Manufacturer strategies and roles of individual countries post-AFTA

Manufacturer strategies and roles of individual countries post-AFTA

Whilst there are considerable uncertainties regarding the timing and nature of the AFTA agreement as far the automotive industry is concerned, AFTA is a major factor in formulating product and production strategies for next generation products for the ASEAN market. The strategies of some new investors in ASEAN, such as BMW are highly dependent on the implementation of AFTA. Without AFTA, these operations will struggle to achieve critical mass. Component suppliers are also eager for progress with AFTA. The full implementation of AFTA should result in an increase in trade of built up vehicles as well as components between member states. This will enable manufacturers to exploit economies of scale by concentrating production in a smaller number of locations. In theory, this gives manufacturers the freedom to shut down plants and exit from countries which are uncompetitive by regional standards.  

Tough pricing for CKD

On January 2004, the News Straits Times newspaper reported on the meeting between the Government and automobile industry players, which ended with on the note that the Government would not interfere with pricing, and that car companies had agreed to let market forces dictate the prices of cars following the confusion over new tax and excise duties. According to the NST-Business Times , the confusion and ambiguity over the new tariffs were due to issues over how to calculate the import and excise duties which took effect on January 1. According to industry players, to tackle this, the Ministry of Finance would issue a comprehensive guide on how to calculate import and excise duties to end any uncertainties. However, the Minister of Finance II, Nor Mohamed is also said to have asked the companies to release their prices as soon as possible. The indication was that the price of CBU vehicles would not change significantly as excise duty on CBU models would be based on the cost of the imported car on a cost, insurance and freight (CIF) basis in accordance to the new import and excise duties. However, in the case of CKD models, there are numerous items which have different rates, more so now that there are preferential tariffs for AFTA items. To maximise profitability, car distributors would want to look for any area where they can enjoy preferential rates.

A source told the paper that, as an example, wire harnesses sourced from a local factory will have no import duty nor will tyres from Goodyear Malaysia in Shah Alam, Selangor.

Body panels sourced from Thailand will have an AFTA import duty of not more than 5%. But those from Japan will be subject to a much higher duty.

Meanwhile, Minister of International Trade and Industry, Rafidah Aziz, says Proton should not raise it’s car prices as the new tax structure announced would only cause a minimal increase in cost which can be absorbed by the company. She said the government had continued to protect Proton so that it would not have to increase its prices. As a result, many are faced with the dilemma of whether to buy or not to buy a new car in 2004.