In a world where prices keep going up, it's good to know some things are going in the opposite direction. That trend has been seen in the automotive sector and in Malaysia that has meant cars are becoming increasingly more affordable for consumers.
Now, it all just boils down to a choice to satisfy your whims and desires. Prices are already reaching a narrow difference, with the recently launched Nissan Almera priced at an affordable price of RM66,800 in October 2012.
Despite a difference in specifications, it is marketed as a model similar to the likes of the Proton Preve, Proton Persona, and the Perodua Myvi. These national cars are priced at a range between RM42,000 to RM72,000.
The perceived lowered prices of foreign made brands had also caused a ripple effect in the automotive industry, triggering a price war among industry players towards the end of last year.
To that end, the Malaysian Automotive Institute
chief executive officer Madani Sahari tells
StarBizWeek that this is the effect of liberalisation.
“Liberalisation of the automotive industry is a key factor to reduce car prices. The Government has been responsible to liberalise the automotive industry through various measures.
“From January 2010 onwards, the Asean Free Trade Area (AFTA) is already effective which means import duty has been zero from within the region with removal of quantitative restrictions for completely built up (CBU) vehicles from Asean. Imports of CBUs within Asean had increased by 28.6% in 2011,” he says. Madani says that AFTA with Japan and Australia will come into full force from 2016 onwards.
That could very well mean cheaper cars down the road. In years past, foreign marques have been priced at a non-competitive price as they cost much higher to widen the price gap between the national makes churned out by Proton and Perodua.
While this was done in a bid to protect the national car industry that was in its infancy stages, it had instead turned into a double-edged sword that had bred inefficiencies. That has made national carmakers work harder today to remain relevant to the market.
Although the two national car companies have been encouraged to grow in spite of the veil of protectionism, the moat surrounding non-national carmakers had forced the others to price their vehicles at a big premium to the Malaysian-made cars. According to an industry source, the Government had previously focused on the final sale price of non-national cars (the practice was stopped in 2006), instead of looking at what is reasonable, in a bid to protect the national car industry.
No doubt the intent was noble but non-national car distributors were encouraged to inflate the on-the-road (OTR) price for cars via other factors, coupled with the excise duties and import duties.
“The OTR price of cars can be increased by different ways, where marketing cost, dealer's margin, accessories and other costs can be factored in. “These are the variables that can be controlled by the distributors to inflate the price of cars more,” says the source.
According to him, these costs include provisions for marketing and promotion, over trade value, and dealers' margin.
He says going by sales numbers, Malaysia had turned into one of the more profitable markets for these OEMs that had a base here.
Recognising this as a flaw, he says the government had recently requested the non-national car distributors to review their cost and price structure to look at ways to lower prices, and the outcome was the launch of the Nissan Almera at such an attractive price.
Since Oct 2012, there have been attempts to reduce car prices, and checks by
StarBizWeek reveal that car prices has gone down by a fair bit compared with prices before October.
Top sellers
The non-national top selling models in Malaysia are Japanese makes like Honda and Toyota, and since January, Malaysia's vehicle prices are the third cheapest in the region, surpassing Indonesia.
Confirming this, Madani says the car price rationalisation exercise had already started, and it is understood to be executed via a three-pronged approach, comprising of an immediate, medium term and long term plan.
He says further price reductions would be seen in the government's mid-term plan to reduce prices via the rationalisation of vehicle cost structure.
“The long term plan is to reduce prices through operational competitiveness and higher economies of scale by making Malaysia as the energy efficient vehicle (EEV) production hub, adding more value added activities in the production of cars and couple with rationalisation of excise duties effective Jan 2016,” he says.
Currently, the tax system in place consists of excise duties, import and sales taxes. Officially, excise duties for all vehicles are between 65% and 105% while sales tax stands at 10%.
“That is the official tax rate, but most major original equipment manufacturers (OEMs) are only paying an effective rate of around 40% of excise duties due to value added activities in the completely knocked down (CKD) process,” says Madani.
He says this system was intended to develop the local Malaysian automotive industry, which is a strategic direction to create the necessary research and development, local manufacturing and technology development of critical automotive components and employment opportunities.
Beside these duties, there are also other costs components that need to be factored in before reaching a retail on-the-road price for the public. And these other costs components (OCC) are not under the purview of the government.
“The OEMs will determine the OCC according to their product strategy and positioning taking into consideration factors such as distribution costs, advertisement, profits and others.
“The vehicle cost structure needs to be looked at prior to any duties review, ” he says.
But by 2016, new cars sold to the Malaysian public are expected to be priced more competitively taking into the elements of vehicle cost structure and duties rationalisation, in tandem with the kick off of the Asean Economic Community (AEC).
Besides the planned proposals to lower car prices, Malaysia is also positioning itself to become the EEV manufacturing hub for the Asean region, as the AEC entails the removal of trade barriers among member countries to promote the movement of goods and regional intra-trade.
Global OEMs like Honda had committed RM1bil of investments to expand its plants, while China's
Great Wall Motor Co is said to be in the final stages of obtaining relevant approvals to set up a RM2bil manufacturing plant.
According to a source, GWM is well positioned to set up its factory here soon and this would be with a local JV partner.
“Chinese bankers had approached GWM with ready capital to fund the project after the report by
StarBizWeek went viral among the banking community in China.
“Some local banks with representatives in China had even approached the company as well,” he says.
This bigger picture ought to change the local automotive industry's landscape, and industry players across the board should be prepared.
While details are still scant on the specific details of the National Automotive Policy revision and other relevant regulation, this is the last mile for the country to remain competitive. Otherwise the local automotive industry would struggle to remain relevant in the face of market liberalisation.
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