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Saturday, October 31, 2009

Coming to grips with APs. By IZWAN IDRIS

As promised, another well written article from Today's The Star Business. Article 2 of 3.

SOURCE: The Star, STARBIZWEEK

Saturday October 31, 2009
Coming to grips with APs
By IZWAN IDRIS


THE Approved Permit (AP) system to import cars into the country is often a contentious issue, one that even the Government seems to be having a hard time getting rid of.

Abolishing the well-entrenched system means taking on a group of wealthy bumiputra businessmen, whose strong ties to the political elite makes them formidable opponents.

On the other hand, the general perception is that the AP system is riddled with abuses. And the suspicion seems to be validated by facts.

Recent audits by the International Trade and Industry Ministry (Miti) have come up with the conclusion that a number of AP recipients continue to “misuse and abuse” their allocations.

Minister Datuk Mustapa Mohamed confirmed that some AP holders sold their car import permits to third parties for quick profits. However, he did not elaborate on this. Meanwhile, a check with several re-conditioned car dealerships in Klang Valley yielded claims that forgery of AP documents still goes on.

According to Mustapa, some companies have had their AP allocations for 2009 slashed based on recent audit findings due to various reasons. He added that while no new AP application would be entertained, future allocations would take performance into consideration.

The ministry, however, gave no details on the number of APs issued so far this year and to whom they were given.

In fact, the last time a full list of AP recipients were made public was in 2005, following a huge debate over the issue. That year, names like the late Tan Sri SM Nasimuddin SM Amin of Naza Group, Datuk Syed Azman Syed Ibrahim of Westar Group and a few others made headlines due to the huge amount of APs given to them.

U-turn

The National Automotive Policy (NAP) was first introduced in 2006 and one of the key aims was to abolish the AP system by 2010. But on Wednesday, when announcing the review of the NAP, the Government pushed the deadline to 2015 for open APs, while the franchise AP system will continue to be in place for another decade.

The move to postpone the abolishment of the much maligned AP system was not totally unexpected.

On Oct 23, in presenting his first budget, Prime Minister Datuk Seri Najib Tun Razak said the Government would start imposing a RM10,000 charge for every open AP awarded from next year onwards.

This may be the AP holders’ only concession in exchange for the extension announced on Wednesday by Miti.

“Finally, closure on this issue, hopefully,’’ said Maybank Investment Research head Andrew Lee in his take on the AP system’s new deadline.

The system was introduced in the 1970s as part of a strategy to encourage bumiputra participation in the automotive industry.

In its current form, the so-called open APs are given to bumiputra entrepreneurs to import any vehicles from overseas, while car distributors are given franchise APs, which are restricted according to models and brands.

Miti’s data showed that the number of companies that are eligible for AP allocation stands at 98 today, compared to 254 in 1987.

According to Miti officials, the number of APs issued are limited to 10% of the total industry volume (TIV) recorded the previous year. It is a sort of import control for foreign vehicles sold in the country.

Assuming that the TIV this year will match the Malaysian Automotive Association (MAA) target of half a million units, about 50,000 APs can be issued next year. Of this amount, 60% will be allocated for open APs, while the rest as franchise APs.

The Government’s plan to sell the open APs – they were given free in the past – will contribute as much as RM300mil in revenue every year for the next five years.

A portion of the money will be channelled into a fund to help bumiputra car dealers wean off their dependence on APs.

“It is extremely lucrative and risk-free ... It is easy to see why (AP holders) will not give up the business,’’ stockbroker Kenanga Research said in a recent update issued after the NAP review. The firm estimated that open APs has a “street value” of about RM40,000 each.

Most of these AP holders purchase used cars in overseas markets – the current hot models are the Japanese MPVs – which are then sold here as re-conditioned cars at a good margin.

Post 2015, after the abolishment of open APs, will the quota for AP issuance remain at 10% of TIV? Will the open APs be converted into franchise APs in the period leading to 2020?

One sure thing is that demand for imported cars will remain. Given the capital accumulated over the years and the expertise and network built up, open AP holders can easily transform their business and become official distributors.

The Naza Group is the most well-known among the existing crop of AP holders to have taken this route. Westar is another example.

Today, control of the Naza group remains with Nasimuddin’s family. Over the years, the group has built up its empire to include property and construction, as well as in food and beverage. But the group’s bread-and-butter business lies firmly in its automotive roots.

Another of these so-called AP Kings, Weststar Group, had in June aborted a plan to acquire a British-based van maker LVD Group Ltd. Like Naza, Westar’s car showrooms are situated at prominent locations around the Klang Valley area.

While the two firms were often cited as proof that the AP system had actually work, what about the rest? But the real question to ask is whether an open tender system would be a better alternative?

The deadline for the dismantling of the AP system is a long way off. It was put off before, and it may possibly continue to haunt policymakers for a long time."

END OF SOURCE.

REFERENCES:
1) http://biz.thestar.com.my/news/story.asp?file=/2009/10/31/business/5007860&sec=business


That's all folks, thanks for having the time and patience to read this interesting, neutral (politically-correct), well-written article...

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