Changes In New Car Tariffs And It’s Benefits For Buyers

Changes In New Car Tariffs And It’s Benefits For Buyers

The announcement on changes in import and excise duties for motor vehicles caused many questions to be raised. Consumers and industry players had waited long for the government to unveil the new tax structure, which is meant to meet the requirements of the Asean Free Trade Area (AFTA). Much of the anticipation had been built on the hope that car prices will soon be significantly lower. However, when it finally came, the announcement caused disappointment to many people because it did not clear the uncertainty about how much cars would cost in Malaysia under AFTA. However, there was still room for optimism. Observers pointed out that the Dec 31 statement from Prime Minister Datuk Seri Abdullah Ahmad Badawi was a step forward. According to a senior executive of a foreign car company, there was still some light, albeit a dim one, at the end of the tunnel. There are contrasting views on whether motor prices would actually come down with the implementation of the new tariffs. After a day-long meeting, officials from a foreign car make concluded that the price of their premium two-litre model may increase by between RM10,000 and RM12,000. They also believe that the company's range of lower engine capacity cars would cost slightly more. This in turn goes against the general perception that cars would be cheaper when AFTA is in place. A check with a Honda showroom in Kuala Lumpur revealed that the local distributor was discussing the implications of the new structure. Meanwhile, the sales personnel could not tell customers how the prices would change, if at all.

However, an investment analyst covering motor stocks mentioned that there would be a price dip of 5 to 6 per cent for all foreign marques below the engine capacity of 1,800 cc. Local auto players Perusahaan Otomobil Nasional Bhd (Proton) and Perusahaan Otomobil Kedua Sdn Bhd (Perodua) would consequently face a price hike of up to 3 per cent. Ultimately, the choice is tough, for the companies have to swallow the effects of the new tariffs or pass these on to the car buyers. A news report quoted Perodua managing director Tan Sri Ab Rahman Omar as saying that there would be no hike in the second national car's prices because the company enjoys exemption of excise duties until the end of the year 2004. But the investment analyst believes that Perodua may have to absorb any increase under the new tax structure if the company were to stick to its current car prices. According to an analyst from a bank-backed research outfit, even the most basic of information is unclear. He questions whether the national marques will be included under the Asean vehicle category or would these be classified separately under the national car category. 

 An industry observer asks about the status of vehicles assembled by Naza Kia Sdn Bhd, a joint venture between Naza Group and Kia Motor Corp of South Korea, and it’s fit under the Asean car banner. Naza Kia officials have revealed the company's intention to venture into the one-litre motorcar segment, thus threatening to give Proton and Perodua a run for their money. Some industry insiders thought that such a thing would only be feasible if Naza Kia entered the exclusive club of national car makers.

To address the many unanswered questions in the wake of the announcement, Malaysian Automotive Association president Aishah Ahmad organised a meeting with government officials. The higher excise duties in the new tax structure are meant to compensate the loss of revenue owing to the lower import duties. It is probable that Malaysia would not be alone among Asean countries to introduce such a measure. The Philippines, for example, has considered a similar move. Industry observers have also wondered about the fate of Proton under AFTA, with both Proton and Perodua enjoying a 50 per cent discount on excise duties, which will end on Dec 31 2004. Come January 2005, there will apparently be a level playing field, with questions being asked as to how Proton would cope with the burden of higher excise duties. According to a motoring analyst, Proton's market share has already slid. The new Campro engine released along side the new models have to be really good for Proton to remain competitive. As such, there is a lot of pressure on Proton to perform. Proton, which launched a new model in March of 2004, has aimed to boost sales and maintain the company's dominant position in the local automobile market. 

Most industry observers agree that Perodua is competitive, having sold several successful models. The second national car company is also looking to release an Asean car, which is targeted at capitalising on the AFTA framework. Until end-October 2003, total passenger car sales (national and non-national) fell by some 18.6 per cent to 230,132 units from the previous corresponding period. However, non-national car sales surged by some 63.8 per cent from 26,034 units to 42,651. Proton has already felt the pinch. For the first half year of its financial year ended September 2003, Proton registered a net profit of RM361.49 million on the back of a RM3.64 billion turnover. This was a year-on-year decline of some 43 per cent and 32 per cent. However, few people believe that the government would leave Proton totally unprotected. A high-ranking official from the local motor industry has been quoted as saying that in the same way it had been known about a year ago that the AFTA regulations would not result in cheaper cars, it is also known that there will be more announcements on measures to safeguard the local motor industry.

An industry observer points out that even the new tax structure for vehicles with engines above 1.8 litres is aimed at sparing Proton some hardship. Other than the Proton Perdana, which is a 2.0-litre car, the rest of Proton's models are at or below 1.8 litres.

Others in the industry believe that the new tax structure was intentionally left open-ended, with the idea being to fill the gaps gradually, allowing time to see how Proton's new Wira replacement model would fare after its launch.