Published November 4, 2009

NEWS ANALYSIS
M'sia's new car policy takes cautious route

Phasing out car import licences a right move but likely to meet resistance

By S JAYASANKARAN
IN KUALA LUMPUR
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MALAYSIA's National Auto Policy (NAP), which was unveiled last week, has been described by analysts as a step in the right direction although it's likely to draw the ire of quite a few industry players.

The biggest attention grabber was the revelation that approved permits (APs) - auto import licences - would be phased out in stages and abolished by 2015. AP holders would also be audited twice a year to weed out non-competitive players. APs have drawn criticism in recent years as the licences are free and virtually riskless as each can be on-sold to importers for instant cash. In addition, not many holders have built up solid businesses. 'We are disappointed that the government is extending the system as the AP holders were not genuine in diversifying their businesses,' Kenanga Research noted in a recent report.

But such is the political clout of these businessmen - mostly members of the dominant United Malays National Organisation - that APs, originally scheduled to be abolished in 2010, have now been extended to 2015. Even so, their impending abolition has infuriated many businessmen who are likely to actively lobby the government for a longer extension.

Kuala Lumpur had kept import duties for completely built up units at 5 per cent. The tariff, Kenanga noted, 'is non-compliant' with regional agreements between the original Asean Six which promises zero duties by January 1, 2010.



However government officials told BT that Malaysia would honour its commitments to the agreement and that the tariff would fall to zero on Jan 1, 2010.

Would it work? Possibly, said MIDF Research. Nope, said Kenanga, 'we do not see any economic sense for the principals to make such a move as the luxury car market is only 7-10 of total volume.'

Even so, the new policy is a measured, albeit cautious, approach to ensure a more competitive landscape for industry players. Going forward, it could also ensure the sustainability of the domestic industry. Other positives include a new emphasis on health and safety standards. On the latter, Kuala Lumpur will prohibit the import of used components from June 2011 and phase out the import of used commercial vehicles effective January 2016. The move will impact the used car and auto repair trade - mostly small Chinese businessmen - severely and make car parts more expensive for consumers.

Kuala Lumpur also boosted the fortunes of vendor manufacturers further by dishing out incentives - pioneer status and investment tax allowances - to high value-added parts' makers. The move, said Kenanga, could enhance Malaysia's attractiveness as a regional research and manufacturing hub.

The government finally proposed a tentative End-Of-Life vehicle policy: beginning next year, all cars above 15 years will have to pass roadworthiness tests to qualify for road tax renewal.

This appears to be a cautious, exploratory move as an outright ban would cause a massive political backlash: there are 2.7 million cars in Malaysia which are over 10 years old.