NAP should address issue of high car prices

  • Business
  • Saturday, 23 Jun 2012

Malaysians are paying too much for cars, money they could be using to increase quality of life

IT has been reported that the National Automotive Policy (NAP) will be reviewed. But unless the review addresses the problem of the high price of cars in Malaysia and reduce the burden on Malaysians, it will yet again be an abject failure.

As soon as the first Proton the Saga rolled off the production line in 1985, something happened to car prices they started rising and in a matter of mere years, they were higher than most places in the world, sometimes as much as twice the price of cars in other markets.

I recall buying a brand new Mazda 1.5 hatchback for RM16,500 in 1982 but when I bought a Proton 1.3S in 1988, an inferior car to the Mazda in terms of comfort, space and performance six years later, the price had gone up to nearly RM26,000 or about 60% more everything else in the same range was considerably more expensive.

The underlying reason for that was, simply put, tariff protection. To ensure a market for Proton cars, Astronomical duties were imposed on imported cars sometimes a 100% or more and a similar but slightly less onerous fate descended upon locally assembled cars.

The upshot of all this was that soon after Proton had an iron grip on the market with four out of five cars sold being Proton. Look to the left and there is a Proton, look to the right and there is another, look behind and there's one more and the one coming right towards you is yet another one. And what's the other car I see, looks like a Sunny (Nissan).

That was the scenario for quite a while and then another Malaysian national car manufacturer was set up in 1992, Perodua, with technical help from Daihatsu of Japan, a Toyota subsidiary. Meantime, Proton was trying hard to get its own capability up and dissolved its partnership with Mitsubishi, which had resulted in a very reliable first generation Proton based on the Mitsubishi models.

From Government hands, ownership passed to private hands and a dalliance began with other manufacturers including Citroen which resulted in something called the Tiara based on an out-dated Citroen model. Models proliferated, suppliers were squeezed, quality was beginning to be affected and problems began to appear.

Proton went back into Government hands because the private owners could not hack it anymore, first Petronas and then Khazanah Nasional. An own engine was introduced. Quality dropped further and Perodua made inroads. Eventually Perodua overtook Proton as the main brand in the country.

There was a near-miss tie up with Volkswagen, which would have ensured Proton and the Malaysian car industry a bright future as the German company sought a regional manufacturing base. Top Government officials, apparently instigated by Proton top brass, baulked at the last minute although Khazanah Nasional was all for the deal.

Eventually, Proton moved back into private hands, the same owners yet again, DRB-Hicom, but with new major shareholders at this company to which Khazanah Nasional had sold its stake.

That's a very brief history of the Malaysian automotive industry. Point to note is that 27 years after the first national car rolled off the production line, cars in Malaysia continue to be among the most expensive in the world and the so-called national manufacturers continue to be heavily protected.

The NAP has to clearly recognise that the national car industry is not going to survive unless the players have access to technology and have scale. Proton is going to have a problem because it has no permanent tie-up in terms of equity and management with a technology provider.

In that respect, Perodua is better off because it has both an equity and technology tie-up with Daihatsu, one of the world's leading manufacturers of small cars. There are also possibilities for Daihatsu using Perodua as its regional manufacturing base which will go a long way towards preserving its future.

But no such prospect seems to be in store for Proton. It lost a golden opportunity with Volkswagen, one of the largest manufacturers in the world and Europe's largest, which makes an array of high quality vehicles in all the product groups.

What is important now, and this is what the NAP should do, is liberalise the industry for the market which accounts for over 90% of sales in Malaysia, below 1800cc category.

Not only that, it should announce a phased withdrawal of import duties and excise tax say over five years so that there is no tax on cars. If a value-added tax is imposed, then that can apply to cars. This will make the industry wide open to competition and will force consolidation and tie-ups either compete or perish.

The import duties were imposed to protect the national cars and the Government can't say it provides a lot of revenue for it now. If it wants to roll back subsidies it must also roll back unfair taxes, which affect the general public.

After all, the car is the largest investment most people make after a house and Malaysians have high per capita ownership of cars, given the poor public transport. Removing taxes on cars will benefit a wide cross section of people and give them more disposable income that they can spend on other things, improve their quality of life, and provide a fillip to the economy.

We made a mistake 27 years ago when we went into car manufacturing. We had neither a comparative advantage nor technological capability. The only way we could have survived was a tie-up, which is why Perodua is successful while Proton is not now, although it initially was.

The Koreans, who entered the car industry about the same time, are far ahead of us now but that would also be because they were technologically much more prepared and able than us and have a much bigger local market.

But whatever the arguments, we must accept the national car project was not a complete success and it came at a great cost to the Malaysian public who would have paid many, many billions of ringgit more for the cars that they bought over the last 27 years than was necessary.

It is simply too much to expect them to continue paying much more for cars for an indefinite period of time.

Independent consultant and writer P Gunasegaram ( still laments that there is no Volkwagen Golf GTI at not much more than RM120,000 which is about what it sells for in Germany.

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