NAP 2014: Talk of Cheap Cars Again


Read these first:-

the-impact-of-the-electric-car_5033a828f37ca

(The hard cold facts of EEVs – have we considered the pros and cons of using EEVs? After all, the buzz word of NAP 2014 is EEV which is not a bad thing if you ask me and holds many benefits, both for the industry, consumer and the environment. But the thing is, will we put the right effort on implementing what we have planned and deliver cheaper car in the end? Image source: http://visual.ly)

If you can recall before the elections, reducing price of the car was something that both side of the fence promised to entice the voters. Err, sorry that was not case really – what actually happened was this, it was something that Pakatan had initiated (it was a good proposal too) and when people had warmed to the idea, BN found themselves pushed to a corner and promised the same thing (some how, strangely earlier they were against cheaper cars). They said they were wiser and promised price reduction for many other things – toll being one of it. But in the end, all those items that should have cost cheaper, ended up costing more (although the toll increase seems to be on hold at the moment but it may not be for long). They were indeed wiser and the voters who voted for them were made to look like fools.

Then recently in 2014, we got this:-

The National Automotive Policy (NAP) announced today that it is committed to a gradual reduction of prices ranging between 20% and 30% over the next five years. However, Inter¬national Trade and Industry Minister Datuk Seri Mustapa Mohamed, who announced it, stopped short of giving details on how the reduction would come about.

“We are constantly reviewing our fiscal position. Our deficit level is now 4%. In the event our revenue improves, we may review the excise duty. “We will reduce excise duty gradually over a period of time,” he told reporters after announcing NAP 2014 here today.

NAP 2014’s key objective is to make Malaysia a regional automotive hub for energy-efficient vehicles (EEVs), to be achieved by issuing manufacturing licences (ML) to all car companies without any engine capacity restrictions. This will be followed with customised incentives for each investor coming into the country, which will eventually contribute towards a lowering of EEV car prices in the country.

On Approved Permits (APs), Mustapa said the government will conduct an in-depth study on the issue to assess the impact of the termination on bumiputera participation in the automotive industry. “We are not backtracking. We will be doing a thorough study which will start after Chinese New Year,” he said, adding that NAP 2009 had specified the termination of open APs by Dec 31, 2015 and Franchise APs by Dec 31, 2020.

(Source)

Now where did we saw that very similar looking promise to reduce the price of cars? So what does this really means to all of us?

One, it looks like price of cars will NOT be coming down anytime soon (soon means in the coming months instead of the coming years) BUT they have promise to bring it down in the next 5 years, interestingly just before the next general elections. Don’t you feel a sense of déjà vu? So, you guys want to trust them again with the so-called promise of gradual reduction in the next 5 years? What stopping them from postponing this plan to reduce the price after the elections?

One thing that NAP 2014 seemed to have missed in making vehicles more affordable is the structure of car financing in this country (if it is there and I have missed it, please let me know). The current method of installment computation using flat rest (upfront interest) should be abolished. They should instead apply the same monthly rest method used for housing loans (month end interest computation). If a car cost RM100,000 (let’s assume 100% financing) with an interest rate of 5% and the financing period of 5 years, the monthly installment from the 2 methods would be as follows:-

Upfront interest method – ((RM100,000 x 5% x 5) + RM100,000)/60 = RM2,084
Month end interest computation – using the PMT formula = RM1,887

There is a difference of almost RM200 per month. Yes, the banks earns less every month but this also means the consumer is paying less. In total (for that 5 years), the financing cost is lower by almost RM12,000 and that is a lot of money, if you ask me. Money can be offset against higher petrol, toll and maintenance cost. There is no need for a very long financing period too if the monthly installment is lower. Some of us are forced to take 7 – 9 years of hire purchase just to own a decent safe car. And for those may opt to pay higher installment, the settlement of the loan would be faster. Further by using upfront interest method, the consumer loses more if he settles earlier towards the end of the loan cycle. Those who is familiar with the Rule 78 will understand this and in 2001, a Bill was even introduced in US that would eliminate the use of the Rule of 78s formula in credit transactions, for obvious reason:-

But your payout amount won’t be what you deserve. The reason? Using the “Rule of 78s” method, your lender applies more of your previous payments toward interest and less of your previous payments toward principal.

Since less is applied toward principal, the amount you owe will be higher than expected. The earlier you try to pay off one of these loans the more you’ll have to pay. The higher the interest rate, the more that payoff amount is going to hurt.

“If it had overcharged the lender and undercharged the consumer, it would have disappeared decades ago,” says Jean Ann Fox, director of consumer protection for Consumer Federation of America. “It’s a dirty little secret.”

(Source)

In Malaysia, we are still stuck to the upfront interest computation and the use of Rule 78 and so far, the Government have not introduced any restrictions on this. At the end, the consumer do pay more to own a car. Add this with the overpriced car (no thanks to AP and excise duties), the cost of owning a car is very expensive indeed in Malaysia. This somehow is missing from NAP 2014 although this has a direct implications on the industry.

Two, there is no clear decision on abolishing the APs although the Minister did mention “something” will happen on Open APs in December 2015 (that’s about 2 years from now). So let’s see if something do happens next year or as usual, it gets swept under the carpet. After all, if the Minister comes back and say “We need to do this study. We have to take the views of automotive industry stakeholders including bumiputera participants and the impact of the AP termination”, you probably want to hold back your celebrations. We all know who the stakeholders are and there is only a handful of them (we even had AP Queen once) but somehow this takes precedent over the many Malaysians who owns a car (with a ratio of 200 cars for every one thousand people, Malaysia ranks among countries with high car ownership ratio in the region. We have more than 22 million vehicles)

Back in 2005, Paul Tan wrote about this and nothing much have changed since then:-

Let’s use Honda cars for example. In Malaysia, Hondas are marketed and distributed by Honda Malaysia Sdn Bhd, a joint venture company between Honda Motor Co., Ltd. of Japan, DRB HICOM Berhad and Oriental Holdings Berhad. I do not see Honda Malaysia Sdn. Bhd. in the AP recipients list.

But I do see an AP king trio of Syed Azman, Mohd Haniff and Azzuddin holding the most APs. And one of their companies is Weststar Motorsport, which is said to be the franchise AP holder for Honda cars in Malaysia. Weststar Motorsport received 7603 APs in 2005 so far. It’s only half a year now. With a market rate of RM30,000 per AP, that’s a nice amount of roughly RM228 million ringgit worth of APs. However, I do not see Weststar Motorsport having any distributor chain of Honda cars anywhere.

Perhaps a distribution chain is not needed. Maybe all they need is a small office to process AP purchase orders. Could it be Honda Malaysia has to buy APs from Weststar Motorsport in order to import their own vehicles into Malaysia? In Honda’s case, Weststar Motorsport brings the cars in and hands over the car and responsibilities of how the car is going to reach the consumer’s hands to Honda Malaysia. And I reckon they only import as much as what’s requested.

(Source)

Speaking of APs, NAP 2014 also states that the government is open to possibilities to reduce excise duties gradually BUT ha ha, when the fiscal situation permits. And you know by the way the Government spends like they are high on drugs, the fiscal situation is not going to improve anytime soon. So forget about all these talk of reducing the excise duties gradually.

Three, EEV (energy-efficient vehicles) seems to be the “in” thing for the latest NAP. Considering that the price of petrol have been going up in the last few years, this is indeed good news. It is also good news for the environment too. But are we prepared for it in terms of infrastructure and cheaper EEV? Forget about getting a cheaper Prius – even after you have take into consideration the high cost of the battery, it still cost almost RM140,000 right now (in US, it cost only RM80,000 so we must paying an extra RM60,000 for taxes and AP). It may be cheaper in the future but that is not certain. And if we also include electric cars, do we have plans to set up the infrastructures needed to compliment a greater use of EEVs?

Electric cars often have less maximum range on one charge than cars powered by fossil fuels, and they can take considerable time to recharge. This is a reason that many automakers marketed EVs as “daily drivers” suitable for city trips and other short hauls.

Nevertheless, people can be concerned that they would run out of energy from their battery before reaching their destination, a worry known as range anxiety. As of December 2013, Estonia is the first and only country that had deployed an EV charging network with nationwide coverage, with fast chargers available along highways at a minimum distance of between 40 to 60 km (25 to 37 mi), and a higher density in urban areas

(Source)

Four, there is something called “voluntary annual vehicle check” which seems to be more of a mystery. How effective is this voluntary annual vehicle check when there is also scheduled car service in place for all cars? For example if I am taking my car to the authorized car service center every 5,000 km for a change of oil and car inspection, will I volunteer for another vehicle check in another center who may or may not be familiar with the workings of the car?

And what happens if during the voluntary annual vehicle check, the car is found to be unsafe for one reason or another? Will be the owner be advised to go back to their authorized service centers to get it rectified or their car is impounded right there? Don’t the authorized service centers suppose to do this in the first place? One just hopes that this will not be part of the earlier proposed end-of-life vehicle policy wrapped in new clothes. It may be voluntary checking now but once the inspection issues ironed out, what’s stopping them from making it mandatory (where consumer ends up paying more for the same thing) and thereafter impose the 12 years end-of-life vehicle policy?

To be fair, NAP 2014 has just been announced – it may be tweaked in the coming months but one would hope that the execution of the key features of the NAP 2014 is effectively done. No point talking about reducing the price of the car or give higher incentives for EEVs if at the end of the day, we don’t actually see overall reduction of the price for better equipped in terms of performance and safety cars and other related factors like car financing is not taken into consideration.

As I have said, don’t you feel a sense of déjà vu?

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No To Cheaper Cars?


(The latest Toyota Camry 2.5 is priced RM180,000 in Malaysia whilst the premium model only costs RM91,000 in US. So why is the huge difference in the car pricing in this country? Imagine source: TheCarGuys)

Folks, the general elections are coming soon and as I mentioned in my blog in the past, we must insist on voting for politicians who are able to see the bigger picture and be more intelligent enough in ensuring the issues that they raise in the public arena are of public interest and shapes the general policy and direction of this country.

One of the recent issues that were raised is the Pakatan Rakyat’s proposed plan to reduce price of cars in this country.

The proposal to reduce the prices of cars in this country by Pakatan Rakyat (an issue where a proper closure has been long overdue) if they are voted into power has sent a rather disturbing ripple among BN politicians. The reasons and the benefits to reduce car prices obviously works in good favour of the ordinary citizens and yet, we have not seen any BN politicians (except perhaps this guy) who had come out in the open with full support of this proposal.

Why? Is it because the proposal was initiated by the opposition and thus the support for the proposal is seen as a support for the opposition?

In argument against the said proposal, some argued that it will put the local automotive industry at a disadvantage once foreign cars were made cheaper. Valid argument no doubt but then again, how long more the local automotive industry needs to be able to compete on a global sense after almost 30 years in existence? Others try to stir racial issue by saying that the majority employed in the industry from a particular race and the impact of cheaper cars means a challenge to the race’s rights, which is rather nonsense as all races in this country are also involved in the industry one way or another.

Then we have this argument:-

Dalam keghairahan Pakatan Rakyat untuk menurunkan harga kereta, mereka terlupa untuk memberi maklumat kepada rakyat Malaysia apakah impak cadangan tersebut terhadap kualiti alam sekitar dan kenaikan sisa karbon serta kesesakan lalu lintas di jalanraya.

Ramai orang merasakan cadangan mengurangkan harga kereta ini bercanggah dengan tindakan kerajaan untuk menubuhkan Suruhanjaya Pengangkutan Awam Darat (SPAD) yang dipertangggungjawabkan untuk mereformasikan sistem pengangkutan awam di negara kita.

Seperkara lagi, orang kampung di luar bandar tidak akan mampu untuk membeli kereta walaupun harga kereta diturunkan. Tetapi mereka akan merasa implikasi dari cadangan ini. Besar kemungkinan mereka terpaksa berkorban kerana sekolah dan klinik di kawasan pendalaman terpaksa di kurangkan akibat kekurangan peruntukan pembangunan disebabkan cukai kereta berbillion ringgit yang dipungut oleh kerajaan sudah berkurangan.

Ini belum lagi membicarakan tentang komitmen negara kita untuk mengurangkan intensiti karbon negara sebanyak 40% sepertimana yang diperakui oleh Malaysia dalam Protokol Kyoto.

(Source)

The MP for Kota Belud raises two key issues in response to Pakatan Rakyat’s call to reduce the price of vehicles in this country. One is the impact on the environment due to more vehicles purchased (since it is cheaper acquire them now) and two, the expected increase in traffic jam. He also said that the call for cheaper car is going against the on-going reformation of the public transport by the Government (although I don’t see the direct implication of cheap car on the reformation process as public transport still need to be reformed regardless whether cars are made cheaper or not) and the Government would lose a sizeable income and will cause the country unable to meet the carbon intensity by 40% as dictated by the Kyoto Protocol.

Before that, let’s ponder why Pakatan Rakyat is calling for reduction of car price in the country in the first place?

High taxation is the reason why cars are so expensive in Malaysia. Currently, according to Rafizi, 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. “On top of that, car owners also pay about 4% in interest for the loan.” According to his estimation, a typical car owner in Malaysia pays nearly RM600 a month towards settling his car loan. Toll charges and the cost of petrol would take up another RM400 of his monthly income.

Rafizi said Pakatan would phase out excise duties on cars to reduce household debt and increase disposable income.

Citing the Statistics Department’s Household and Basic Amenities Survey Report 2009, he said 53% of Malaysian households earn less than RM3,000 a month. “The report also shows that 71.9% of Malaysians own a car,” he said. “High car installments have become one of the reasons Malaysians are burdened with huge debt.”

As of May 2012, car loans repayment ranked second highest in household debt, standing at a staggering RM134 billion, he added.

(Source)

It is not a big secret that Malaysians are paying ridiculous price for cars in this country compared to other countries. And a bulk of the price is attributed to excise duties and sales tax. And seriously I am in favour for cheaper cars – the benefits are just too obvious – more people will be able to drive in cars that are safer, more economical, environmental friendly and equipped with better technology. And with car price cheaper, the hire purchase amount would be lower and Malaysians would have more disposal income for their family, education and healthcare. If you think about it, a good portion of the hire purchase loan is now being used to pay off a bulk of the excise duties and sales tax which has incorporated into the overall car price. This means we are in high debt to pay taxes to the Government.

Let’s leave aside the issue of the impact on the local automotive industry (there will be some impact no doubt but what is more important is how the industry plans to address the current shortcomings and go head to head in the global market) and on how Pakatan intends to make up the loss of a sizable income for the Government due to reduced excise duties and sales tax.

Let’s focus on the Kota Belut MP’s 2 main argument’s against the lowering the cost of cars in this country.

Impact on the Environment

(The standard that we use for emission evaluation – the European Emission Standard which started back in 1992. Where is the Malaysian version of this? Image source: Wikipedia)

We must recognize that modern cars are far more efficient than the cars that we drove 10 – 20 years ago. With the influx of hybrid cars and cars that meet the European emission standards (with EURO 6 coming up soon in 2014), the impact on the environment is low and in general sense, is improving with a more stringent emission standards put in place.

If we still insist on meeting the reduction of the carbon intensity by 40% as dictated by the Kyoto Protocol, then we should not only address the emission from vehicles on the road but also holistically, greenhouse gas emission from other industries (such as the energy industry) as carbon dioxide is just one of the greenhouse gas identified in the Protocol. And if we are only looking at emission from vehicles, then shouldn’t we insist on a stringent emission standards for all vehicles in this country? We don’t have our own emission standards but often rely on European emission standards and how many vehicles in this country meet the latest European emission standards? Only the very latest Proton models (running on Campro CFE with CVT) seem to meet the latest EURO 5 emission standard but what about the rest?

Average Car Carbon Emission in European Union Countries = 160 g/km
Target for 2012 = 120 g/km
Target for 2020 = 80 g/km

Proton Gen-2 Carbon Emission = 157 g/km (ranges from 131 to 192 g/km for other models)
Proton Waja/Impian Carbon Emission = 167 g/km (manual transmission) 172 g/km (auto transmission)
Proton Satria Neo Carbon Emission = 177 g/km
Proton Savvy Carbon Emission = 134 g/km

Proton Waja and Proton Satria Neo beat the average car carbon emission in Europe. Seems like Proton Savvy is the greenest of all (not so green though) at 134 g/km considering that it is only a 1200 cc.

If you drive your car 10,000 miles per year and have an average polluting car (i.e 160g/km of carbon emissions) then every year your car will emit 2.6 tonnes of Carbon Dioxide. If you wish it offset this amount by planting trees you would need to plant at least 4 trees for every year you spend driving the car.

Proton’s cars are not so green. In fact, there are no information regarding carbon emission in Proton’s official website or Proton’s brochure. It is only mentioned “Low carbon emission” in the sales brochure. Well, not so low after all!

(Source)

We still have “tonnes” of older Proton models on the road, still emitting greenhouse gases year in, year out. Why not we enforce the emission control on them and other older models? By making the price of new cars cheaper, aren’t we accelerating the change of the older fuel guzzling, higher greenhouse gases emitting vehicles to newer fuel saving, lower greenhouse gases emitting vehicles?

Impact on the Traffic Jam

Even with the current high cost of car ownership, there is no positive improvement on the traffic jam especially in the Klang Valley and other major cities.Perhaps the situation is all rosy and well in Kota Belut but not so here – just try to drive during the peak hours and see how fast you can go.

This is because we have to come to a situation where having a car is no longer a luxury but rather a bare necessity. It is also safer and more convenient compared to one using the public transport (which is still in the process of revamping itself). Most household these days have at least 2 cars as it is also necessary for housewives to drive for daily shopping and to send & pick up their kids from school, etc. So before we can argue that cheaper cars means worsening traffic jams, we need to see the condition of traffic movement at the present and what is being done to elevate the situation.

Just look at Klang Valley with it’s all road infrastructure and public transportation integration at the very best, the traffic condition is still bad. Number of cars on the road is obviously a reason for the bad traffic jam but there are other factors as well. Queue jumping at key bottlenecks chokes the overall traffic system and gets cascaded all over. Another is the lack of feeder roads to the main roads especially from one residential area to another. The traffic jam is made worse due to high number of vehicles with low occupancy rate (just check and see how many people in most of the cars) and a lack of coordinated travel time similar to the one deployed during the festive season (or based on registration number which will force a greater use of public transport) for day to day travel to and fro workplace.

If cars are made cheaper, it will not necessarily means that the traffic jam will get worse (it already is) by a very drastic rate. There will be some increase (perhaps by those motorcyclists who now can afford to buy cars) but how much the increase will be is highly dependant on other factors as mentioned above. And there are others costs need to be considered as well – maintenance charges, parking, toll and fuel which will play crucial role on those who wants to drive around in a car on a daily basis.

Final Say

It is easy to say that all of Pakatan’s ideas are bad ideas and throw-in the usual arguments towards it but we need a solid solution for the existing problems as well. In the case of Pakatan’s call for cheaper cars in this country, one would strongly agree that there will be a major impact on the local automotive industry and the revenue for the Government (which Pakatan said is manageable if the general expenses are well managed) but then again, does that mean we should keep the car prices arbitrarily high and keep the people in high debts and away from better quality, safer & a more environment friendly cars?

If the Government is not agreeable in reducing the car price down, then what would be the alternative measures to increase the household disposable income of those who need to use a car for their daily routine and yet a bulk of their income is tied to high car price & loan? A more flexible hire purchase arrangement (like using monthly rest and not Rule 78 or multi tier hire purchase rate) or perhaps some kind of long term cash rebate or sales tax relief for those who drive a more eco-friendly (remember we need to address the targets under the Kyoto Protocol) cars? Or perhaps some staggered tax policy that based on the capacity of the vehicle and net income of the car owner?

Can we have this now? No, not the cheaper price for cars but rather, a better focus of the issues at hand.

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Quote of Week – Unsafe Cars


“The lack of demand among Malaysians for safety features is the main reason why many vehicles sold in the country do not meet international safety standards”

(Just how many of the locally made cars had even passed the basic crash test with flying colors? If you know the answer, then you will know that we been screwed with unsafe cars for a very long time now but question is whose’ fault is it? Image source: http://news.carlist.my)

At first, I thought of commenting on some politicians saying that warnings of violence against another community are now a Malaysian norm but I remembered – it is coming from a Malaysian politician. Ya, that is pretty norm these days to be hearing them to say warning of violence is a norm especially when they don’t seems to be doing anything to curtail it.

Then I read this:-

The lack of demand among Malaysians for safety features is the main reason why many vehicles sold in the country do not meet international safety standards, said Malaysian Institute of Road Safety Research (Miros) director-general Prof Dr Ahmad Farhan Mohd Sadullah.

He said many Malaysians still did not bother wearing seat belts and helmets.

“There are also no regulations to ensure that vehicles sold in Malaysia must comply with international safety standards.

“This is why there are similar models of cars sold in Malaysia but their safety features are different from those in other countries like the United States,” he told a press conference after signing a memorandum of understanding (MOU) with China’s Research Institute of Highway here Thursday.

To prevent car manufacturers from practising such “double standards”, Dr Ahmad Farhan said the Government was constantly engaging in talks to convince them there was a growing demand for safer cars.

On why the Government did not take the initiative to make regulations that would ensure better safety features in vehicles, Dr Ahmad Farhan said: “It will take a long time before such a law can be approved in Parliament. We believe it will be more effective if we talk to manufacturers directly.

“These days, we are getting more positive response from car manufacturers,” he said.

(Source)

Revelation by the MIROS DG is nothing new – we know for a long time now that many vehicles sold in the country do not meet international safety standards, not at the price that we can afford, of course – but the sad part is his reasoning – that we Malaysians have made suckers for a long time with cheap, unsafe cars in this country because we don’t DEMAND for safer cars (what he expects us to do? Street protest on the weekends?).

Ya, I had expected something “more intelligent” from head of the agency which looks into the safety aspect of the road users in this country but his reasonings does not hold water as well.

Firstly, he says that Malaysians are blamed on poor quality of cars that is brought into this country. Why? Because they don’t bother wearing seat belts and helmets? If so, shouldn’t it be for the enforcement agencies in this country to enforce the law and hung them from the high pole? That should not be the sorry excuse for poor quality of cars in this country. Further, what about others who wear seat belts and helmets but had to content with unsafe cars because they cannot afford the more expensive but safer cars?

Secondly, he argues that it is “easier” to get the manufacturers to bring in safer cars, NOT by making strict laws that enforces minimum safety specifications of vehicles in this country but rather by “engaging in talks to convince them” that there was a growing demand for safer cars. Convince them? I could almost hear him saying that the Government is powerless against mighty & powerful car manufacturers and they have no choice but to wait and see if the car manufacturers will have change of heart to produce safer cars.

And even if the car manufacturers DO bring in safer cars, what would the cost be and how this is going to be translated to the car selling price. Already, we are paying big money unnecessarily for poor built cars in this country compared to others in the world. To add more safety features would surely means an increase of cost of research & development, manufacturing and production. Can we see cheaper but safer cars if the Government managed to convince car manufacturers that there is a demand for safer cars? You and I know that until we see the AP bullshit abolished in this country and perhaps a fairer treatment between locally made and imported cars, we are not going to see cheaper, safer cars.

And why “it will take a long time before such a law can be approved in Parliament”. Why when the issue at hand is safety and reduction of fatality of Malaysians on the road? Is it because we have too many mindless clowns roaming the Parliament, harping on wrong issues that is facing the country?

If there is lack of enforcement, then look on how the laws can be better enforced and if there is no relevant laws, then look at how the Parliament make the necessary laws. That should be the focus of MIROS in plugging the loopholes that causes Malaysians to continue to drive unsafe cars in this country (we yet to come to education, road conditions in this country, etc). Not by blaming Malaysians (who may not have a say on what kind of car they can afford with their salary range) and sucking up to car manufacturers (who bottom line dictates their business direction).

In the meantime, we probably should add “safe cars” into the list of things to be protested…