Saturday, 28 July 2012

Cheaper cars can boost export - Amir Ali

The potential that has always been overlooked by the local automotive industry. It is the exportation of refurbished cars.
Malaysia’s car industry can face an overhaul if car prices are to be reduced with the creation of brand new industries – such as exportation of refurbished second hand cars – and the boosting of the already existing automative parts and accessories industry in the country.

High taxation is the reason why cars are so expensive in Malaysia. Currently, according to Rafizi Ramli of PKR, Malaysians pay 70% in taxes when they buy locally-made cars of below 1,500cc.

“Buyers end up paying almost RM16,500 in excise duties and sales tax for a car worth RM40,000,” he said as reported by FMT.

While this is the hard truth, there is yet another fact that should be debated and this is the potential that has always been overlooked by the local automotive industry. It is the exportation of refurbished cars to Africa, parts of Asia and Middle East where the demand for such cars are always on the increase.

Singapore for example is reaping huge benefits with the exportation of used cars right from the Custom and Excise duties warehouses. These cars are exported to Nigeria or Cameroon and even at times to Arab nations and why not Cambodia and so on.

To have a clearer view of the potentials that awaits the local automotive car industry with a potential reduction of car prices, I will refer to a section of a chapter on Re-branding in the Muslim World.

This can be found in a book written by Kazi Mahmood entitled “Islam-Inc” and published in 2004 in Malaysia. There is a very interesting sub-section on Proton’s rebranding. The idea behind the rebranding of a Malaysian mark is given a new life with the suggestions by Pakatan Rakyat for the reduction of car prices in Malaysia.

Offer to buy back

Some of the measures that Kazi Mahmood suggested and that can be implemented to boost exportation of used cars from Malaysia would be as follows:-

1. Proton and other car manufacturers-assembly lines in Malaysia can offer to buy back the cars of their make and brands that are 10 years and older.

2. These companies can also offer cash back to owners who trade-in their old cars for the purchase of new models from the same companies. This cash back would be in the form of a refund of the excessive Excise duties originally charged on these cars. In essence, they should offer cash redemptions on their new models to car owners who opt for trade-ins.

3. Some of these assembly lines in Malaysia can choose a free port outside Malaysia – such as the one in Mauritius or in Dubai – as point of production/assembly for their second hand cars – which would become a point of exit for their products in the markets that would be willing to purchase second hand cars from Malaysia.

4. The Malaysian government, besides reducing the excise and customs duties on new cars, should also compensate existing car owners since such a reduction would also bring down the prices of cars on the road. This would mean more losses to the owners, hence a new policy of refunding the excise and custom duty should be implemented and counters should be set-up where the public would cash-out the discount. That way, people would not lose their deposits on their existing cars for example.

5. A major policy can be implemented with regard to the lifespan of cars on the roads. The authorities can reduce the lifespan of cars on the road, which would include the following:-

a) Limit the life span of cars on the roads to 10 or 15 years. Malaysian cars (made in Malaysia) do not have the strength to survive beyond 10 years in reality. So do many of the foreign brands in the country. After 10 years, they are as good as junk in many cases and that is one of the many reasons there are numerous accidents on Malaysian roads. To reduce the accident rates and to make the car industry more vibrant, a 10 year limit on cars of a certain brand and make would be most welcomed as it would increase road safety.

b) Implement the policy of car scrapping. This would boost many industries and would altogether create new jobs and new industries in the country’s lamenting car industry. For example, scrapping of cars older than 10 years would ensure that parts are made available for these types of cars in export destinations. It would also mean that more material would be available for recycling, thus boosting the recycling industry in the country. It can end up impacting – albeit to a small degree – the importation of raw materials for car production.

c) Increase road tax and insurance premium for cars older than 10 years. This would force the owners to consider trade-ins or scrapping of the old cars.

d) Compensate the owners of cars that are up for scrapping with a refund of a portion of the duties and taxes they paid on the car at the time of the purchase.

e) The same partial refund of the duties and taxes must apply to imported vehicles too – essentially cars of foreign make and brands.

Useful in the long run

This action plan devised originally with Proton in mind by Kazi, would be useful for Malaysia in the long run as it would bring more impetus to build new car models and to fill the market with brand new cars every five to 10 years.

Why is that so? That is to say if these policies mentioned above are fully implemented, the country would see its automotive assembly lines work at an increased speed, delivering new cars at double or triple of the current rate. The reason behind this would be the very fact that people would opt for new cars every five years as the value of cars on the road would be lesser with new cars coming out of the factories at a faster rate. These cars would also be available at even cheaper prices than the existing cars originally.

The effect of this would be that cars would be cheap enough to be exported to a certain market where the demand for four or five year old cars are in great demand. These cars would be refurbished, their duties refunded in part and they would be priced for export value.

Africa and other parts of Asia are in need of affordable, refurbished and good cars and this is what Malaysia can target if it has an automotive policy driven towards safety, exportations and the renewal of the flock of cars on the national roads with brand new cars every four to five years!

As mentioned above, these measures would bring about a new industrial focus in Malaysia with companies opening up their warehouses for cars that are either heading for scrapping or refurbishing and exportation.
At the current existing car prices, no one would want to scrap their possessions as cars are far too expensive for scrapping. A seven to 10 year old car is still expensive for export in Malaysia hence the absence of an export industry for used cars in the country.

The broadside of this argument is that by refunding the people who want to scrap their cars or trade-in their old cars for brand new models in the future, there would be a new impetus, a new business dealing that saves factories from redundancy and serious downturns, a situation many car assembly lines are actually facing.

KL-based Amir Ali works for an Indonesian NGO called the Warisan Melayu Riau, which is based in Bengkalis, Riau.

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