MALAYSIAN car buyers are in for an interesting time

In the short term, they may enjoy the lower prices of locally or Asean assembled cars as a result of the National Automotive Policy but the long-term effect may be paid in the form of less choice.

From the point of view of the local automotive industry, or rather the point of view of the national car companies, the NAP is a good thing and if properly taken advantage of, it can result in improved competitiveness and better global market penetration.

The Government has done rather well in structuring the grants for research and development to become payable after the companies fulfill certain a yardstick as this will encourage local players to improve their capabilities and venture into new territories.
It is also a wonderful tool for encouraging more collaboration between local corporations and foreign partners, which are genuinely interested in growing with Malaysia in the long term. This model is available in the existing structure of tax and incentives but some parameters have been modified and the quantum appears to have been generously expanded.

Since research and development is the real answer to competitiveness and profitability, there is, understandably, a lot of hope pinned on the National Automotive Policy’s approach to R&D grants and incentives.

The two national car companies now have the chance to enjoy strong support from the Government although it is quite uncertain whether Proton and Perodua will be the only two companies which will enjoy this generous support.

Listed as the first thrust of the policy is support and incentives based on sustainable economic contribution and they clearly mentioned export strength as one key criterion when dishing out public cash and assistance to carmakers.

With the Asean CEPT now streamlined to five percent and automakers further enticed with grants and incentives if they make a strong economic case for the country, who is to say that Honda, for example, which already has a significant manufacturing capacity in Malaysia will not further increase their operations just to enjoy the Government’s promise.

If they do, the Government would do well to encourage them and other global carmakers to install more manufacturing and research capacity in Malaysia. In which case we will be subsidizing foreign carmakers to ensure that the local scene is vibrant.
A word of caution to component vendors who have been napping on the job. The new policy places significant emphasis on economies of scale and quality improvements, in fact it encourages local component makers to tie up with foreign partners in order to be able to export their products.

Importers and distributors, which have local assembly programmes, are quite happy with the changes and feel that it would help them to be more competitive. At this point in time industry players are quite reluctant to make any comments as they are still trying to fathom the mechanisms, which have been developed for the NAP. However it is understood that local cars and locally assembled vehicles will enjoy some price reduction but imported cars may see their sticker price inflated.

Daimler Chrysler Malaysia and Perodua were among the first to announce price cuts. The second national car company announced price reductions across the board while Daimler Chrysler Malaysia is offering their locally assembled products for less. The reductions ranged from a few hundred Ringgit to thousands.

There will be a 2% to 3% reduction in the price of Perodua passenger car models with the exception of the Kancil 660cc and 850cc manual transmission models. This will translate into a reduction of RM800 to RM1,500.

Mercedes-Benz buyers can look forward to savings of between 6.5% to 10%. For example, the entry-level CKD Mercedes-Benz C180K model previously retailed at RM255,800 but with the duty savings, customers can expect to purchase the model for RM233,888. The model with the biggest price reduction will go to Mercedes-Benz E240K buyers who can now buy the car at RM388,000 compared to a price tag that exceeded RM400,000.

The bump on imported car prices comes hot on the heels of the issue of under declaration, which stormed the local auto industry last year.

Under the NAP, the importers no longer have a say in the valuation of the vehicles they bring in, instead the Government will gazette a list of prices for all the cars that are being imported and, according to reliable sources, the exercise has left importers looking at imported values doubled. Although the duties have been reduced, the higher starting point will see some imported cars seeing their price skyrocket.

There are importers who say that their prices may more than double under the new regime so they are in close consultation with the authorities to understand how they arrived at the values and maybe even appeal. One importer who declined to be named said that their entry-level model will see prices more than doubled from around RM400,000 to nearly a million under the new system. While it may seem unfair to the importers, the Government had given them fair warning and capitulating to the demands of luxury car importers may prove to be a deeply unpopular move.

As the price gap between locally assembled cars and fully imported models widen, buyers can expect fewer affordable imported models coming into the market and since local assembly will need a certain volume to become viable, the end result could be slightly cheaper cars for the masses but there could be some reduction in variation and choice. One way to avoid such a problem would be for Asean countries to specialize on certain segments in order to enjoy economies of scale and export them to neighbours. With a total regional volume that already exceeds one -million vehicles, there should be no real reason why we cannot enjoy variety and reasonable prices.