Lowering car prices: How serious is the govt?

Deputy International Trade and Industry Minister Hamim Samuri told the Dewan Rakyat that the government has no plan to cut excise duty on imported cars for the time being. How is the BN going to gradually reduce car prices by 20% to 30% in five years as promised in its election manifesto?

The excise duty ranging from 65% to 105% contributes some RM7 billion revenues to the government every year. As the government has to reduce the fiscal deficit, increase the salaries of civil servants in July and continue the BR1M aid, while it is impossible to implement the goods and services tax (GST) this year, International Trade and Industry Minister Datuk Seri Mustapa Mohamed said that the government cannot afford giving up the excise duty.

The government's wishful thinking is to reduce car prices through "market forces", namely to intensify competition in the market, forcing foreign automakers to use more local components to reduce production costs. Moreover, the five-year term is long and they could still develop other strategies if this one fails.

The government has significantly reduced the prices of national cars through Proton Holdings Bhd. The new Saga SV was priced at from RM33,438, about 12% cheaper than the previous model Saga FLX, as an effort to create pressure on other brands in the market.

However, Proton is having a different customer base compared to other brands. Those who buy Proton cars take prices as the main consideration while those buying other brands attach importance to quality. It requires further observation to say whether the price cut of Proton will bring pressure to the market. However, Perusahaan Otomobil Kedua Sdn Bhd (Perodua) has no intention to follow suit.

Its CEO Datuk Aminar Rashid Salleh said that instead of following the footstep of Proton to reduce car prices, Perodua will focus on reducing the burden of car owners.

Even the second national car maker is not going to reduce prices, I believe that foreign car makers would not follow the move either.

Another strategy of the Ministry would be to encourage car manufacturers to use more local components. Using more local components means paying less excise tax. Moreover, they are required to bear also the import duties imposed on important components. Currently, foreign cars are using 30% to 40% of local components while national cars are using up to 80% to 90%.

However, increasing the use of local components might sacrifice quality, and can prices be certainly reduced by making such a move?

The Utusan Malaysia reported on its cover page that the prices of 10 national and foreign car models have been cut by up to 11% this year. Car makers, however, refuted the claim and explained that prices are lowered as pre-festive promotions and stock-clearing are being conducted, instead of because of a price reduction policy.

Since the government has promised to reduce car prices by 20% to 30%, many consumers have shelved their car purchasing plans and wait for price cut. The car sales in April this year had decreased by 8.9% or 5,133 units compared to March and it also dropped by 5.4% or 2,855 units in May. Although some people are patient enough to wait, some others doubt whether car prices would be reduced this year.

Perhaps, the people can wait for the release of the new National Automotive Policy (NAP). However, since there are too many "crying wolf" stories, the expectation should not be too high.

If the government wants to honour its commitments, the most straightforward approach is to change the policy, abolish protectionism and lower the excise tax. How pity it is if it still fails to win applause from the people even after making so many complicated efforts?

- Sin Chew Daily