This article by SM Nasarudin SM Nasimuddin was published in the New Sunday Times on July 29, 2012.
THE Malaysian automotive market's recovery continued last month with a
year-on-year 35 per cent increase in volume to 50,067 units. June was
the second straight month of growth in the industry, which had been in
decline for the first four months of the year.
More importantly, the total industry volume (TIV) for the first half
was 1.35 per cent higher than the corresponding period last year. A big
factor in the higher volume in May has been the resumption of production
at Thailand's automotive plants which were affected by the devastating
floods last year.
Thailand's auto industry revival, which follows Japan's post-tsunami
recovery in the industry, has been contributing positively to the global
automotive market. Several reports noted that global auto sales last
month reached 41.5 million units, up 5.9 per cent from the same period a
year earlier. Toyota Motor Corp has also reclaimed its position as the
world's largest car maker.
Back home, of late, there has been plenty of debate on approved permits
and the reduction of taxes for cars. While much of this debate has
taken a political tone, one thing cannot be denied: car prices in
Malaysia are higher than many other countries as a result of the high
Naza Group has benefited from affirmative action policies put in place
by the government through its New Economic Policy. With the support from
the government, Naza now employs about 4,000 people directly, and
double that figure indirectly through vendors. In terms of manpower
management, our academy in Gurun, Kedah, trains staff in technical and
management courses. We have been improving corporate governance to
ensure transparency. Key performance indicators have been set so we can
measure and improve our performance in all areas.
In the course of expanding over the years, we have come in contact with
several auto makers from Europe, North America and South Korea. We've
learnt from the best practices of our principals, applying these to the
Malaysian market successfully and they are now encouraging us to enter
into markets which are underserved. It's encouraging to look back and
see how we've progressed from being an auto trader to the franchisee of
several brands, to a manufacturer and exporter.
More than 35,000 lives are directly affected by what we do. We
contribute to consumer spending, business investment in the country and
the automotive trade balance through exports. All these are factors
which affect the country's gross domestic product. We can't run away
from the fact that people have abused the system, but it would not be
accurate to say that the system failed in the case of legitimate
businesses which resulted in job creation, domestic business investment
It is true that lower car prices would increase the disposable incomes
of car owners and lower their debts. Higher disposable incomes would
increase private consumption, which in turn would boost the gross
Unfortunately, one key point that seems to be missing in the debate is
the effects an immediate, outright removal of car taxes would have on
Here's an example: consumer A purchases a car for RM80,000 with 90 per
cent (RM72,000) of the payment made through a hire purchase loan. A
month later, taxes on all cars are reduced and that same car is now
priced at RM50,000. As a result, the resale value of the car has
plummeted but the amount owed to the bank remains the same. As such,
should A decide to sell his car and buy a new car, he would still have
to fork out an extra RM22,000 to pay off his debt. He would most likely
put off selling his car.
This scenario transpired the last time car taxes were reduced in 2006.
As a consequence of the lower taxes, the used car market tanked and
brought down the sale of new vehicles. The TIV in 2006 fell 11 per cent
to 490,768 units. In 2007, it contracted by a further 0.7 per cent to
It took two years for the market to correct itself. It is important to
note that this was the effect of a minor reduction in car taxes. Imagine
what the effects would be if there is an immediate, outright removal of
Many say that the biggest losers in 2006 and 2007 were the automotive
companies but I believe the real losers were the consumers, many of whom
inevitably had to come up with extra cash to pay off their loans to
sell their cars. Ultimately, while a debate on reducing car taxes is
much welcomed, there are a lot of questions that need to be addressed
and the consequences of such measures must be taken into consideration
so as not to hurt Malaysian consumers.