Expensive cars

Sometime back, I used to ‘whine’ about the expensive cars in Malaysia. But after awhile, I have ‘accepted’ it as a fact of life. But reading Raslan Shariff’s column in the Star last week brought back the ‘emotions’. I reproduce the article here, and click here to go to the origin:

Literally paying to own a car (Raslan Sharif)

A car that of late became a hot topic in the news pages only costs a buyer in the US half what a Malaysian has to fork out.

I’m a big fan of Top Gear. Besides the cool cars, you just have to love the wit of Jeremy Clarkson and Co. They are hilarious. Top Gear is probably the best TV show on cars, and one of the best TV shows on whatever as far as I’m concerned. I have also been buying the magazine since they launched the Malaysian edition some time back. At RM10, it’s cheap, far cheaper than the UK edition. And at that price, it is an unbelievable bargain. You not only get very informative car reviews and interesting features in the magazine, but there are also columns by Clarkson, Richard Hammond and James May (Clarkson’s partners in crime) as well as other writers on the editorial staff to look forward to. From the reviews, columns and features, you learn a lot about the workings of the global auto industry.

When you start to know how cars are made, marketed and sold in other parts of the world, you begin to understand that there are several things that badly need fixing in the local auto sector, primarily because car buyers here are made to literally pay for it. First of all, while Top Gear Malaysia is much cheaper than Top Gear UK, you can’t say the same about car prices here and over there. Take, for example, the new BMW X5. Over here, prices start from slightly less than RM490,000. Over there, it starts from slightly more than £40,000. How much is £40,000 at current exchange rates? About RM220,000.

Let’s take a more down to earth car as an example, say, the Toyota Camry, which can be frequently seen on our streets. It’s a popular car, especially among those who can afford to pay about RM140,000 for a car. In the US, car buyers can get a Camry from about US$19,200. That’s around RM67,700 at today’s rates. The most expensive model in the US, the Camry Hybrid, starts at US$26,150, or about RM92,200.

Why the huge difference between the prices? Why do we need to pay twice the price of what the British and the Americans do for the cars mentioned above? Several factors contribute to Malaysia having some of the highest car prices in the world, and among them are the duties and taxes that the Government levies on cars – whether locally manufactured or assembled or imported. It is a lucrative source of revenue for the Government, as about 500,000 vehicles are sold every year in Malaysia.

More importantly for us, the bulk, if not all, of the cost is generally passed on to Malaysian car buyers.

Now, I understand the need for the Government to generate revenue. After all, there are various public needs that have to be fulfilled. There is also the argument that local car manufacturers need protection before they are ready to compete openly, although I think they have been protected long enough.

But try seeing it from the consumer’s point of view.

Most car buyers pay a small down payment and get a loan to finance the remaining cost of their purchase.The interest-bearing loan pays for not just the actual cost of the car, but for the taxes and duties as well. I know I’ve said this before, but it’s worth mentioning again, especially as there is now talk of doing away with that other bane of car buyers – approved permits (APs) for imported cars.

International Trade and Industry Deputy Minister Datuk Mukhriz Mahathir said that ending the scheme (oh, what a scheme it is) was among the many options being considered to ensure that “any levy or tax should benefit the Government”.
He added that “cost savings, if any, should go to the rakyat”. Although Mukhriz’s mention of taxes benefiting the Government probably puts paid to any hopes that I might harbour of deep cuts in the duties and taxes levied on cars, I’m all for major changes to the AP scheme (better still, end it) if it means the cost savings from doing so “go to the rakyat”.

If this had happened earlier, I probably would have had to pay much, much less for the car I own today. The holder of the AP used to import my car, bought about two years ago, had very little to do with the making, transporting, marketing and selling of the car. And it kind of gets to me pretty badly that part of the loan I took to pay for the car went to the AP holder as payment for what is supposed to pass for “effort”.

At least the Government uses my money to build roads, schools and hospitals. I’m looking forward to Mukhriz’s announcement on the APs, and I have a feeling that it would be one that would put a bit of a smile on the faces of those who sell and buy cars. Maybe, someday, we’ll see a serious reduction in duties and taxes on imported cars, and be able to do more than just drool at the prices people overseas pay for their cars.

In this article, Raslan compared the absolute value of the cars. For example, a Camry in Malaysia costs RM140k, while is US it’s USD19.2 multiplied by exchange rate, say 3.6 becomes about RM69k (car price are referring to article above, I didn’t doublecheck), which is already half. What he didn’t compare, but I think is still relevant to the picture, is income per capita. A fresh grad engineer earns about RM2k per month, while a fresh grad in US also earns about the same, but in USD! So while a Camry costs the Malaysian engineer her 70 months salary, it only costed her US counterpart about 10 months salary. It’s absolutely feasible to buy a brand new Camry in cash (while over here 10-year car loans are norms). This of course, does not take into account the different tax systems, for example, and other things like health and education benefits, maybe. Still. We’re taxed heavily on our cars. Is it fair? Well, gain some, lose some, I suppose. At least, the new DPM recognizes that our income per capita is low and has some suggestions to increase it, at least for certain groups of people. I don’t know much economics, but things like this won’t take two or three years. It’ll take decades. But it’s a start, anyway.