leading nation in the production of flexible-fuel vehicles.

In 2010, it sold 10.6 million units of such vehicles, followed by the US with 9.3 million units. The US is the world’s leader in terms of hybrid cars, producing more than 1.8 million units in 2010. It is followed by Japan with 1.1 million units.

In the development of natural-gas cars, Pakistan is a world leader, producing 2.4 million such cars in 2009. Iran, with 1.7 million units, is next. Thailand and China are also aggressively manufacturing hybrid cars.

In Malaysia, we are totally out of sync. As hybrid cars are still not being assembled or manufactured locally, Malaysian consumers will have to get an AP first before they can buy such cars. This is despite the fact that the Government has already abolished all levies on the import of these models below 2,000cc.

Further, to support the use of alternative-fuel cars, we need to develop a national system to supply such fuel (e.g. natural gas). For electric or hybrid cars, we need to develop a system for the convenient charging of the batteries on highways, as well as repairs and maintenance of the batteries.

The NAP has not specified strategies or incentives to develop these supporting infrastructures.

In summary, the current protective AP system is not only a burden to Malaysian car owners, it also hinders the local automobile industry’s connection with the global trend towards the development and utilisation of green cars.

Moving forward

After over three decades of protection, the Government must take bold steps to reform the auto­motive industry. It needs to undergo transformation in the same way the electrical and electronics (E&E) sector has since the 1970s.

The Government has declared its intention to abolish the APs. However, as pointed out earlier, even the 2015 and 2020 targets are already a postponement of the original target of 2010.




The argument for the postponement was again to give the relevant automobile players time to adjust to the new reality.

I personally feel that Malaysian consumers have been paying far too much to sustain the livelihood of these key players.

Requiring Malaysian car buyers to wait until 2015 and 2020 for the sector to completely open up is a huge burden for them, particularly for youths with first jobs who are seeking to buy their first cars.

The Government should consider phasing out the entire AP system earlier, say by 2015.

Further, considering that there is now a global excess manufacturing capacity of 20 million units of conventional cars, we should also be less ambitious with our automotive industry.

The sector requires huge expen­diture on R&D, and many countries are already far ahead of us in the new automotive trends.

Needless to say, we cannot afford giving our car manufacturers another 20 years of further protection.

Following the successful experience of China and Thailand, our strategy should be to open up the sector to FDIs, and encourage the best global automobile manufactures, in collaboration with local partners, to be the leaders in the market.

With their global marketing strategies, Malaysia can emerge as a focal point of their new supply chains, particularly for components of advanced technology cars for the huge China market.

As immediate steps, I urge the Government to quickly abolish the AP requirement for hybrid and alternative fuel cars. It should also accord tax incentives (such as double tax deduction) to buyers of such vehicles.

At the same time, subsidies on petrol prices should be gradually removed to compel conventional car users to adapt to the reality of high fuel prices.

Given our large reserves of natural gas, we should also take immediate steps to establish a national natural-gas supply system for natural-gas cars. This infrastructure is crucial for the mass utilisation of this alternative fuel vehicle.

Weaning the Malaysian automobile industry away from dependence on conventional cars towards green vehicles, as well as steering away from continued protection of Proton and Perodua to an open automobile market, would be the most welcomed gifts that our Prime Minister can bestow to Malaysian car users and the Malaysian public at large.


> Tan Sri Dr Fong Chan Onn was Prof of Applied Economics and Dean of Faculty of Economics and Administration, Universiti Malaya. He served in the Government as Deputy Minister of Education (1990-1999) and as Minister of Human Resources (1999-2008). Currently, he is the MP for Alor Gajah.

Liberalisation in the used car market?

The Star Business, Saturday March 19, 2011

SOURCE...


Liberalisation in the used car market?

THE issue of Approved Permit (AP) has long been a contentious subject and a target of constant criticisms.
Introduced in 1970, the objective of the AP system was to promote and provide opportunities for bumiputra entrepreneurs in the automotive sector.

Part of the review of the National Automotive Policy (NAP) announced in October 2009 by the Government and aimed at creating a fair, liberal and transparent policy included doing away with the AP system.

A used car dealer in the Klang Valley. ‘Not everyone can afford new vehicles and many also do not want the hassle of paying a car loan,’ says a dealer.

 

Under the NAP, open APs (which allows the bumiputra holders to import any brand of car from any country) will be scrapped by Dec 31, 2015, while franchise APs (which allows holders to import specific brands and makes from its principal) will be terminated by Dec 31, 2020.

The question is whether this would actually happen. Under the first NAP in 2006, the AP system was supposed to be abolished by 2010.

No political will

However, when the time came to implement it, many believe that the Government buckled under pressure and ended up postponing the termination of the open AP and franchise AP systems to 2015 and 2020 respectively.

“The APs are said to be given away free to the (bumiputra) entrepreneurs to kick-start their businesses, but over the years, many of them ended up selling them to third parties for profit rather than importing cars for themselves,” says a local used car dealer, who wishes to remain anonymous.
At Budget 2010 two years earlier, the Government slapped a RM10,000 fee for the issuance of each open AP.

The RM10,000 charged, meanwhile, would be used by the Government to set up a fund, with the money to be used to ensure smooth and orderly shift of bumiputra entrepreneurs to other business sectors.

“The RM10,000 fee is a burden for used car dealers as it can cost between RM40,000 and RM50,000 (for us) to purchase an AP. Of course if it's a more expensive car, the (AP) cost would be higher,” says the used car dealer.

With the abolition of APs, it would be a “free-trade” system, he says. “That means that anyone would be able to import vehicles.”

A Klang Valley-based used car dealer doesn't believe that a liberalisation of the automotive industry, especially the abolition of APs, will ever happen.
He says although the abolition of the open AP system by 2015 is a good move and sounds promising, he thinks it won't happen given the strength of the lobbyists.

“How can they abolish the APs? If that were to happen, so many bumiputra business people would be affected. You can talk about it, but I don't think it will happen at least not in my lifetime!”

Proponents of APs

The Association of Malay Importers and Traders of Motor Vehicles Malaysia (Pekema) meanwhile, is hopeful that APs will be maintained.

Vice-president Sharifah Noor says bumiputra entrepreneurs that were dependent on APs would be hurt as they had invested considerable sums in the business.

She says the automotive business is its members' main income stream and a springboard for them to venture into other businesses.

“Even though our members have diversified businesses, the cash cow is still the AP business. Removing it (the AP) will affect their other businesses.

“Our members contribute a lot to the Government in terms of import and excise duties as well as sales tax.
“If you don't look after their interests, there will be some impact on the country's economy,” Sharifah says.
Earlier last year, it was reported that Pekema Sabah branch had asked for the review of the (RM10,000) levy charged on open APs to import used vehicles. Pekema Sabah had also requested the Government to review the policy to end the AP system.

Pekema Sabah chairman Rozman Isli says the levy of RM10,000 for the issuance of each open AP is a burden to members, especially during the economic slowdown.
Sharifah says Pekema has proposed to the Government to split payment of the RM10,000 levy into two parts to make it easier for its members.

“The levy has been approved and Miti (International Trade and Industry Ministry) is finalising it with the Road Transport Department,” she says.

Earlier this year, it was reported that Pekema Sarawak had urged the Government to set up the Bumiputra Economic Performance (BEP), a unit akin to the Performance Management and Delivery Unit to specifically plan, implement and monitor the economic performance of bumiputras.

The BEP is expected to be a permanent secretariat and headed by a chief executive officer with ministerial rank who reports directly to the Prime Minister, according to Pekema president Datuk Zainuddin Abdul Rahman.

The structure would allow BEP to oversee matters related to bumiputra economic agenda including overwriting the authority of certain heads of government agencies if needed.

Poser for used car dealers

For dealers of imported used parts, “D-Day” is just around the corner. Under the NAP, the importation of used parts and components will be prohibited from June 2011. Safety and environmental concerns are the main reasons for this policy.

Tan, a Penang-based used parts dealer, believes this policy will cripple the used car business.
“Thousands of players are involved in the used parts business in the country. This policy will kill us.
“But don't just think about the business owners. What about the employees? In the end, there will be hundreds of thousands of people that will be unemployed,” he says.

Tan adds that the Government should conduct a study on the impact before the policy is implemented.
“Banning used parts would also mean that if you have a year 2000 Toyota, getting new parts for an old vehicle would be difficult.”

Chang, a used parts dealer in Kuala Lumpur, says it is a misconception that used parts are less reliable than new parts.  “Cars break down every day. This can range from a new car of three months to one that's been around for a decade.”
Chang says not everyone can afford new vehicles, adding that many also do not want the hassle of paying a car loan.

“Used parts are also more affordable and contrary to popular belief, last a long time,” he says.
According to an article on insurance web portal Malaysia Insurance Online (MIO), imported used parts and components are actually cheaper than those manufactured locally. It also says imported used commercial vehicles also provide cannibalised parts for the industry.

From the insurance industry perspective, MIO says it is not uncommon for claims personnel to tweak part prices when assessing the claims quantum.
“The tweaking is to put in some second-hand or cannibalised parts as replacement for the damaged ones.
“Those used parts are important in scaling down costs for the industry to contain the ever deteriorating loss ratios.”

MIO adds that ultimately, the insured will benefit from the used parts industry.
“While the facts are such, caution should not be thrown to the wind the escalation in theft of motor vehicles is also the result of increasing demand for cheap cannibalised vehicle parts.”

END OF ARTICLE:
l

BERNAMA: Government To Help Bumiputera Approved Permit (AP) holders

BERNAMA AUTO NEWS: Government To Help Bumi Businessmen Hit By Stoppage In AP Issuance By 2015 KUALA LUMPUR, Jan 13 (Bernama) -- The government on Thursday assured Bumiputera Approved Permit (AP) holders, who will be affected by the stoppage in AP issuance by 2015, that they will be given assistance under the special fund set from the RM10,000 fee charged for each AP issued. Deputy Minister of International Trade and Industry Datuk Mukhriz Mahathir, who gave the assurance, said the government established the fund to help develop Bumiputera entrepreneurs in the automotive industry and related businesses. "We charged RM10,000 for every AP issued to set up the fund and the money will be used to ensure a smooth and orderly shift of Bumiputera entrepreneurs to other business sectors. "By having the fund, we hope to execute the shift orderly and smoothly," he told reporters after officiating at the soft launch of the Muslim World Biz 2011 exhibition. On claims by the Association of Malay Importers and Traders of Motor Vehicles Malaysia (Pekema) that 70,000 workers in the automotive industry would lose their jobs if the AP policy on imported vehicles was enforced by 2015, Mukhriz said they must show proof to the claim. "They need to prove that statement because we have our own figures. We have been helping them for a long time, some about 30 years already. "I think they will benefit greatly from this government policy. At this time, there are many more Bumiputera companies who wished they have the APs enjoyed by the 98 companies (selected by the government). "There are about 160 companies eligible to get APs but the government will stick to the 98 companies and will protect them until 2015," he added. -- BERNAMA

ARTICLE: Revving it up

The Star: Saturday November 6, 2010

Revving it up

By JAGDEV SINGH SIDHU
jagdev@thestar.com.my

New vehicle sales may hit a record this year but key issues remain unresolved

The country’s car industry is poised for record sales this year and with the changes brought about by the revision of the National Automotive Policy to set the industry on liberalised mode, the pace is set to quicken.
Galvanising the industry further are the fresh moves to abolish taxes and excise duties for hybrid and electric cars and motorcycles to push the green agenda on high gear.

Even so, there are many other key developments set to emerge on the forefront which could further alter the industry landscape. They include the government-led initiative for a Proton-Perodua merger, the issuance of more manufacturing licences in the country and the much-hyped about entry of Volkswagen to assemble cars in Malaysia.

Meanwhile, auto players are basking in the possibility of seeing a record year in terms of new vehicle sales.
“The main reason for this growth in sales is a result of the strong economy in Malaysia, which emerged from a “V” shaped recovery,’’ says UMW Toyota Motor president Kuah Kock Heng.

Naza Group’s SM Nasarudin says the new licences will boost competition.

 

“New model offerings, reasonable interest rates that make car ownership relatively affordable and a young population with a strong desire to own a car – all these factors combine will make 2010 a record breaking year,” says Kuah.

According to Frost & Sullivan consultant Ahmad Faridz Dzulkarnain, growth in the first half of this year was largely driven by strong sales of MPVs (multi-purpose vehicles).
In this segment, the big numbers came from Perodua Alza and the Proton Exora which has led to a rise of 80% sales year-on-year.

Ahmad expects the growth rate to maintained for the remaining months of 2010, albeit at a slower rate compared to the first half of the year.

The supporting factors for rising sales include the launch of Proton Inspira this month, year-end festivity and the price reduction of hybrid vehicles.

“Moving forward, we hope consumers look for vehicles that are both more cost efficient as well as environmentally conscious. Awareness of the capabilities of automotive technologies today and the need to take pre-emptive steps to address global challenges such as sustainability will become more prevalent,” says BMW Group Malaysia managing director Geoffrey Briscoe.

MAA’s Aishah ... ‘Fuel quality should keep up with global trends.’

 

Budget 2011 which was unveiled not too long ago had included the abolishment of taxes for hybrid and electric cars for one year from a tax cut in the previous budget. Still, this is too short a period, says Malaysian Automobile Association president Datuk Aishah Ahmad.

“The validity duration should be at least 3 years for better business planning purpose,” she opines, addings that the incentives should not be limited to certain engine capacity only (2.0 litre and below).

“It should be given to all engine size.”

New auto licences

A key development that could potentially alter the industry landscape further is the awarding of new manufacturing licences issued by the International Trade and Industry Ministry.

As it stands now, Berjaya group has received a licence to manufacture commercial vehicles, hybrid cars, electric cars and luxury passenger vehicles in Malaysia.

UMW’s Kuah says Malaysia needs to do more to develop the component makers.

 

Although the licence does not grant Berjaya the permit to make cars under 1,800cc and below RM150,000 per unit, which represents a huge segment, it still is a milestone for the company.
Following this, Berjaya, which currently contracts out the assembly of vehicles, will now be allowed to conduct assembly on its own in a single plant. This will enable it to reduce costs through higher economies of scale in the long run.

In line with this, the company plans to assemble other makes of Mazda, beyond the Mazda 3, throwing in commercial vehicles into the mix as well.

The new licence is a signal that the Government is open to allowing more players in the commercial vehicle market, which Aishah says will heighten competition as brands from China would likely make inroads into the Malaysian market.

“There could be some rationalisation of existing assembly plants producing commercial vehicles in terms of production mix between commercial and passenger vehicles,” she says.

Protectionist – or not?

While many deem the government’s reluctance to allow car makers to penetrate into the national car segment as protectionist, Naza Group of Companies Joint Group executive chairman SM Nasarudin SM Nasimuddin still believes the new licences will enhance competition among the existing players, ultimately benefiting the industry and consumers.

Briscoe echoes this sentiment: “The introduction of new manufacturer’s licences will inevitably encourage greater investment into the Malaysian car industry by foreign producers and also aid in developing a more competitive industry, both of which are likely to have significant benefits to the Malaysian consumer.”
But market observers are not jumping to such conclusions – just yet at least.

They say for global car makers to be drawn into the Malaysian market, they will first need to assess if there is sufficient volume to justify committing considerable sums to build a full-fledged manufacturing plant in the country.

Without the right to dip into the segment long ring-fenced for the national car makers, which still accounts for the lion’s share of the market, the case for volume could be a little harder to make.

Lest we forget, neighbour Thailand has long been benefiting from the protectionist policies of Malaysia to grow their own car industry which includes component makers.

Any policy measures in Malaysia to woo foreign car makers will be benchmarked against the successful steps Thailand has taken thus far towards that end.

Even though the new licences may not allow new competition in the below 1,800cc segment, assemblers in the country have already ramped up their CKD (completely knocked down) operations in the country in accordance with the tax reduction brought about by the revision of the NAP.

Still, Kuah says the market for vehicles with an engine capacity greater than 1,800cc remains small as in 2009, it was only 6% or 23,178 units of 407,005 cars sold.

“Therefore, if there is an increase in the number of players for 1,800cc and above vehicle, it will be very crowded. Even today, there are far more active players than compared to five years ago,” he says.

Gearing up for green

Despite the limitations of any manufacturing licence in the country, Ahmad says the presence of new players will no doubt provide long-term benefits to the industry.

He says new manufacturers will offer consumers choice and existing players need to remain competitive to deliver better products to consumers.

“Consumers will also be able to purchase locally-assembled hybrids, electric cars and luxury segment vehicles at relatively cheaper prices – hence better penetration rate of these segments are expected,” he says.
For the industry and country, the new licences will be basically for green vehicles and commercial vehicles which could lead to increased sales and investments by the industry.

The industry is still new and this segment would also see direct competition from Thailand which has its own eco-car development. Toyota will be assembling its best selling Prius in Thailand from this month due to the strong yen.

Just never enough

While the granting of licences is a first step, market participants feel more is needed to liberalise the sector to woo investments into the country.

“We certainly need to have policies that can compete with our neighbours in terms of attracting new investments. As the largest passenger car market in the region, we have a very attractive market and if our policies are competitive, we will see more investments coming in,” says Nasarudin.

Edaran Tan Chong Motor Sdn Bhd executive director Datuk Dr Ang Bon Beng says the industry cannot depend on domestic market alone to achieve strong growth.  “It is imperative to have a level playing ground for all auto players where survival and success are based on competitive edge, in order to prepare one for regional expansion,” he adds.

Market observers say the industry, which saw existing companies increase assembly of cars in the country from lower taxes imposed on CKD operations, would be open to even more cars coming from Japan and Korea from 2015 onwards once Free Trade Agreements between Malaysia and Asean come into effect in the future.

Aishah says that in the absence of a level playing field in Malaysia, global automotive players have been making their presence felt though contract assembly of their models in Malaysia, shying away instead from direct investments.

“Inconsistent policies have created fear among automotive players on whether or not to invest in Malaysia,” she says.

Case for component makers

Another outstanding issue is the competitiveness of the local component makers.

Calls have been made to develop the Tier 1 vendors to have them innovate and plough in more resources into research and development to create a more vibrant supply chain.

Due to a lack of scale, a number of the component makers in Malaysia are basically still nut and bolt assembly companies, importing the components and assembling them for car companies in Malaysia.
“Presently, not many first-tier suppliers can compete on a global scale. Malaysia needs to do more to further develop the first-tier, second- and third-tier parts components suppliers,” says Kuah.

He says within the Asean region, Thailand has a larger automotive base for parts components manufacturing, and hence, enjoys greater economies of scale.
“The challenges facing the local automotive parts components manufacturers is cost competitiveness, apart from quality and access to latest technologies,” says Kuah.

One component maker claims that protectionist policies have resulted in components from Malaysia attracting higher import duties into countries in South-East Asia.

One way for components makers to up the ante is by forging Technical Assistance Agreements (TAA) with leading global OEM companies to enable them to access design capabilities, best practices in production and quality control.

“The government should consider providing incentives to Malaysian companies to enter into such agreements,” he says, adding that UMW Toyota Motor Sdn Bhd (UMWT) is aiming to export more than RM1bil worth of automotive parts components to Toyota affiliates worldwide. It is a 43% increase over the more than RM700mil the company earned in 2009.

Another perennial issue is the high cost of vehicle ownership in the country, no thanks to high taxes. Such taxes may be a significant source of Government revenue but they remain a sticky issue, one that has also made things difficult for policies such as the vehicle end of life due to the high cost to buy cars.

Fuelling the situation

The poor quality of fuel in Malaysia is another touchy subject.

Energy companies say offering higher quality fuel involves higher costs which ought to be recouped through a small increase in fuel cost to end users.  Opponents of the passing the buck argument say legislation should be sufficient to compel companies to provide better quality fuel without having to burden the consumer.

For one, Nasarudin hopes for higher grade fuels, especially diesel, in the near future: “Global carmakers have stepped up efforts to develop new highly fuel efficient models that run on EURO IV or V diesel and by 2014, EURO VI will be introduced.

“These cars will greatly reduce fuel consumption and CO2 emissions, which need to taken seriously.”
Briscoe laments that for far too long, Malaysian automotive users have been compelled to utilise substandard fuels, even compared to their neighbours in the Asean region.

“Lower grade fuels leads to higher emissions of harmful gasses, not to mention cause higher wear and tear on engine components. With the government committed to reducing carbon emission intensity per gross domestic product (GDP) by 40% to 2005 levels by the year 2020, the adoption of Euro IV standards is a vital step in ensuring effective widespread reductions from throughout the passenger and commercial vehicle segments,” he says.

“The quality of our fuel in our country, particularly diesel, also ought to keep up with the latest global trends,” says Aishah.
“Otherwise it will hamper the car companies from introducing the latest design and technologies into Malaysia.
In addition our country may end up a dumping ground for cars with obsolete technologies and old designs.”

The BIG merger

The merger between Proton and Perodua is no longer a matter of if, but simply when.

But not all are for the marriage. Its detractors say a merger could be a setback for the industry as it would only benefit Proton. One analyst is concerned that with the merger, Perodua’s historically high return to shareholders could suffer a beating.

Naturally, not all agree. “I don’t think consumers care. If Daihatsu remains in the picture, then there is no difference to them,” says an auto player. “This deal depends on what Daihatsu would do.”

Related Stories:

Proton MD’s vehicle end-of-life policy proposal received a lot of brickbats

Used car sellers hit by margin squeeze

2010 car sales performance in major Asean markets

Rebadging – a step forward or back?

Calls for faster liberalisation

END OF A WELL WRITTEN ARTICLE:

That's all folks, thanks for having the time and patience to read this blog entry.

The Star: Used car sellers hit by margin squeeze

The Star Business: Saturday November 6, 2010

Used car sellers hit by margin squeeze

THE local automotive industry may be on an up and up this year in terms of total industry volume, but many used car dealers feel that margins are being squeezed due to increasing competition.

“There are already too many cars and models in town. If you look at the average classified advertisement for used cars, there are more sellers than buyers,” says a Kuala Lumpur-based used car dealer.

Tan, a Kuala Lumpur-based used car dealer concurs, says that with new players coming into the market, there would be more vehicles in the market and competition among used car dealers or grey importers would be more intense.

Early last month, the Government said it was evaluating the possibility of granting manufacturing licences to five foreign automotive assemblers with the view of allowing them to operate locally, and would make a decision by year-end.

The Government already granted a manufacturing licence to Berjaya Corp Bhd, which is keen to assemble one-litre right-hand drive cars in Malaysia with China-based BYD Auto Co Ltd.
Grey importers bring in both new or used motor vehicles and motorcycles legally from another country through channels other than the maker’s official distribution system.

“Competition is already tough and will only get stiffer next year. With locally assembled cars, prices will be cheaper and a lot of customers, if given a choice, would prefer to buy a new vehicle than an old one.”
Chong, a Klang Valley-based used car dealer says sales this year had been relatively flat compared with 2009.

“Sales for the remaining months of the year are expected to be slow as customers prefer to wait for the new year so they can gain better resale value for their new cars.”

Separately, although he says the abolishment of the open approved permit (AP) system by 2015 is a good move, he feels that it still might not happen.

Under the reviewed National Automotive Policy (NAP) announced late October last year, the open AP policy to import used vehicles will be scrapped by Dec 31, 2015.

Franchise APs, meanwhile, will be terminated by Dec 31, 2020.
“I feel it’s still a question mark and will carry on,” says Chong.

During Budget 2010 last year, the Government also proposed that open APs no longer be sold for a measly few ringgit, instead slapping a RM10,000 fee for such a document. “The RM10,000-fee is a burden on used car dealers as it costs about RM50,000 for an AP. If it’s a high-end car, it could cost more,” he says.

Lam, a used-car dealer from Perak, is also looking forward to APs being abolished but is skeptical.
“Cars in Malaysia are ridiculously expensive and it’s time that APs be abolished. But will it happen? I’ll believe it when I see it.”

The Association of Malay Importers and Traders of Motor Vehicles Malaysia (Pekema) is, however, hopeful that APs are maintained.  Vice-president Sharifah Noor says auto players dependent on APs will be hurt as they had invested considerable sums in the business.

“Abolishing the APs will definitely have an impact on our members,” she says, adding that the AP system has helped create many bumiputra entrepreneurs in the automotive business.  “The automotive business is our members’ main income stream and a springboard for them to venture into other businesses.”

Earlier this year, it was reported that Pekema Sabah branch had asked for the review of the (RM10,000) levy charged on open APs to import used vehicles.  Pekema Sabah had also requested the Government review the policy to end the AP system.

Pekema Sabah chairman Rozman Isli was quoted as saying that the levy of RM10,000 for the issuance of each open AP is a burden to members, especially during the economic slowdown.  Sharifah says Pekema is currently in talks with the Government to split payment of the RM10,000 levy into two parts to make it easier for its members.

“It’s still being finalised,” she says.

END OF ARTICLE.

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SOURCE:
http://biz.thestar.com.my/news/story.asp?file=/2010/11/6/business/7341035&sec=business