Why Malaysian Car Prices Remain Sky-high? And What Ought To Be Done?

Why are we not surprised? Why are we not complaining more when the status quo remains? As expected, domestic car tariffs have been kept at—absurdly high—current rates. With all the duties and taxes in place still, car prices will remain unchanged. Any price cuts will have to come from the automotive industry players, according to the government—which is akin to leaving you in the lurch amid a life-threatening situation and telling you to save yourself. This might sound harsh, but Malaysians should not have to shoulder the burden of keeping the local automotive industry alive.

Of course, keeping the tariffs does more than just protect the local automotive players from keen competition, it contributes to the government's coffers as well—to the tune of an estimated RM 6 billion to RM 7 billion annually. This revenue stream proves to be essential at a time of budget deficits. Indeed, when speaking to the press about the National Automotive Policy (NAP) review, International Trade and Industry Minister Datuk Mustapa bin Mohamed said the tariffs are key “revenue sources for the Government”, hence the final decision to keep the tariffs intact.

So, how is Malaysia going to comply with the Asean Free Trade Area (AFTA) agreement? Which requires Malaysia to eliminate any import duty for CBU (Completely Built Up) vehicles manufactured in the Asean region before Jan 1, 2010. Like before, the import duty would be lowered, but excise duty would be raised by the same margin—effectively rendering the AFTA useless. Pulling down a wall, while erecting another equally tall one does not equate liberalisation.

Mustapa talked about “a more competitive industry and freer market”. But surely he has noticed that the tariff structure creates an uneven playing field between local and foreign automakers, one that keeps higher quality cars, such as from Honda and Toyota, out of the reach of many Malaysians, one that has existed for perhaps too long?

It is a fact that competition will result in improvement. The government knows that. They just need the political will to make the necessary changes. Tariffs should be lowered gradually, giving local automotive players time to adjust, urgency to improve. Car prices will come down as a result, and Malaysians will be able to shop from a wider range of cars available at lower prices.

If that does happen, more disposable income will be freed up to boost the local consumer market; for now, Malaysians spend too much of their monthly income servicing their car loans. To address the budget deficits, the government should implement all-round GST (Goods and Services Tax) as soon as possible, instead of relying heavily on excise duties.

A lot on this issue has been said. Plenty of more efficient ways forward have been discussed. Mal