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Saturday, March 19, 2011

Liberalisation in the used car market?

The Star Business, Saturday March 19, 2011


Liberalisation in the used car market?

THE issue of Approved Permit (AP) has long been a contentious subject and a target of constant criticisms.
Introduced in 1970, the objective of the AP system was to promote and provide opportunities for bumiputra entrepreneurs in the automotive sector.

Part of the review of the National Automotive Policy (NAP) announced in October 2009 by the Government and aimed at creating a fair, liberal and transparent policy included doing away with the AP system.
A used car dealer in the Klang Valley. ‘Not everyone can afford new vehicles and many also do not want the hassle of paying a car loan,’ says a dealer.
Under the NAP, open APs (which allows the bumiputra holders to import any brand of car from any country) will be scrapped by Dec 31, 2015, while franchise APs (which allows holders to import specific brands and makes from its principal) will be terminated by Dec 31, 2020.

The question is whether this would actually happen. Under the first NAP in 2006, the AP system was supposed to be abolished by 2010.

No political will

However, when the time came to implement it, many believe that the Government buckled under pressure and ended up postponing the termination of the open AP and franchise AP systems to 2015 and 2020 respectively.

“The APs are said to be given away free to the (bumiputra) entrepreneurs to kick-start their businesses, but over the years, many of them ended up selling them to third parties for profit rather than importing cars for themselves,” says a local used car dealer, who wishes to remain anonymous.
At Budget 2010 two years earlier, the Government slapped a RM10,000 fee for the issuance of each open AP.

The RM10,000 charged, meanwhile, would be used by the Government to set up a fund, with the money to be used to ensure smooth and orderly shift of bumiputra entrepreneurs to other business sectors.

“The RM10,000 fee is a burden for used car dealers as it can cost between RM40,000 and RM50,000 (for us) to purchase an AP. Of course if it's a more expensive car, the (AP) cost would be higher,” says the used car dealer.

With the abolition of APs, it would be a “free-trade” system, he says. “That means that anyone would be able to import vehicles.”

A Klang Valley-based used car dealer doesn't believe that a liberalisation of the automotive industry, especially the abolition of APs, will ever happen.
He says although the abolition of the open AP system by 2015 is a good move and sounds promising, he thinks it won't happen given the strength of the lobbyists.

“How can they abolish the APs? If that were to happen, so many bumiputra business people would be affected. You can talk about it, but I don't think it will happen at least not in my lifetime!”

Proponents of APs

The Association of Malay Importers and Traders of Motor Vehicles Malaysia (Pekema) meanwhile, is hopeful that APs will be maintained.

Vice-president Sharifah Noor says bumiputra entrepreneurs that were dependent on APs would be hurt as they had invested considerable sums in the business.

She says the automotive business is its members' main income stream and a springboard for them to venture into other businesses.

“Even though our members have diversified businesses, the cash cow is still the AP business. Removing it (the AP) will affect their other businesses.

“Our members contribute a lot to the Government in terms of import and excise duties as well as sales tax.
“If you don't look after their interests, there will be some impact on the country's economy,” Sharifah says.
Earlier last year, it was reported that Pekema Sabah branch had asked for the review of the (RM10,000) levy charged on open APs to import used vehicles. Pekema Sabah had also requested the Government to review the policy to end the AP system.

Pekema Sabah chairman Rozman Isli says the levy of RM10,000 for the issuance of each open AP is a burden to members, especially during the economic slowdown.
Sharifah says Pekema has proposed to the Government to split payment of the RM10,000 levy into two parts to make it easier for its members.

“The levy has been approved and Miti (International Trade and Industry Ministry) is finalising it with the Road Transport Department,” she says.

Earlier this year, it was reported that Pekema Sarawak had urged the Government to set up the Bumiputra Economic Performance (BEP), a unit akin to the Performance Management and Delivery Unit to specifically plan, implement and monitor the economic performance of bumiputras.

The BEP is expected to be a permanent secretariat and headed by a chief executive officer with ministerial rank who reports directly to the Prime Minister, according to Pekema president Datuk Zainuddin Abdul Rahman.

The structure would allow BEP to oversee matters related to bumiputra economic agenda including overwriting the authority of certain heads of government agencies if needed.

Poser for used car dealers

For dealers of imported used parts, “D-Day” is just around the corner. Under the NAP, the importation of used parts and components will be prohibited from June 2011. Safety and environmental concerns are the main reasons for this policy.

Tan, a Penang-based used parts dealer, believes this policy will cripple the used car business.
“Thousands of players are involved in the used parts business in the country. This policy will kill us.
“But don't just think about the business owners. What about the employees? In the end, there will be hundreds of thousands of people that will be unemployed,” he says.

Tan adds that the Government should conduct a study on the impact before the policy is implemented.
“Banning used parts would also mean that if you have a year 2000 Toyota, getting new parts for an old vehicle would be difficult.”

Chang, a used parts dealer in Kuala Lumpur, says it is a misconception that used parts are less reliable than new parts.  “Cars break down every day. This can range from a new car of three months to one that's been around for a decade.”
Chang says not everyone can afford new vehicles, adding that many also do not want the hassle of paying a car loan.

“Used parts are also more affordable and contrary to popular belief, last a long time,” he says.
According to an article on insurance web portal Malaysia Insurance Online (MIO), imported used parts and components are actually cheaper than those manufactured locally. It also says imported used commercial vehicles also provide cannibalised parts for the industry.

From the insurance industry perspective, MIO says it is not uncommon for claims personnel to tweak part prices when assessing the claims quantum.
“The tweaking is to put in some second-hand or cannibalised parts as replacement for the damaged ones.
“Those used parts are important in scaling down costs for the industry to contain the ever deteriorating loss ratios.”

MIO adds that ultimately, the insured will benefit from the used parts industry.
“While the facts are such, caution should not be thrown to the wind the escalation in theft of motor vehicles is also the result of increasing demand for cheap cannibalised vehicle parts.”


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