Thursday, July 28, 2005

The Malaysian Car Industry

I am amazed at the number of people who thought that ALL cars would get cheaper after the implementation of AFTA. (for those who didn’t know, AFTA stands for the ASEAN Free Trade Area). They were disappointed when 1st of January, 2005 came and went and car prices didn’t go down (in fact they went up). They were disappointed that they still were not able to afford their dream Mercs, BMW, Hondas and Toyotas.

For those who didn’t know, under the terms of the Common Effective Preferential Tariff (CEPT) Agreement, Malaysia initially agreed to put the tariffs for automotive parts to below the five percent level by 2003. The move was postponed to the year 2005, when the car industry was badly affected by the economic crisis in 1997/98.

However, I am surprised to find that so many people are ignorant of the fact that this applies only to foreign companies having manufacturing plants in ASEAN with local content of at least 40 percent in order to enjoy the preferential import duty. So luxury brands like BMWs, Mercedes Benz, Lexus, Ferrari and Porsche (as well as other makes) manufactured outside the ASEAN region will not be cheaper. Import duties on those cars still remain. Anyway, people who can afford to buy these cars will buy these cars. Even without the taxes, they are still above the RM100K mark. I still can’t afford to buy a car costing over RM80K anyway. How many of you can?

Then some people ask how come new Proton and Perodua cars are not cheaper. I disagree. They are cheaper. The new cars have better quality, extra features (like air bags, ABS) and service has improved. So for almost the same prices we are getting a better overall package.

Some people say that the Government should remove the taxes all together on all cars.

The logic is simple. Cars become cheapr and we can all afford the foreign brand that we have all been dreaming about. Yes!It would mean the end of the Malaysian automobile industry. Who cares about the consequences. Some people couldn’t care less but let us try to answer some questions:

- How many vendors companies have been developed and depend on Proton and Perodua for their survival?
- How many people are employed by these companies?
- Are you aware that the taxes obtained from the import of foreign cars into Malaysia are used for supporting public facilities?

Selling to a foreign car company may mean killing the Proton brand, loss of jobs and of course money moving away to other countries.

Of course there is always the question, "How come Korean cars are so cheap?" Why can't Proton be like them?

I simply have no good explanation. Proton and Perodua have to find the answers if they are to survive and remain competitive. Maybe I can blame it on dumping – that is, the practice of selling goods in foreign markets at significantly lower prices than either in the home market of in other markets. Many companies do this in order to build up their market share. The Japanese did it in the US. Proton does it too – for example, cars sold in UK are reportedly cheaper than in Malaysia or have better specs.

However, having said that I feel that the Malaysian companies have to find out how the Korean (and now the Chinese) car companies have been able to come up with winning designs and even penetrate the tough US market (which Proton and Perodua hasn’t been able to do so far).

1 comment:

Anonymous said...

you got to be kidding yourself if you call the savvy and gen2 a good package to buy. even in countries where they are sold cheap and fully optioned....they are still bad buys if not terrible. the advantage only appears when you price other competitors out of the competition and it only applies in msia.

As the current circumstances stand....proton is indirectly responsible killing major foreign investments in the country and the spawning of vendors that cannot improve to compete on an international level. progress simply cannot be made without competition. So without doubt, you can be sure the koreans are ultra competitive....that is how they are able to do so well in the semi conductor business as well as the auto. Compete among themselves so much that they didnt realize they have already beaten other people or companies in other countries.

The movement of jobs and money out of the country is because of proton as well. If having your own national car company to drive your economy was so good, im sure many countries would have done it by now. If not why is the goverment now trying to immitate what thailand has done.

As for your point on tax. I think just about everybody knows what the purpose of tax is.


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